For the month ending August 2016
In August, the MSCI China Index returned 7.33% and the Hong
Kong's Hang Seng Index returned 5.23%, both in local currency terms. China's
domestic CSI300, the A share index, returned 4.07% in local currency terms
(3.39% in U.S. dollar terms). China's currency, the renminbi (RMB), ended the
month at 6.68 against the U.S. dollar. The real effective exchange rate was
down 6% year-to-date through the end of July, but was up by 46% from June 2005,
when China began to reform its exchange rate mechanism.
In the first seven months of 2016, new home sales, on a
square meter-basis, rose 26.7% year-on-year, after rising 6.9% for all of 2015,
and compared to an increase of 6.9% a year ago. Online retail sales of goods
rose 26.1% year-on-year through July.
In July, inflation-adjusted retail sales in China rose 9.8% year-over-year,
compared to 10.4% a year ago and 10.5% in July 2014. Real retail sales was up
9.7% for the first seven months of the year, compared to 10.5% during the same
period a year ago and 10.7% two years ago. While this reflects an ongoing gradual
deceleration of almost every economic data set, China remains a compelling consumer
Indian markets were higher in August after the Goods and
Services Tax (GST) was cleared by India’s Upper House of Parliament, the Reserve
Bank of India (RBI) appointed a new governor and positive economic data emerged.
The S&P Bombay Stock Exchange 100 Index returned 1.62% in U.S. dollars
(1.87% in local currency) driven by gains in the financials, consumer discretionary
and energy sectors. The information technology and telecom sectors have been recent
Additionally, 16 states have also already ratified the GST,
paving the way for the president’s approval. Expectations are that the government
will roll out the new tax regime prior to April 2017.
India's new central bank governor, Urjit Patel, was
appointed as the 24th governor of RBI. His appointment provides
visibility into the continued monetary policy regime envisioned by Raghuram
Rajan, and likely allayed some fears that the government may adopt a looser
August economic data signaled improvements in India’s rural
economy, including higher sales of tractors and two-wheelers that suggest
consumption demand might be growing in rural India.
Many corporate earnings reports, for the quarter ending
June, were reported in August. The month saw overall earnings growth that seemed
to lag expectations, with quarterly earnings declining in comparison to the same
period last year despite strong sequential quarters of growth. Private sector
financials and consumer discretionary, led by autos, did well in August on the back
of good earnings growth. Companies in the information technology sector
reported poor earnings growth and provided a dismal outlook, which led to a negative
stock price reaction. The telecom sector performed negatively as investors
worried about rising competitive intensity following the entry of a new player
with deep pockets.
In August, the Tokyo Stock Price Index increased by 0.54% in
local currency terms (-0.36% in U.S. dollar terms). Materials, information
technology and financial stocks outperformed while healthcare, consumer staples
and utilities stocks underperformed. The yen weakened by 1.02% versus the U.S.
Macroeconomic data was soft with exports falling 14% in July
as a result of the strong yen and weak external demand. Annualized GDP growth
of 0.2% in the second calendar quarter was also below expectations after
expanding by 1.9% in the first three months of the year.
On a more positive note, the seasonally adjusted
unemployment rate fell to 3% in July, its lowest point since 1995. It is hoped
that further tightening in the labor market will ultimately result in a
meaningful increase in wages throughout the country.
Inflation data, meanwhile, continued to look weak with the
consumer price index, excluding fresh food and energy, increasing by only 0.3%
in July. This remains well below the Bank of Japan’s medium- term target of 2%
and has led to expectations of an expansion to the ongoing stimulus program.
During the month, the Korea Composite Stock Price Index
(KOSPI) returned 0.92% in local currency terms and 0.62% in U.S. dollar terms.
South Korea’s trade surplus rose to US$5.3 billion in
August, as both imports and exports rebounded for the first time in about 20 months.
Exports rose 2.6% and imports rose 0.1% compared to a year ago.
National retail sales figures released for July were strong
in part from the lower base seen a year ago following the domestic outbreak of
the Middle Eastern Respiratory Syndrome. Sales at convenience stores rose 15.4%
and department stores rose 7%. Online sales also rose 20%. At the end of
September, a much-debated new anticorruption act is expected to take effect. The
law makes it illegal for public officials to receive gifts worth 50,000 won (US
$45) or more, or cash of 100,000 won (US$91) or more as tokens for weddings or
funerals. The law has been controversial in part due to a broader definition set
for “public officials,” which includes journalists and school teachers. Aimed
at improving transparency, the new act has also been criticized for the amounts
it sets as graft, including not allowing public officials to accept meals or
entertainment worth US$27 or more.
In August, the MSCI South East Asia Index returned 0.63% in
U.S. dollar terms, as markets reacted to the increased probability of early
rate hikes by the U.S. Federal Reserve. Indonesia’s Jakarta Composite Index
rose 3.28% in local currency terms (1.62% in U.S. dollar terms), building on
the tail winds generated by a strong 2Q16 GDP growth outcome of 5.2%. The
Philippines’ Stock Exchange PSEi index slumped -1.87% in local currency terms
(-1.02% in U.S. dollar terms) as earnings results remained lackluster in 2Q16.
Meanwhile, Thailand’s SET index put in another solid performance, gaining 2.33%
in local currency terms (and 2.8% in U.S. dollar terms as the Thai Baht
continued to strengthen on a rising current account surplus).
In Thailand, GDP for 2Q16 came in stronger than expected at
3.5% (compared to 3.2% in 1Q16), supported by domestic consumption, driven by government
spending and tourism. Sentiment firmed as the Thai government conducted a
successful referendum on the new constitution and improved rainfall boosted the
outlook for the agricultural sector.
In the Philippines, sustained optimism for President Duterte’s
administration steered the index above 8,000, but earnings disappointments from
select index names triggered a sell-off. On the macro front, the strong 2Q GDP
growth print of 7% year-over-year failed to excite investors, with foreigners
turning net sellers for the first time since April.
In Indonesia, the tax amnesty had a slow start, with a total
penalty paid of Rp3.9 trillion, 2.4% of the 9- month target. August inflation
was better than expected, at 2.79% year-over-year, underscoring the room for
policy rate cuts.
The views and information discussed in this article are as of the date of publication, are subject to change and may not reflect the writer's current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investments vehicles.