Equity markets mostly declined in December 2011, but most were still up from their September 2011 lows. However, performance for the full year was disappointing, with European sovereign debt challenges, and banking system concerns weighing on sentiments. The US clearly diverged in terms of equity market performance from the rest of the world, with investors taking comfort that both the economic outlook and corporate earnings are showing relative strength compared with the rest of the developed world.
In December, TOPIX ended flat at 728.61 versus a month ago. US economic indicators showed some positive signs but risk aversion remained elevated due to intensification of the Euro zone debt crisis. In Japan, the Diet approved the third supplementary budget, and the DPJ is now enacting a fourth supplementary budget. The latest development, while positive, was widely expected, and hence did not lift the market.
Asian equity markets rose during the month amid modest expansion in the US economy and on concerns over the continuing debt crisis in Europe. On the global front, the US Federal Reserve reiterated the policies announced in the previous statements and no further new easing measures to stimulate the economy. In Asia, the uncertainty and slowdown in the external environment took a toll on economic growth with exports moderating. In view of the uncertainty in the global outlook, most Asian countries kept their benchmark rates on hold in December.
Equity markets fell again in November following a brief respite in October as investor concerns over the Euro fiscal crisis intensified. Market sentiments continued to be driven by the perceived ability of policy makers to devise a plan to resolve the European sovereign debt and banking system problems.
In November, TOPIX ended at 728.46, 4.66% lower than a month ago. Risk aversion was elevated as the Euro zone debt crisis intensified. There are now concerns that the crisis will spread from Italy and Spain to France. In Japan, corporate earnings continued to be revised downwards due to the slowdown in the overseas economies, the yen’s strength, and the flooding in Thailand; and this in turn weighed on the equity market.
Asian equity markets fell during the month on concerns over the uncertainty of Europe's sovereign debt crisis and slower growth in China and the US. On the global front, the US 3Q11 real GDP was revised down to 2.0% from 2.5% on a sharper inventory drawdown. Furthermore, the US fiscal situation got off to a bad start with the bipartisan super-committee‘s failure to reach an agreement on the US$1.2 trillion in federal budget savings. The HSBC flash manufacturing PMI for China dipped to 48 in November, its lowest reading since March 2009.
Equity markets recovered strongly in October following the sharp falls registered in September and August. Changes in sentiment linked to plans to contain the European sovereign debt crisis continue to influence both credit and equity markets. The rally in October that was supported by expectations that policy makers and creditors had been getting close to a workable and durable solution.
In October, TOPIX ended at 764.06, marginally higher versus a month ago. While risk aversion remained elevated, the equity market stabilized as concerns of an economic slowdown in the US receded, expectations grew that monetary authorities in the emerging economies would loosen their policies, and a comprehensive agreement will be reached to address the fiscal problems in Europe. Selected sectors and stocks that had weak returns the past three months out-performed.
Asian equity markets rose during the month amid stronger economic data in the US economy and the Euro zone’s latest plan to resolve its sovereign debt crisis. On the global front, US 3Q GDP grew sequentially, reflecting strong positive contributions from personal consumption expenditure and non-residential fixed investment. European leaders agreed on plans to expand a bailout fund and private creditors agreed to a voluntary write-down of 50% on Greek debt. A surprisingly strong preliminary reading of China’s HSBC PMI for October, which rose to 51.1 from 49.9 for September also helped to boost the market. In Asia, while growth has moderated amid weaker external demand, domestic economic activity continues to provide strong support to growth momentum.
The ongoing debt crisis in Europe shows little progress in the governments' efforts to contain the problem. Greece's political in-fighting continues which threatens the release of the bailout tranche payment. But an even bigger problem is brewing. There is now a growing concern that Italy, which represents an even greater systemic risk both to Europe and the world economy, would soon have difficulty accessing the capital market if the government bond yields continue to escalate. This article examines the implications of this development.
The European leaders had initially planned to unveil a clear action plan to their counterparts at the G20 Summit on November 3-4th in Cannes, France so as to seek support to help overcome Europe's debt crisis. But Greece's surprise decision to hold a confidence vote followed by a referendum threatened to derail the entire rescue plan. Although the referendum has since been called off, Greece's move will affect Europe's credibility to achieve a positive outcome. This report assesses these developments and the read-across to the financial markets.
Equity markets posted further declines in September on continued concerns over the European sovereign debt issue and renewed fears about the solvency and funding position of European banks. Key economic indicators started to soften into the summer months, while leading indicators across most key regions concurrently pointed to weaker growth ahead. European markets fell further in September as did Emerging markets, due to their sensitivity to a changing growth backdrop.
TOPIX fell 2.8% month on month to 761.17, as investor risk aversion festered in September, reflecting concerns about the European debt crisis and a slowdown in the US economy. The Fed's announcement that it would implement “Operation Twist” did not allay concerns, as the Fed's comments about weak prospects for the economy dampened sentiments. The market recovered slightly towards the end of the month due to moves to strengthen the functions of the European Financial Stability Facility (EFSF).
