18 JUL 2011 UNITED STATES Moody s Investors Service raised the pressure on U.S. lawmakers to increase the government s $14.3 trillion debt limit by placing the nation s credit rating under review for a downgrade. Standard & Poor's Ratings Services said it has placed U.S. sovereign credit ratings on watch for possible downgrade, saying the action "signals our view that, owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days." Fed Chairman Ben Bernanke suggested the Fed would consider additional measures to support the economy if the outlook gets worse, but backed off hints additional near-term stimulus could be on the way later last week. Initial claims for state benefits dropped 22,000 to a seasonally adjusted 405,000 in the week ended July 9, the smallest amount of new applications since mid-april. U.S. wholesale prices eased in June as the cost of energy posted the biggest monthly drop in two years. Dow Jones Industrial Average 12,657.20 12,479.70-1.40% S&P 500 1,343.80 1,316.14-2.06% NASDAQ 2,859.81 2,789.80-2.45% EUROPE Spain s finance minister, has raised the possibility of yet more budget cuts next year to control the country s deficit and maintain its reputation in the international bond markets. Ireland was cut to Ba1 from Baa3 by Moody s, joining Portugal and Greece as the third euro-area nation to have its rating reduced to junk. The debt crisis s expansion to Italy, Europe s fourth-largest economy. The European Banking Authority (EBA) said eight banks failed the stress test with a total capital shortfall of 2.5 billion Euros. FTSE 100 5,990.58 5,843.66-2.45% DAX 30 7,402.73 7,220.12-2.47% CAC 40 3,913.55 3,726.59-4.78% 1
HONG KONG & CHINA China Q2 GDP gained 9.5% from a year earlier, higher than market estimate, driven by investment by local governments and private businesses. In China, M2, the broadest measure of money supply, rose by a more-than-forecast 15.9% in June. Hang Seng Index 22,726.43 21,875.40-3.74% Hang Seng CEI 12,756.32 12,266.30-3.84% Shanghai A 2,930.40 2,953.83 0.80% Shenzhen A 1,257.87 1,291.09 2.64% EMERGING MARKETS Brazil Economic Activity Expands 0.17% in May, Slowest Pace Since December. Brazil s oil reserves, including recent discoveries in deep waters of the Atlantic Ocean, are of a similar size to those found in the North Sea, said an exploration official at Petroleo Brasileiro SA. Three bomb blasts hit Mumbai, killing at least 21 people, in the biggest attack on India s financial capital since a November 2008 terrorist rampage. India s inflation accelerated to 9.44 per cent in June from a year earlier, compared to 9.06 per cent rose in May. Indonesia s central bank kept its benchmark interest rate unchanged for a fifth consecutive month as easing inflation gives policy makers room to assess the risk of a slowdown in global growth. Brazil BOVESPA 61,513.20 59,478.00-3.31% India SENSEX 18,858.04 18,561.90-1.57% Russia RTS 1,958.40 1,938.54-1.01% MSCI Emerging Market Index 1,163.93 1,135.60-2.43% 2
ASIA PACIFIC Singapore s economy shrank for the first time in three quarters as manufacturing slumped. The Bank of Thailand has raised its benchmark interest rate by a quarter of a point to 3.25 per cent and signaled more tightening to come. South Korea s unemployment rate remained at the lowest level of 3.3% in half a year. Australian consumer confidence plunged 8.3 percent to 92.8 from a month earlier, the biggest decline since October 2008 and the lowest level since May 2009 as concern intensified about the European debt crisis. The Bank of Korea lowered its economic growth forecast for this year. The economy will expand 4.3 percent, compared with the 4.5 percent growth estimated in April. The Bank of Korea board s unanimous decision to hold interest rates yesterday reflected policy makers concern about Europe s sovereign debt crisis. Taiwan Weighted Index 8,749.55 8,574.91-2.00% Australia All Ordinaries 4,716.00 4,542.70-3.67% Nikkei 225 10,137.70 9,974.47-1.61% Korea KOSPI 2,180.35 2,145.20-1.61% Singapore Straits Times 3,151.28 3,084.24-2.13% Thailand SET 1,088.46 1,079.91-0.79% Philippine Composite Index 4,391.46 4,458.74 1.53% Indonesia JCI 4,003.69 4,023.20 0.49% Malaysia KLCI 1,594.74 1,577.25-1.10% 3
