For the month ending April 2013
China/ Hong Kong
In April, the MSCI China Index increased 1.14%, Hong Kong's Hang Seng Index rose 2.03% (2.06% in U.S. dollar terms) and China's domestic A share index, the Shanghai Stock Exchange Index, fell -2.60% (-1.88% in U.S. dollar terms). China's currency, the renminbi, ended the month at 6.17 renminbi against the U.S. dollar.
China released its first quarter 2013 GDP growth data at 7.7% year-over-year, which was lower than market expectations and also slower than the 7.9% growth registered late last year. The shortfall in GDP was largely due to weaker-than-anticipated industrial production growth of 8.9%.
Exports moderated to a 10% growth level from the roughly 24% growth levels it saw in January and February. Meanwhile, imports registered about 14% growth, up from the 5% growth it marked earlier in the year. China’s fixed asset investment growth was slightly lower than expected due to weak real estate investment levels. Retail sales increased 12.6% year-over-year in March. While this was a slight improvement from the 12.3% year-over-year growth seen earlier this year, it is lower than China’s historical pace of retail sales growth, and the slowdown in many retail areas may partly result from new measures that call for reducing corruption and excessive spending by government officials. China’s March consumer price index improved at 2.1%, versus 3.2% in February. Food inflation moderated in the month of March.
Credit demand in China continued to expand as new renminbi loans rose to US$170 billion in March, up from US$99.3 billion in February. Total social financing, which measures a wide range of credit sources including bank loans and off-balance sheet bank lending, increased to US$407 billion compared to about US$172 billion in February.
In April, the Bombay Stock Exchange 100 Index rose 4.63% in local currency terms (6.27% in U.S. dollar terms). Telecommunications and health care were the best-performing sectors, while the information technology sector fared the worst.
The country’s federal government continued its struggle to push through policy reforms. The lack of consensus over policy in India’s Parliament has created negative sentiment over corporate capital expenditure plans. Industrial output, as measured by the Index of Industrial Production, fell to 0.6% in February, compared to 2.4% the previous month.
However, on a positive note, India’s trade deficit for March narrowed to US$10.3 billion, or about 6.7% of GDP, down from US$14.9 billion, or 9.7% of GDP due in part to moderating oil prices as well as seasonal factors. On the inflation front, the wholesale price index declined to a 40-month low at about 6%. The consumer price index remained high at 10.4% but showed a decline from 10.9% in the previous month. Foreign institutional inflows continue to be strong with institutional equity inflows for April at US$1.0 billion and total inflows for 2013 reaching US$11.3 billion.
India’s meteorological agency has predicted normal monsoons for this year, which may benefit the country’s rainfall-dependent crops. With the earnings season for this quarter underway, banks appear to have shown healthy loan growth rates. Consumer discretionary and consumer staples businesses have posted reasonably strong volume growth and are exhibiting some pricing power. Margins, however, appear to be under pressure especially in the health care, materials, technology and financials sectors.
In April, Japan extended its rally from the previous month with the Tokyo Stock Price Index gaining 12.60% in local currency terms (up 8.77% in U.S. dollar terms). Market performance was buoyed by continued overseas investor inflows into Japan's equity markets, which reached approximately US$17 billion. The yen also continued to weaken, falling 3.31% against the U.S. dollar.
Under the leadership of new governor Haruhiko Kuroda, the Bank of Japan (BOJ) made a surprising announcement at the beginning of the month for a massive quantitative easing plan. The news exceeded already high market expectations and the BOJ said it planned to double its balance sheet by the end of 2014 and would try to achieve a 2% inflation rate. The exact inflation target that Japan may actually reach is somewhat less important than the fact that the BOJ, which has historically been reluctant to commit to policy targets, has resolved to aggressively pursue various monetary options to try to battle deflation.
Not surprisingly, security brokerages were the best-performing industry during the month as they benefit from surging trading volumes. Other financial companies, including consumer finance and real estate firms, also performed well as these segments are viewed as beneficiaries of the BOJ's expansionary policies. Conversely, commodity-related sectors such as mining, oil and coal were among the worst-performing industries, as global commodity prices corrected sharply.
Toward the end of the month, Japanese companies began to release earnings results for the March-ending fiscal year along with earnings guidance for the next fiscal year. Though the number of companies that have reported earnings thus far is insufficient to gauge a general trend, the weak yen seems to have improved earnings momentum for export companies.
During the month, the Korea Composite Stock Price Index declined 2.04% in local currency terms (1.04% in U.S. dollar terms) as the Korean won strengthened by 0.92% against the U.S. dollar.
Overall trade data showed a slight increase in exports and a decline in imports compared to the same period last year, leaving trade surplus of US$2.6 billion. By product category, information technology and petrochemicals led export growth. Contrary to market expectations, the Bank of Korea maintained its policy rate of 2.75% following heated debate among its Monetary Policy Committee members. The committee resisted a cut based on signs of a continuing recovery of the domestic economy as well as strong export growth from emerging markets, which is expected to offset the subdued rebound of developed markets. Korea’s GDP for the first quarter of the year grew 1.5% year-over-year, slightly better than the market had anticipated.
During the month, North Korea’s aggressive rhetoric related to annual joint military drills between South Korea and the U.S. subsided somewhat. The North, however, did pull workers from a special economic industrial complex run jointly with the South Kaesong Industrial Complex, where South Korean enterprises had employed North Koreans. In response, the South also pulled most of its workers out of the complex after Pyongyang refused an offer to begin talks to resolve the recent clash.
Southeast Asian Nations
In April, the MSCI South East Asia Index advanced 2.73% in U.S. dollar terms. Notably, the Philippine Stock Exchange PSEi Index advanced 3.4% in local currency terms (2.64% in U.S. dollar terms) and the FTSE Bursa Malaysia KLCI advanced 3.0% in local currency terms (4.31% in U.S. dollar terms).
During the month, the Philippine central bank cut the Special Deposit Account rate by 50 basis points (0.50%) to 2.0%, the third cut this year as it seeks to reduce the inflows of hot money, or speculative capital flows. The local tourism industry, bolstered by the opening of new gaming attractions, witnessed strong growth with an estimated 1.3 million tourist arrivals during the first quarter of 2013 up 11% year-over-year. South Korean tourists to the Philippines make up the biggest group of visitors, followed by U.S., Japanese and Chinese tourists. Rating agency Standard & Poor’s raised its 2013 GDP growth forecast for the country to 6.5% from 5.9% while also raising the country’s rating to investment grade.
Elsewhere in the region, Malaysian Prime Minister Najib Razak announced the dissolution of parliament in early April and called for national elections to be held on May 5. The elections are expected to be quite heated and Malaysian opposition leader Anwar Ibrahim has spoken publicly to caution of the possibility of vote rigging. On the economic front the International Monetary Fund has said it expects the local economy to grow by 5.1% in 2013, driven by projects under the government’s Economic Transformation Programme.
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.