Asian equity markets were volatile on concerns about the global economy with increased downside risks on the US economic outlook and the fiscal crisis in Europe. The announcement by US Fed to extend the average maturity of its securities holdings (popularly known as “Operation Twist”) failed to lift investor sentiment. Moody's downgrade of three large US banks also contributed uncertainty on the global front. In Asia, while growth has moderated amid weaker external demand, domestic economic activity continues to provide strong support to growth momentum. Given the concerns of the global economy, most Asian countries kept its benchmark rates on hold in September.
On 9 October 2011, Germany and France agreed to deliver a plan on 3-4 November (as part of G20 Summit) to tackle the worsening sovereign debt crisis. The main aim of the plan is to help insulate the European banking sector from the repercussions of a Greek debt restructuring amid spreading sovereign contagion risk. This article examines the investment implications of the plan.
In recent weeks, the financial markets saw a renewed bout of volatility on fresh spate of bad news out of the Euro zone and United States (US). Since last month, investors globally were spooked by talk that Greece may be booted out, and the repercussions that would have on some major European banks, most notably BNP Paribas and Societe Generale.
Equity markets declined sharply in August on renewed concerns over global growth and heightened risk aversion due to the European sovereign debt issue. Key economic indicators started to soften into the summer months, and leading indicators across most key regions concurrently pointed towards weaker growth ahead. Meanwhile, the debate on how to deal with debt problems in the European periphery continued to dominate the headlines and affected confidence. European markets fell sharply in August as did Asian markets, due to their sensitivity to a changing growth backdrop.
TOPIX plunged 8.4% to 767.14 in August. Sentiment continued to deteriorate globally, leading to a sharp sell–off in risky assets. Standard & Poor's downgrade of the US' AAA rating, the release of weak US economic data, and renewed concerns over Europe's financial problems ignited recessionary fears. Share prices of Japan equities also weakened because of the yen's appreciation against the US dollar. At one point on 19 August, the Y/U$ rate reached its lowest level since World War II, at 75.95.
Asian equity markets fell sharply on concerns about the global economy with increased downside risks on the US economic outlook and the fiscal crisis in Europe. Standard & Poor's (S&P) downgrade of the US long–term sovereign credit rating by one notch from AAA to AA+ and earlier political wrangling over the US debt ceiling contributed to uncertainty on the global front. The Federal Reserve announced that it would keep the US Federal Funds Target Rate at 0–0.25% and the ultra low policy interest rate could be held through mid–2013. In Asia, while growth has moderated amid weaker external demand, domestic economic activity continues to provide strong support to growth momentum.
We are updating our 12–month target price for physical gold to US$2,300/oz. This revised target price is equivalent to the Consumer Price Index(CPI)–adjusted high of US$850/oz reached in January 1980 and is within the US$2,000–2,500/oz target range that leading investment banks are currently revising their gold price targets towards.
Equity markets ended moderately down during the month of July. Indeed, markets started to pull back sharply into the final week of the month due to renewed concerns over economic growth and due to reduced visibility about corporate profits. Once again, the withdrawal of stimulus added volatility as the Federal Reserve's QE2 program lapsed in June, and both economic outlook and earnings expectations started to deteriorate shortly thereafter. Adding to market concerns was the debt ceiling issue which intensified as well as the need to restructure and impose haircut Greek debt. A post mortem of both suggests that neither is a durable solution to what are still formidable policy challenges.
TOPIX closed lower by 0.92% at 841.37 in July. The Japan equity market started the month on a bullish note due to receding fears over the Greek debt crisis and improving US economic indicators. However, sentiments took a turn in the middle of the month due to disappointing US employment data and renewed concerns over Europe's financial problems. Share prices of Japan equities also weakened because of the yen's appreciation against the US dollar, and the slow progress on US debt ceiling talks.
Asian equity markets were choppy as risk aversion returned on the back of heightened Euro zone contagion concerns and uncertainty about the possibility of a US debt default or credit rating downgrade. On the global front, the Federal Reserve disappointed the markets as it would not embark on any renewed quantitative easing, quashing hopes of QE3 in the near term. In Asia, while growth has moderated amid weaker external demand, domestic economic activity continues to provide strong support to growth momentum.
The gold price has moved above US$1,700/oz and is close to our December 2011 target price of US$1,750/oz.We expect the gold price to stay elevated, as the World Gold Council is expected to report strong 2Q11 Chinese & Indian retail investment demand figures next week. Thus far, gold equities have yet to re–rate with the gold price even though 2Q11 operating margins remain near record levels. In fact, operating margins are well above the levels seen in previous periods when gold equities had de–rated. We believe that the catalyst for the gold equities re–rating will be an upward revision in analysts' gold price forecasts.
Given the recent changes in macro–environment, we will be revising our asset allocation to downgrade Equities to underweight and raise Fixed Income to slight overweight. We retain our overweight recommendation in gold. Within Equities, we overweight US stocks versus Emerging Market (“EM”) equities. Within Fixed Income, we overweight EM corporate credits.
While equity markets ended the month of June only marginally down, that masked a significant correction experienced during the month. During the first half of the period, concerns revolved around the broad–based weakness in economic data, the resurgence of concerns over the peripheral Europe and the end of QE2. By the last week of June, sequential better than expected manufacturing data, notably out of Japan and US provided relief to the equity markets.