COMMODITY Gold outperformed global market with the nerves on the latest development of European debt crisis and the hangover of US debt problem. Gold prices rose by 3.28% this week. Gold 1,545.20 1,595.90 3.28% Oil 96.20 97.15 0.99% Copper 4.36 4.39 0.58% CURRENCY & FIXED INCOME Italy sold five-year bonds at the highest yield in three years on last Thursday. The yield surged to 4.93 per cent, the highest since June 2008 and increased by more than 100 bp from the last auction in June. Bill Gross, who runs the world s biggest debt fund at Pacific Investment Management Co., increased holdings of Treasuries and bonds outside the U.S. last month while cutting money-market securities. UST 10 3.016 2.908-3.58% UST 30 4.277 4.251-0.61% EUR/ USD 1.4363 1.4139-1.56% USD/ JPY 80.63 79.10-1.90% GBP/ USD 1.5972 1.6134 1.01% USD/ CAD 0.9626 0.9575-0.53% AUD/ USD 1.0752 1.0652-0.93% WHAT S COMING UP? Investors will focus on the development of the debate on US debt ceiling and the European debt crisis. There is still no consensus of lifting US debt ceiling two weeks before deadline and the surging yields of Italian debts cause nerves. US will release several data on the housing market. Sluggish housing market is one of the reasons of slowing US recovery. Major financial companies and technology companies such as Goldman Sachs and Apple will release its quarterly report this week. MSCI World Index 1,343.12 1,313.17-2.23% 4
FUNDS WEEKLY TOP 5 CATEGORY (%) 1 weeks 1 month 3 months 6 months 1 year 3 years HKM Equity - Japan Small/Mid Cap 2.02 6.97 11.49 2.15 16.28 6.76 HKM Fixed Int - Sterling 0.91-0.36 0.93 5.6 10.21-5.35 HKM Equity - Japan 0.35 5.57 7.69-2.33 14.03-7.02 HKM Fixed Int - Asia Pacific 0.35 0.59 2.04 3.05 6.19 15.84 HKM Fixed Int - US Dollar 0.21 0.34 1.66 3.12 5.66 13.87 FUNDS WEEKLY BOTTOM 5 CATEGORY (%) 1 weeks 1 month 3 months 6 months 1 year 3 years HKM Equity - Europe ex UK -4.34-2.38-5.33 2.38 18.21-10.16 HKM Equity - Europe Small/Mid Cap -3.86-2.21-4.21 1.76 29.31 10.04 HKM Equity - TMT -3.59 2.07-1.46-1.1 20.44 20.68 HKM Equity - Europe inc UK -3.52-1.7-3.98 2.05 18.69-5.42 HKM Equity - North America Small/Mid Cap -3.39 3.88-1.61 3.25 29.69 22.22 ECONOMIC FIGURES RELEASE Date Country Event Estimate Previous 19 Jul US Jun Building Permits Annual 595,000 612,000 US Jun Housing Starts Annual 550,000 560,000 20 Jul Germany Jun Producer Price Index (y.o.y.) 5.3% 6.1% US Jun Existing Home Sales 4.9m 4.8m 21 Jul France Jul Flash PMI Manufacturing SA 52.2 52.5 France Jul Flash PMI Services SA 55.8 56.7 Germany Jul Flash PMI Manufacturing SA 54 54.9 Germany Jul Flash PMI Services SA 56 58.3 Emu Jul Flash PMI Manufacturing SA 51.5 52 Emu Jul Flash PMI Services SA 53.2 54.2 UK Jun Retail Sales (y.o.y.) -0.1% 0.2% 22 Jul France Jul Business Confidence 107 109 Emu May Industrial Orders SA (m.o.m.) 0.7% 0.7% Source : Financial Express/ Financial Times 5
ALROY S VIEWS at a glance Country/ Region Commodity China Neutral Gold Positive Hong Kong Positive Crude Oil Positive Taiwan Positive Agricultural Neutral Japan Positive Currency South Korea Neutral USD Neutral Australia Negative EUR Positive US Neutral GBP Neutral Western Europe Neutral JPY Neutral Eastern Europe Neutral AUD Neutral Russia India Brazil Neutral Positive Positive COMMENTS The European Banking Authority released its latest result of stress test and only eight banks out of ninety-one banks failed the stress test. EBA conducted three stress tests since financial tsunami, but Alroy does not believe the latest stress test can win the confidence vote from the market as it does not assume any default from PIIGS countries. European debt crisis spreads to Italy last week. Economic growth of Italy is the best among PIIGS countries with manageable fiscal deficit. The only concern is the fear becomes self-fulfilling, investors sell Italian bonds together and send the yield of 10 years Italian Treasury above 7 per cent, a level that investors consider as unsustainable. There are 3 ratings: Positive, Neutral and Negative Positive: Expected performance will exceed benchmark performance in coming 6 to 12 months. Neutral: Expected performance will meet the benchmark performance in coming 6 to 12 months. Negative: Expected performance will below benchmark performance in coming 6 to 12 months. The information shown in this article is neither a recommendation, an offer, nor a solicitation for any investment products or services. Investment involves risk. Past performance is not necessarily a guide to future performance. The value of investments and income from them can fluctuate and is not guaranteed. Rates of exchange may cause the value of investment to go up or down. Investors may not get back the amount they invest. Individual stock price/figure does not represent the return of the investment products. Issuer of this material: Patrick Lam, Alroy Financial Services Ltd 6