Macro Briefing A monthly review of the economy and markets January 2014

Transcription

1 Macro Briefing A monthly review of the economy and markets January 1 Stock Markets Performance January 1 Asia ex Europe US Returns (%) Months Asia ex Europe US Returns (%) Year-To-Date Asia ex Europe US Returns (%) US equities fell along with the global selloffs triggered by renewed Chinese growth concerns. Rumors of a probable default by a Chinese investment trust too raised fears of ripple effects in the country s shadow banking system. On the other hand, the US economic recovery seems on track; manufacturing showed healthy expansion while consumer and business spending seem to be trending up. Whilst this is supportive for corporate earnings, current market valuations seem to have priced in these improvements. European equities were not spared with most of eurozone succumbing to the fears. Specifically, deflation continued to be a concern, prompting the European Central Bank to leave interest rates unchanged. On a more positive note, the overall Purchasing Managers' Index for eurozone jumped to 3. in January, the highest since mid- giving some support to the idea that stronger activity can be expected in the coming months. Should the growth momentum continue to pick up in the region, European equities may become 1 s favourites. ese equities fell sharply in line with poor global sentiment. Nonetheless the economy seems to be edging towards a recovery. The industrial production and labor market figures were generally strong. Asian ex equities continued to be hit badly by emerging market concerns, namely slowing economic growth, political uncertainties, sharp slides in currencies, and large fiscal and current-account deficits. Source: MSCI Total Return Index from Thomson Reuters DataStream as of 31 January 1 (US dollar currency).

2 January 1 Korea Indonesia Returns (%) -1 - Stocks across Asia continued to retreat in January, led by and Bucking the trend were the and Indonesia. Indonesia was the best performer as investors cheered news of improving trade balance and stable inflation. The Rupiah was a beneficiary of the subsiding fears over the extent of the current account deficit. emerged the secondbest performing stock market. Financials led the gains followed by utilities while consumer discretionary and industrials fell the most among sectors. GDP rose.% in Q from a year earlier, slower than the.% expansion the previous quarter but was still a positive surprise given the destruction wrought by Super Typhoon Haiyan in November. Year-To-Date Korea Indonesia Returns (%) -1 - was the worst performer in January. Weak manufacturing data and credit risks associated with shadow banking weighed down by weak domestic demand. was affected by slowing growth fears; advance estimate figure for Q year-on-year growth was.% versus.% recorded in the 3Q. Hong Kong market s decline tracked. Industrials, financials and utilities led the decline. Although declined the least amongst the Asian markets, it is still the worst performer over the latest 3-month period ended January 1. Political tensions will continue to remain an overhang on investors sentiment in the near term. Source: MSCI Total Return Index from Thomson Reuters DataStream as of 31 January 1 (US currency).

3 Policy Rate versus Inflation Rate Prime Lending Rate RBA Cash Rate Target... Indonesia Korea. Repo Rate.1 -Day Repo The Reserve Bank of surprised the market by keeping rates on hold after raising the benchmark rate in September and October. Inflationary pressures are still on the rise but the rationale for the decision not to act was based on the weak economic activity. Bank Indonesia kept its benchmark interest rate unchanged at.% on the back of improving current account balance and lower inflation. BI Rate Mths HIBOR. 1.1 Bangko Sentral Pilipinas too intentionally kept the rates unchanged to help the economy recover from the effects of the typhoon. But rising inflationary pressures could force a rethink on their part. Overnight Policy Rate 3 3. Overnight Reverse Repo Rate Mths SIBOR The Bank of kept its policy rate at.% as the committee deems the current stance to be appropriately supportive of economic recovery and felt the need to safeguard financial stability. Discount Rate Day Repo Rate. 1.3 Overnight Call Source: Data from Thomson Reuters DataStream as of 31 January 1.

4 AUD KRW PHP MYR TWD INR SGD THB IDR CNY JPY (%) AUD IDR MYR THB PHP JPY TWD SGD KRW INR CNY (%) AUD KRW PHP MYR TWD SGD CNY (%) INR THB IDR JPY Major Currencies Against USD (% change) January Months Year-To-Date Asian currencies broadly depreciated against Some emerging the US market dollar in currencies January. came The ese under pressure Yen on bucked worries the over trend reduced as growing global liquidity. volatility amid a market selloff spurred investors to reverse carry trades while The n seeking rupee haven assets. was hit especially hard as a result of broader concerns The about Korean s economy. Won, one of the best performing Asian currencies in, delivered one of the worst returns in January. The n Ringgit and the Philippine Peso were also underperformers falling by more than % against the US Dollar. The Indonesian Rupiah came through as one of the least affected currencies, supported by news of a positive trade surplus in November and rising central bank s foreign exchange reserves. The n Dollar continued to slide in January. It was one of the worst performing currencies in. Declining demand for commodity shipments from has been a major drag on the currency. Although Korea s solid current and trade surplus is supportive of the Korean Won, its January slide should not come as a surprise. The won was ripe for some correction after being the strongest currency in the region in. Source: Thomson Reuters DataStream as of 31 January 1.

5 Real GDP Growth Consensus Forecast, % GDP Forecast, % US With the exception of US, and, 1 growth forecasts for the rest have either been flat or revised downwards Eurozone The outlook for the US and has been upgraded on the back of encouraging data towards the end of.. Jan- Mar- May- Jul- Sep- Nov- Jan-1 1 GDP Forecast, %. expanded by a healthy 3.% in. Given s open economy, expectations of a recovery in the US and Europe have buoyed the citystate s 1 growth prospects Asia ex The outlook for Asia ex, however, remains mixed. has seen a sharp downgrading of 1 growth forecast as the widespread political protests continue to beset the country. Indonesia. Jan- Mar- May- Jul- Sep- Nov- Jan-1 1 GDP Forecast, %. growth prospects have weakened due to the effects of the typhoon Haiyan which has already fed through to higher consumer prices. If inflation continues to edge up, monetary policy may need to move up in tandem... s 1 GDP has been downgraded due to lacklustre trade activity over the last few months Jan- Mar- May- Jul- Sep- Nov- Jan-1 S Korea Source: Data from Consensus Economics, January 1.

6 APPENDIX Valuations - 1-months Forward P/E (x) Korea Source: IBES MSCI from Thomson Reuters DataStream as of 31 January 1. Note: The forward price earnings multiple shown above is calculated on an 1-month rolling basis. The horizontal lines represent the average (the middle line) and one standard deviation either side of this average for the period shown.. 1 Indonesia

7 APPENDIX Earnings Forecast Revision (Month-on-Month Change %) Indonesia Korea Source: IBES MSCI from Thomson Reuters DataStream as of 31 January 1. Note: Weighted 1-month % change in the 1 month forward earnings EPS forecasts.

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