TOPIX rose 1.28% to 849.22 in June. The Japan equity market was weak for most part of the month due to concerns about the economic slowdown in the US and the Greek debt crisis. However, it rebounded during the last week of the month after the Greek austerity package was approved, which gave a sense of relief that a default by Greece might be avoided.
Asian equity markets were volatile during the quarter as risk aversion returned on the back of renewed concerns over sovereign credit risks of peripheral European countries and weaker–than–expected recovery in the US. The Federal Reserve kept its ultra–low interest rate policy unchanged, but lowered its US growth and unemployment outlook. Also, inflation forecast was revised higher but still remained benign.
Market Commentary (13 Jul 2011) – China Rate Hikes ending as Price Pressures Peak
Over the weekend, China reported that its consumer price index for June rose 6.4 per cent from a year earlier, slightly above economists' forecasts for a 6.3 per cent increase, with sharp rises seen in food, consumer goods and property. In fact, it is likely that the higher–than–expected CPI inflation was a main reason behind the 25 basis point rate hike last week, as the People's Bank of China sought to tame inflation expectations ahead of the CPI release. The latest figures showed that food prices, and in particular the pork price, continued to be a source of consumer price inflation.
Puea Thai secured a resounding victory at the Thai elections on 3 July 2011, winning a majority of 265 seats in Parliament out of 500, compared to outgoing Prime Minister Abhisit Vejjajiva's Democrat Party 159 seats. Within 30 days, Parliament should convene to select the House Speaker, who will then nominate the candidate for Prime Minister who is most likely to be Yingluck Shinawatra, Thakin's sister. The strong mandate won by the Puea Thai is a short term positive for the market as a strong government is preferred to a power struggle between opposing camps if there is a narrow margin of win.
Thailand will hold its general elections on 3 July 2011. At present, Prime Minister Abhisit Vejjajiva's Democrat Party leads the government in a coalition of seven parties, although they have fewer seats than the largest party Puea Thai, linked to fugitive ex– Prime Minister Thaksin Shinawatra. We are short term cautious in Thailand ahead of the elections, as we view the election results too close to call. While we like valuations of Thai banking and property sectors on a fundamental basis, political risks may weigh on performance in the short term.
On 15 June, China's central bank took the market by surprise by raising its reserve requirement ratio (RRR) by 50 basis points, demanding that banks keep a record 21.5 per cent of their deposits in reserves. This marks the sixth RRR hike so far this year, and the aim is primarily to sterilize foreign reserves as a result of its strong currency, but also to curb lending and quell run–away prices. However, we believe that the PBOC is not likely to over–tighten as Beijing is just as concerned about growth and employment.
Equity markets declined in May as concerns over the peripheral Europe resurfaced, while economic data rolled over. Investors became preoccupied with trying to distil the effect of the Japan earthquake and tsunami from the softening of other broad indicators. Consequently, Europe and the more cyclically exposed markets including EMEA and Australia registered the sharper declines. All regions posted negative returns in US dollar terms in May.
TOPIX fell 0.8% to 838.48 in May. The rebound in equity prices proved to be short–lived as the market came under renewed selling pressure on concerns over a clouded outlook for the US economy, the European fiscal crisis, and a slowdown in emerging economies. In addition, a decline in international commodity prices triggered selling of resource–related stocks. Depreciation of the Yen towards end–May capped the market's losses.
Asian equity markets were choppy on renewed concerns over sovereign credit risks of peripheral European countries and weaker–than–expected recovery in the US. However, the markets managed to recover some losses in the later part of the month amid speculation that the ECB, IMF and various EU governments will provide additional aid to Greece. In Asia, while growth has moderated on weaker external demand and on the impact of Japan supply disruptions, domestic economic activity continues to provide strong support to the growth momentum. On the global front, the Federal Reserve confirmed that it would end QE2 at end June 11 and the Fed funds rate would be kept around zero for an extended period.
Equity markets bounced back strongly in May after the sell–off in April due to the Japan earthquake and tsunami. All markets, with the exception of Japan, were in positive territory for the month of April in US dollar terms. In fact, Europe showed the sharpest increase followed by Australia. Japan suffered due to ongoing concerns arising from the Tokyo Electric Power nuclear crisis in Fukushima, and broader economic disruption.
TOPIX fell 2.02% to 851.85 in April. The Japan market continued to be weighed down by the crisis at the Fukushima nuclear plant, and clouded corporate earnings outlook. The appreciation of the Yen during mid–month also dampened sentiment. The market subsequently rebounded as certain manufacturing plants affected by the disaster resumed operations, and several US companies announced robust earnings results.
Asian equity markets rose on the back of the Federal Reserve renewing its pledge to stimulate growth by keeping the funds rate unchanged at 0.25–0.00%. In Asia, growth was well supported by the robust domestic demand and a resilient financial sector. While Asian export growth moderates, the overall economic conditions in the region should stay firm. We continue to expect rising inflationary pressures, underpinned by robust domestic demand recovery against the backdrop of elevated global commodity prices. Inflation is a global phenomenon and following the European Central Bank's interest rate hike, we expect further monetary tightening in the US and Europe as well as Asia.
In September 2010, Fed Chairman Ben Bernanke indicated his intentions to deploy a second round of Quantitative Easing (“QE2”), triggering sustained equity market rallies (S&P500 has moved up about 30% since his comments), and improved economic outlook.
