For the month ending January 2014
In January, the MSCI China Index fell -6.70%, Hong Kong's Hang-Seng Index returned -5.45% (-5.61% in U.S. dollar terms) while China's domestic A share index decreased -3.92% (-4.09% in U.S. dollar terms). China's currency, the renminbi, ended the month valued at 6.06 against the U.S. dollar.
December’s statistical data points indicate some softness in China’s gross domestic product. Export growth slowed to 4.3% in December, from 12.7% in November; while import growth rose to 8.3%, up from 5.3% in November. Monthly Industrial production growth slowed to 9.7% in December, from 10% previously. Growth in fixed asset investment (FAI) also slowed somewhat to 19.6% in December due to weaker transportation related FAI.
Retail sales growth decreased slightly to 13.6% (from 13.7%) in December, as a result of slightly lower increases in consumption in the high-end restaurant sector. This data point may highlight the focus on reforms, by the new administration, as an ongoing anti-corruption campaign seeks to curb extravagant expenditures for government-related affairs. Gold and jewelry continued to grow nicely at a pace of 16.6% while sales of home appliances and electronics moderated over the month. December’s consumer price index, a main gauge of inflation, fell to 2.5%, down from 3% in November.
China’s credit data for December revealed a small reduction in growth of total social financing, coming in at US$203 billion, representing a growth of 18.8%, compared to 19.5% in November. Despite these high growth figures, China experienced some liquidity tightness as the overnight SHIBOR (Shanghai Interbank Offered Rate) saw meaningful increases in early January. This environment of rising rates could persist into 2014 as the government works to rein in the risks associated with its shadow banking system and continues to deleverage its financial institutions.
In December, China released its fourth quarter 2013 GDP growth figure at 7.7%, slightly higher than market consensus. This came in even higher than the final official growth target of 7.5% for 2013. We are encouraged that the new administration has been willing to acknowledge the moderating growth trend, as growth expectations are now settling, below the historic 8% expectations, to a more manageable 7.5% to 7.75% range. China is undergoing various reform measures that were announced during its recent Third Plenum. These measures aim to shift China’s traditional investment-led growth model to one that is more consumption driven.
In January, the Bombay Stock Exchange 100 Index declined -3.90% in local currency terms (-5.41% in U.S. dollar terms). By sector, technology and health care were the best performing, while industrials and materials were the worst performing. Foreign institutional equity inflows were very modest at US$125 million, versus US$2.6 billion for the previous month. However, foreign institutional debt inflows were particularly robust, at US$2.1 billion for January.
Inflation numbers came down moderately with India’s wholesale price index declining to 6.2% in December versus 7.5% the previous month. The consumer price index declined to 9.9%, down from November’s 11.2%. The December trade deficit increased to US$10.1 billion, from US$9.2 billion. The central bank policy rate increase (by 25 basis points, 0.25%), partly stemmed from concerns over the currency due to the U.S. Federal Reserve’s tapering plan.
The initial results of the December earnings season showed that export-based sectors such as technology and pharmaceuticals are benefiting for two reasons; first, developed market growth and second, rupee depreciation. In the domestic consumer staples industries, rural growth appears to be slowing. Results from the financial sector have been mixed. Some banks are still struggling with asset quality challenges while others appear to be on the mend.
In January, the Tokyo Stock Price Index fell 6.27% in local currency terms (3.65% in U.S. dollar terms) retreating to its mid-November level. The decline was broadly reflective of global equity markets although sentiment was not helped by comments from the Bank of Japan governor, who suggested that there would be no further near-term increases in monetary stimulus, despite market expectations to the contrary. Over the course of the month, the yen strengthened by 3.11% against the U.S. dollar.
All sectors declined in absolute terms with financials and telecommunications lagging in particular, following strong performance in prior months. Health care was the best performer in relative terms, given a lower sensitivity to broader market factors.
Macroeconomic data was once again mixed. The current account deficit reached a record 593 billion yen (approximately US$5.7 billion) as the impact of a weaker currency increased the cost of critical imports, such as fuel. The size of the deficit may also be evidence that consumers have been pulling demand forward, ahead of Japan’s sales tax hike slated for the spring.
The key inflation indicator, the consumer price index, excluding fresh food and energy, increased 0.7% in December—the largest move since 1998 as the government continues its aggressive attempt to stimulate the economy.
During the month, the Korea Composite Stock Price Index dropped -3.49% in local currency terms (-5.26% in U.S. dollar terms) as the Korean won depreciated 2.70% against the U.S. dollar.
Trade data continued to strengthen, with an estimated surplus of US$0.7 billion. Exports to the E.U. were notably higher as the regional economy continued to recover. Export growth to Southeast Asia also improved. Memory semiconductors and wireless communication equipment led strong sales, while automobiles and petrochemical product-related stocks declined. Overall, monthly export volumes were steady, even though there were two fewer working days in January due to the Lunar New Year holiday. The government has indicated it expects moderate export growth throughout 2014, due to the continued economic recovery in the developed markets.
During the month, the Bank of Korea held its policy rate steady at 2.5% amid caution about the global and domestic economic recovery. The consumer price index for December slowed to 1.1% from the previous month’s 1.2%, due in part to a decline in food prices. The Bank of Korea presented a cautious economic outlook given the expected impact of the U.S. Federal Reserve's tapering of quantitative easing policies.
In January, the MSCI South East Asia Index declined -3.52% in U.S. dollar terms. Notably, the Jakarta Stock Exchange Composite Index advanced 3.38 % in local currency terms (3.48% in U.S. dollar terms) and the Singapore’s FTSE Straits Times Index declined -4.39 % in local currency terms (-5.32% in U.S. dollar terms).
Indonesia’s GDP expanded a stronger-than-expected 5.7% (consensus estimated 5.3%) in the fourth quarter of 2013, bringing its full year growth to 5.8%. Increased exports explained much of the surprise, boasting a 7.4% year-over-year increase. The Jakarta Stock Exchange introduced a minimum free float of outstanding shares at 7.5%, in an effort to increase market liquidity and trading volume. The regulation will be effective as of Jan. 30 and listed companies will have two years to comply.
Singapore’s consumer price index averaged 2.4% in 2013, sharply lower than the 4.6% level seen in 2012. The Monetary Authority of Singapore has forecast inflation to come in at 2% to 3% for 2014 due to a slower pace of increase in rents. Consumer confidence decreased in the fourth quarter of 2013 to 97 on the Nielsen consumer confidence index, driven by worries about employment prospects with 38% of respondents expressing concern, an increase of 4 percentage points from the third quarter. Singapore’s score of 97 was higher than the global average of 94.
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.