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 market decline happened even as Asian economies continued their positive growth trajectory amidst strong export and private consumption numbers. Overall, the Asian equity market underperformed the global equity market.
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. However, in the latter half of the month, weak earnings release from US banking major JPMorgan dampened sentiment. Concerns over the possibility of monetary tightening in China, and tougher financial regulations in the US, also dragged the prices of Japanese shares lower. The appreciation of the yen to the 90 level against the US dollar added to the selling pressure.