Last week, Mr Bernanke confirmed that the QE2 programme will end in June 2011 and a third round of quantitative easing is off the table for now. We think that the end of QE2 does pose clear risks to bond and equity markets. However, in and of itself, it will not stall the US recovery.
Asian equity markets were volatile for the month on ongoing concerns about the unrest in Middle East, soaring global oil prices as well as the impact of Japan's earthquake in March which threatened to escalate into a nuclear disaster. Rising oil prices due to tensions in the Middle East may pose a risk to inflation and slowdown the momentum of global economic recovery. Some central banks in Asia tightened monetary policies further in order to contain the growing inflationary pressures driving by high commodity and food prices.
Developed equity markets fell in March after starting the year on firm footing. A massive 9.0–magnitude earthquake struck Miyagi Prefecture in Japan, triggering a major Tsunami that left widespread damage. Damage to nuclear reactors in Fukushima compounded the challenge. Japan equities fell by 10% in March. Conversely, Emerging Markets rebounded strongly in March, as investor concerns over inflation abated due to the crisis in Japan. MSCI Asia (ex. Japan) was the best performing region, followed by MSCI EMEA.
TOPIX fell 8.61% to 869.38 in March. The Japan equity market started the month on a fairly strong note due to expectations of a rebound in the US economy. However, political instability in the Middle East and rising crude oil prices weighed on the market. Stocks plunged sharply after the earthquake struck the north–eastern part of Japan on the 11 March.
The CNH bond market refers to the offshore Renminbi bond market in Hong Kong. Also known as the “dim sum” bond market, this nascent but rapidly developing market has caught the attention of many issuers interested in issuing offshore Renminbi (“RMB”) debt and investors, both institutional and retail, wanting to get exposure to RMB. In this article, we will examine the reasons behind the development and growth potential of the CNH bond market.
Asian equity markets fell in February as risk aversion returned on the back of tighter monetary policy in China and ongoing series of protests occurring in the North African state of Libya against its government and head of state. The biggest implication to the markets is the threat of a disruption in oil production resulting in a surge in oil prices.
Developed equity markets continued to push higher in February, although emerging equity markets fell. The MSCI AC World Index rose by 2.8%, while the MSCI World Index rose 3.3%, measured in US dollar terms. MSCI Europe was the strongest region, up 3.8% in that month.
TOPIX rose 4.53% to 951.27 in February, due to stronger–than–expected US economic data, the yen's depreciation against the dollar, and the release of good corporate results. In the latter part of the month, crude oil prices surged on concerns that greater tension in Libya would spread to other oil–producing nations, causing the market to correct. Stock prices subsequently rebounded as crude oil prices stopped rising towards the end of the month.
At 2:46pm on Friday, 11 March 2011, Japan was hit by a devastating earthquake. The quake registered 9.0 in magnitude, the largest in Japan's recorded history. Preliminary estimates place economic losses in the range of ¥4 trillion to ¥6 trillion (US$50 billion– 75 billion). There is no change to the Firm's equity asset allocation to Japan. We were underweight on Japan before the earthquake, due mainly to concerns over the strong Yen and of higher energy and input prices and perceived risk of margin pressures.
Asian equity markets were mildly positive in January as 4th quarter US GDP rose 3.2% on the back of resilient consumer and business spending. In the first FOMC meeting in the US, monetary policy was kept unchanged as expected.
Monthly Market Commentary (February 2011) – Global Markets
Developed equity markets continued to push higher in January, although emerging equity markets fell. The MSCI AC World Index rose by 1.5%, while the MSCI World Index rose 2.2%, measured in US dollar terms. MSCI Europe was the strongest region, up 3.8% in that month.
TOPIX rose 1.26% to 910.08 in January. The Japan equity market began the year on a strong note, due to favourable macro factors such as improvement in US economic indicators and the yen's depreciation against the dollar. However, in the latter half of the month, stock prices corrected because of concerns about China's monetary tightening, and heightening geopolitical turmoil in the Middle East.
Equity Market Commentary (7 February 2011) – Unrest in MENA
In recent weeks, violent protests have rocked Egypt, with demonstrators demanding the ouster of the country's strongman Hosni Mubarak. The protests predictably rattled Egypt's financial markets, even though responses across the other markets were fairly muted. Meanwhile, oil hovered above US$92 as the power struggle there raised the risk of disruptions to Suez Canal – a major shipping lane for oil tankers to Europe and North America.
Asian equity markets were up for the month as Asian economies continued to lead the global recovery, with many of its economies posting strong growth in the third quarter of the year, driven by domestic demand. In most of the Asian economies, the strengthening currencies have helped to fend off pressure on consumer prices.
Monthly Market Commentary (January 2011) – Global Markets
Equity markets rebounded strongly in December. The MSCI AC World Index rose by 7.2% in December and ended the year up 10.4%, measured in US dollar terms. Developed Markets rose by 10%, while Emerging Markets were up by 16%. After falling sharply in November on concerns of public sector debt, European markets led the rebound.
Monthly Market Commentary (January 2011) – Japan market
TOPIX rose 4.4% in December. Stronger–than–expected US economic data, extension of Bush–era tax–cuts in the US, and depreciation of the yen lifted investors' sentiment. Towards month–end, the yen appreciated on renewed concerns over Europe's fiscal problems, and fears of additional monetary tightening in China, capping gains. TOPIX ended the year marginally below the 900 level..
Asian equity markets were down in November as risk aversion rose on renewed concerns on Europe's sovereign debt woes, China's aggressive tightening moves to ease inflation and fresh tensions on the Korean peninsula.
After posting strong gains in September and October, stock markets pulled back in November following renewed concerns over public debt in the Euro zone. The MSCI AC World Index fell by 2.4% in November, measured in US dollar terms. All major regions are now in positive territory for the year.
TOPIX rose 6.2% in November. Stocks rebounded and rallied after the US Fed announced an additional monetary easing plan. Buying was also buoyed by better–than–expected US economic data, an increase in US long–term interest rates, and the yen's depreciation against the dollar.
Credit turmoil in the Euro zone has once again come to the fore, as financial markets fix their attention on the rapidly deteriorating public finances in Ireland. The flashpoint this time around is the staggering €45 billion that the Ireland may incur as it tries to shore up the country's crippled banking system.
Asian equity markets rose as corporate earnings released in October beat expectations, thus boosting investors' confidence. Although the strength seen in regional currencies means that Asian export growth could moderate, the drag should be mitigated by the rapid acceleration in private consumption and moderation in capex spending.
Thanks to strong earnings performance, equity markets continued to post gains last month in spite of the mixed operating environment. For example, the MSCI AC World Index rose a further 3.5% in October on top of the 9% surge in October, measured in US dollar terms
The effects of a strong yen weighed down on Japanese stocks last month, and resulted in the TOPIX falling 2.24% to close at 810.91. The retreat came despite the BOJ's stronger–than–expected easing measures, and talk of US liquidity easing measures.
The markets expected it. Therefore, when the US Federal Reserve finally announced the second round of quantitative easing (“QE2”), the response from US markets was fairly muted, while concerns over economic prospects continue to linger.
On 19th October, China announced that it would raise the lending and deposit rates by 25 basis points, effective from 20th October – marking the first time it has done so since end 2007. Predictably, the market greeted the news with surprise, as the People's Bank of China (PBOC) had recently reiterated that alternative tightening measures were working well, after having raised reserve requirement ratios and enforcing loan quotas over the course of 2010. We are positive on the move, as it signals confidence in the economic recovery and helps to curb inflation before it becomes a problem.
On 18th October, the Chinese Communist Party leaders concluded their annual four–day meeting in Beijing and issued a set of guidelines for China's 12th five–year plan over 2011–2015. This is an important document since it sets out the economic and social targets for the country. Under the previous 11th five–year plan, the government had over–achieved on gross domestic product (GDP) growth, but underperformed on the social goals. For this reason, the new plan places renewed emphasis on the targets that were missed, as well as new goals to raise China's competitiveness and make it less vulnerable to external environment .
In recent weeks, Chinese banks have found themselves under the spotlight as the media focused on their asset quality risks associated with credit extended to Local Government Financing Vehicles (LGFVs) and property developers. Not surprisingly, the negative publicity has had a discernible drag on these stocks as they underperformed the broader market over the last four quarters. However, we believe that these concerns are overdone and at current low valuations, Chinese banks offer attractive risk–reward opportunities over a six to twelve month horizon.
The volatility continues. Following a drop of nearly 4% in August, world equity markets as, measured by the MSCI AC World Index, rebounded strongly in September, up by over 9%, in US dollar terms. All major regions, with the exceptions of Japan and Europe are now in positive territory for the year. The surge took place despite weakening leading indicators in the developed world as market expectations started to focus on the increased likelihood that the Federal Reserve would embark on Quantitative Easing 2 (QE2). Emerging markets continue to lead the charge up by 9% for the year compared with the rather modest 1% rise in developed market index.
Asian equity markets rose as Asian growth remained resilient in the face of a US slowdown in 2Q10. Domestic demand contribution to growth in Asia has risen significantly in recent quarters with the support of accommodative monetary policies. On the global front, the US Federal Reserve kept its benchmark fed funds target rate unchanged at a range of 0.00% to 0.25%, in line with consensus expectations, and maintained the extended period language. The Fed will provide additional quantitative easing (QE) in the future “if necessary” to support the economic recovery.
TOPIX rose 3.1% to 829.5 in September. Stocks rebounded in the first half of the month as betterthan– expected US economic indicators helped allay concerns over the economy. On 15 September, the Japanese government and the Bank of Japan (BOJ) intervened to weaken the yen, lifting share prices of export–oriented stocks. Thereafter, the market weakened on renewed credit concerns in Europe, and weaker US economic indicators; but was supported by expectations for additional monetary easing by Japan and the US.
On September 12, the Basel Committee on Banking Supervision announced proposed changes intended to strengthen capital requirements for banks. The proposed changes are to be presented to G20 leaders in November before being implemented in phases over the next decade.
While the headline changes seem significant, in reality, most banks are already operating with core capital levels that are significantly above regulatory minimum and broadly in–line with future proposed levels. Hence the overall impact of the shift in capital minimums will be modest and this should not be a significant issue for majority of the banks.
The rollercoaster for equities continues. After rebounding strongly in July, up 8%, World equity markets, measured by the MSCI AC World Index fell by nearly 4% in August in US dollar terms. Weakening leading indicators and slowing economic activity in the developed world reinforced an already strong de–coupling between the developed and developing world. Market performance reflected this divergence in fundamentals, with Emerging market falling by significantly less than developed. For the year the divergence is even more apparent, with the MSCI World Index down by 0.5% while the MSCI Emerging Market index is up by nearly 16%.
Asian equity markets slid in August amidst signs the recovery in the world's biggest economies are cooling as US Federal Reserve Chairman Ben Bernanke said the central bank will do ‘all it can' to ensure the continuation of the economic recovery. GDP growth in Asia, which have been tracking above analyst forecasts, is likely to moderate due to the wearing off of favourable base effects as well as the easing inventory cycle ahead.
TOPIX fell 5.3% to 801.7 in August. Weak macroeconomic news overshadowed robust domestic corporate results announcements. A string of weak US economic indicators raised concerns that the US economy may be headed for a “double–dip”. Further, the Fed's stance on additional monetary easing fueled yen appreciation, causing Japanese stocks to fall further. The BOJ's decision to carry out additional monetary easing, and the government's announcement of a Y920bn fiscal stimulus package failed to lift sentiment.
World equity markets rebounded sharply in July, with the MSCI AC World Index up by 8% in US dollar terms. Following the establishment of a financing guarantee scheme by the Eurozone member governments, the Euro strengthened by over 6.5% vs. the dollar. European equities led the surge, up by 11.5% in the month (half coming from the currency). Exporting regions (Japan & Asia) lagged due to concern over a weaker US dollar.
Asian equity markets rose in July as 2Q10's corporate earnings releases during the month exceeded expectations and lifted investor sentiments. While Asian export growth begins to moderate off very strong levels, faster growing Asian economies continue to fuel trade in the region. The month also saw Korea and Thailand join the ranks of Asian central banks taking steps to normalise monetary policies. We interpret this overall move as a sign of confidence from governments that the global economic recovery has so far remained intact.
TOPIX edged up 0.96% to 849.50. The Japan equity market remained volatile. The market started the month significantly lower. Share prices rebounded temporarily due to stronger stock markets worldwide, yen depreciation, and favorable US company results. However, in the latter half of the month, fears of a US economic slowdown intensified following a string of poor economic indicators. Sentiment recovered somewhat following the release of EU bank stress test results, and robust domestic company results.
Results of EU–wide banks' stress tests were released late on Friday (23 July 2010) after the close of the European markets. Seven banks failed, of which five were from Spain, one was from Germany, and one from Greece. Failing the stress tests meant that these banks would be unable to maintain a critical Tier 1 capital ratio of 6% in the event of a recession and sovereign debt crisis. Going forward, these seven banks will shortly undergo restructuring and recapitalization plans, working closely with their national supervisors.
World equity markets continued to drop in June, with the MSCI AC World Index down a further 3% in US dollar terms. US markets led the decline, off by more than 5 percent in the month. Meanwhile, European markets are down by 18% year to date, as concerns over public policy weigh on their currencies. The best performing regions of Asia and Japan, are also in negative territory for the year.
Asian equity markets declined in the month as risk aversion returned on concerns over the uncertainty of Europe's sovereign debt woes. Over in Asia, the region's economies grew in unison to post a robust set of numbers in 1Q10, which mostly exceeded expectations. This led to an overall move towards policy normalisation by most central banks in the region. Exports also continued to grow very strongly during the quarter and are likely to moderate going forward as favourable base effects wear off.
TOPIX fell 4.43% to 841.42 in June 2010. In addition to the European financial crisis, the release of several weak US economic indicators ignited fears of a “double dip”. There were also concerns that the Group of 20's pledge to cut deficits will weigh on the global recovery. The Yen continued to appreciate due to risk aversion, leading to a sell–off in exporters.
China announced on 19 June that they will “proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate fl exibility”. Asian equity markets were lifted by the expectation that the RMB and the other Asian currencies are now set to appreciate. China's move to dismantle its peg to the US dollar has also been interpreted as a sign that the Chinese authorities see stability in the macroeconomic conditions despite the recent concern that the debt crisis in Europe may spill over to the global economy.
World equity markets fell sharply in May, with the MSCI AC World Index down nearly 10% in US dollar terms. European markets led the decline, off by more than 13 percent in the month and nearly 20% year to date. The Greek issues which started to buffet European markets in late April resulted in a sharp increase in risk aversion and a broad scale drop in risk assets, including equities. No region was spared, with returns for the year now all in negative territory. The Euro Stoxx 600 Index fell nearly 6% in Euro terms, and by almost 13% in US dollar terms, as the Euro continued to decline. The Euro fell from 1.32 against the US dollar to end the month at 1.23.
Asian equity markets were down in May as risk aversion returned on concerns over Europe's sovereign debt woes. The announcement of the €750bn Eurozone debt rescue package only calmed markets for a short period. In Asia, policy normalisation continued in countries like China and Malaysia, with the aggressive moves in China contributing further to volatility. Fundamentally, Asian economies continue to show firm growth, with 1Q GDP data in most economies exceeding expectations. Asian export growth was strong in April, in line with the consistent strength in the recent US ISM surveys.
TOPIX fell 10.8% to 880.46 in May 2010. The market opened the month with a sharp decline in response to a plunge in overseas stocks during the Japanese Golden Week holidays. The European Union's announcement of a Eurozone rescue fund triggered a rebound, but the momentum was short–lived due to concerns that the European fiscal crisis may threaten the region's financial system. Risk aversion drove the yen up, causing a selloff in companies with high exposure to Euro revenues.
Equity markets appeared to be stabilising last week with the €750 billion Eurozone debt rescue package but the unexpected ban on short selling by the German authorities has resulted in another hit to investor confidence.
Financial markets responded positively to the €750 billion stabilisation package announced by the Eurozone policymakers yesterday. MSCI Asia ex Japan was up 3%, Topix 1.3%, the S&P 500 4.4% and the Euro Stoxx 50 surged by 10.4%. Spreads in the European credit markets fell dramatically, with the benchmark 2–year yield on Greece's government bonds falling from 18% to 7%.
Equity markets have been moving in a yo–yo pattern in recent days, rising on strong economic data and good corporate earnings but declining on concerns of the sovereign debt problems in Europe. Other developments which have also affected risk appetite include the continued tightening by the Chinese authorities and the proposed new “super tax” on mining companies in Australia.
World equity markets were flat in April, with the MSCI AC World Index unchanged in US dollar terms. Asian and Emerging Markets registered further gains, building on their early recovery. Part of the gain was also due to the appreciation of Emerging Market currencies. The US continued to charge along and has overtaken Japan as the best performing region on a year to date basis. European markets declined sharply in late April as concerns about Greece's ability to re–finance its debt weighed on equity markets. The Euro Stoxx 50 Index fell by nearly 4% in Euro terms, and by almost 6% in US dollar team, with the weakening Euro exacerbating the performance in dollar terms. The Euro declined from the 1.35 to the dollar level to end the month at 1.33. It has dipped below the 1.28 level as we write.
Asian equity markets continued to edge up in April despite sovereign debt woes in Europe. Policy normalisation in China and India also dampened investor sentiment towards the end of the month. In contrast, Asian exports growth remain robust and should continue to persist going into the second quarter of the year, underpinned by a consistent strength of the broader regional Purchasing Manager indices and US ISM surveys. US dollar returns of Asian equity markets were further boosted by the appreciation of Asian currencies.
TOPIX rose 0.84% to 987 in April. The stock market remained strong in the early half of April, thanks to better economic data, and yen weakness. In the latter half of the month, new fears over the Greek debt crisis and Chinese yuan revaluation concerns weighed on the market. The fraud charge against Goldman Sachs also triggered concern about tighter financial regulation. Toward the end of the month, favorable earnings results and positive profit guidance helped the TOPIX close with a month–on–month gain.
The Monetary Authority of Singapore today re–centred the Singapore dollar policy band upwards and also shifted its policy stance from zero appreciation to one of 'modest and gradual' appreciation. The Singapore dollar jumped up about 1% against the US dollar following the announcement. The revaluation of the Singapore dollar comes on the back of very strong economic growth in the first quarter of 2010. The Singapore government has revised its full year growth forecast for 2010 from 4.5 % – 6.5% to 7% – 9%.
World equity markets rallied strongly in March, with the MSCI AC World Index up 6.2% in US dollar terms. Emerging Markets were the best performing region, driven by a strong recovery in Latin America and Emerging Asia. This was followed by a recovery in Europe, which rebounded after Greece managed to successfully refinance a portion of maturing debt. The Euro strengthened by nearly 2% from its low on 25 March to close the period at 1.35 to the US dollar. Japan lagged, although it is still the best performing region on a year to date basis.
Asian equity markets edged up in March as we saw an overall move towards policy normalisation by Asian central banks like China, India and Malaysia. The market was initially spooked by sovereign debt woes in the European Union before staging a strong rebound in March. Robust Asian exports were the main highlight of the quarter and should continue to see strength as indicated by solid US ISM Purchasing Manager Index and encouraging US retail sales numbers.
The TOPIX rose 9.47% to 978.8 in March. The strong market performance was attributed to improved investor confidence on the back of better economic data in Japan and overseas, and expectations of additional monetary easing by the Bank of Japan, which caused the yen to weaken. This in turn sparked off a broad–based rally led by exporters, and financials.
In 2008, equity mutual funds around the world experienced record redemptions. Since then, global data indicate that while bond funds have seen net inflows, equity funds have not. Given how strongly equities have performed over the past year, many may find it surprising that the rally has been so strong without net inflows into mutual funds. But with the strong rally in the past year, should investors stay on the sidelines or go into equities, albeit cautiously?
Anthony Raza, Senior Director and Head of Asset Allocation at UOB Asset Management Ltd, shares his views on the equities markets going forward.
On Sunday, the US House of Representatives passed the US Health Care Reform Bill, and the response of the market was a broad rally in Healthcare stocks. This removal of headline risk and the increase in clarity should benefit Healthcare stocks in the months ahead. Valuations of the Healthcare sector are at 20–year lows. The sector is also under–owned as uncertainty over the reforms has kept investors on the sidelines. We continue to be positive on the long term outlook for the Healthcare sector.
Last Friday, the Reserve Bank of India (RBI) hiked the repo and reverse repo rate by 25 basis points to 5% and 3.5% respectively. Our view is that the impact of the tightening on the Indian equity market is limited. Although concerns about tightening will persist, we believe the market has more or less priced these in and will focus again on fundamentals.
Life–cycle investing is an investment concept that has gained popularity in the United States and United Kingdom. In the US, life–cycle portfolios are the fastest–growing type of retirement or pension fund for retirees.
In this article, Norman Wu, senior director of UOB Asset Management, explores the concept of life–cycle investing in the context of financial planning.
World equity markets recovered in February after falling sharply in late January, with the MSCI AC World Index up 1.1% in US dollar terms. The US was the best performing region followed by Japan. Europe registered negative returns, as concerns about Greece and the ‘PIGS', an acronym to describe Portugal, Ireland, Greece and Spain, weighed on the European currency and created concerns around growth prospects for the broader Euro–zone.
Asian equity markets edged up in February despite concerns about Greece's debt problem. In contrast to European economies, Asian economies are in relatively better shape and most of the Asian countries have emerged from the recession to post very healthy GDP growth in 4Q09. As such, central banks in Asia are now beginning to normalise their policy stance. The People's Bank of China has led the way, tightening bank lending rules and hiking the required reserve ratio by 50 basis points. The outlook for Asian exports continues to be bright with the ISM index rising to 58.4 in January, its fastest pace since August 2004.
The TOPIX fell 0.78% to 894.1 in February. Japan equity prices were volatile because of external events. The month started off on an upbeat note, in response to improved US economic data. However, renewed concerns over fiscal woes in some European countries caused the market to be sold down sharply. The Fed's move to raise the discount rate also spooked investors. Later, stability returned on news that the European Union will support Greece. Towards month–end, yen appreciation sent Japanese stocks south again.
Equity markets continue to be volatile with the focus of the market currently on Greece's large debt problem. The credit default swap spreads on Greek sovereign have widened out to levels higher than was seen during the worst months of the global credit crisis.
The China market has corrected close to 10% since the beginning of the year, following market jitters on higher inflation and the announcement of measures by Beijing to cool down its domestic economy. Notwithstanding investors' nervousness about more policy tightening measures to come, we view the measures taken by the Chinese government now as good for the market in the long term.
World equity markets fell in January, with the MSCI AC World Index down 4% in US dollar terms. Asia and Europe posted the larger declines due to the twin concerns of monetary tightening in China, which adversely impacted Asia, and mounting economic and fiscal concerns in Europe centered around Greece and the ‘PIGS', an acronym to describe Portugal, Ireland, Greece and Spain, all countries running unsustainable fiscal deficits.
Asian equity markets in January corrected as monetary policy normalisation took place earlier than the market had anticipated. Among the larger Asian economies, the People's Bank of China raised the reserve requirement ratio by 50 basis points in the middle of the month, while the Reserve Bank of India hiked the cash reserve ratio by 75 basis points at the end of the month.
The TOPIX fell 0.71% to 901.12 in January. Share prices of exporters, especially marine transporters, and resource stocks, rose in the early part of the month in response to the release of favourable economic data from the US and China. The financial sector also saw buying interest, as the major banks' equity financing announcements were taken as a sign that negatives have played out.
The People's Bank of China (PBOC) yesterday raised the reserve requirement ratio (RRR) for Chinese banks by 0.5%. The new RRR will rise to 16% and takes effect from 18 January 2010. The PBOC also raised rates in the interbank market for the second time within a week.
Over the past year, prices for commodities and commodity–related assets have risen sharply, recovering much of the ground lost during the 2008 financial crisis.
In this article, UOB Asset Management's Robert Adair shares his views on commodities outlook for 2010.
On January 21 President Barack Obama called for tough new rules that would limit the size and trading operations of commercial banks. These new proposals are currently being referred to as the “Volcker Rule”, due to Paul Volcker's strong and vocal views during the regulatory reform debate.
Asian equity markets are suffering their largest correction since March 2009. The trigger was the hike in the reserve requirement ratio by the People's Bank of China in the second week of January. Risk appetite has also been affected by President Obama's proposed curbs on the trading activities of US banks. In Europe, there are fresh concerns about Greece's ability to repay its sovereign debt.
World equity markets advanced further in December, with the MSCI AC World Index up 2% in US dollar terms. Equity markets registered strong gains driven by a significant re–rating from the distressed levels at the start of the year. The MSCI AC World Index rose 31.5% over the 12 months ended December.
Asian equity markets managed to post healthy gains during the quarter even as Dubai World's debt problems triggered a brief bout of risk aversion. With the US ISM Purchasing Manager Index expanding further to 55.9 points in December 2009, Asia saw its exports recover to finally register positive year–on–year growth numbers.
In December, the TOPIX rose 8.1% to 907.6 but returns were lower in most other currencies because the yen also depreciated during the month. The market rebound was in reaction to further monetary easing by the Bank of Japan (BOJ), and a depreciation of the currency.
