For the month ending October 2013
Chinese stocks experienced mixed performance in October. The MSCI China Index edged up 2.43% (2.51% in U.S. dollar terms), Hong Kong's Hang Seng Index returned 1.68% (1.71% in U.S. dollar terms) while China's domestic A share index slipped -1.52% (-1.1% in U.S. dollar terms). China's currency, the renminbi, ended the month at 6.09 against the U.S. dollar.
China saw continued improvements in its data for September. Export growth was marginally down 0.3% in September, compared to the 7.2% growth in August. China’s trade surplus was US$15.2 billion for the month, down from US$28.5 billion in August, but still showing a healthy current account balance. China’s industrial production growth maintained its positive momentum, posting an increase of 10.2% for the month and its purchasing managers’ index grew from 51.1 in September to 51.4 in October. Both statistics are largely used to gauge the level of economic activity within a country. During the month, China’s retail sales growth was also strong at 13.3%. Overall, China’s economic recovery has appeared steady. However, its consumer price index levels rose to 3.1% in October, though still within the government’s 3.5% target for the year.
During the month, there was further discussion surrounding a reform agenda for its 3rd Plenary Session of the Party Congress. The reform has pledged to allow the markets to play a more decisive role in the economy.
In October, the Bombay Stock Exchange 100 Index increased 9.66% in local currency terms (11.11% in U.S. dollar terms). The rupee strengthened against the U.S. dollar and was assisted by strong foreign institutional equity inflows of US$2.5 billion (year-to-date equity inflows have reached US$16.2 billion). By sector, industrials and financials were the best performing, while consumer staples and health care were laggards.
India’s wholesale price index increased to 6.5% in September versus 6.1% the previous month. However, the consumer price index increased to 9.8% from 9.5% the previous month. The central bank followed a conservative monetary policy amid inflationary concerns. The policy rate was increased by 25 basis points (0.25%).
The September trade deficit decreased to 4.5% of annualized GDP from 7.3% in the previous month, assisted by an uptick in exports and decline in imports. Hence, companies whose business models were either export-driven or that produced goods to replace imports tended to do better in the earnings season. The results seem to indicate a weakening domestic demand environment. Volume growth continued to moderate across categories, including relatively more stable businesses such as those in the consumer staples sector. The results from banks indicate that they have been able to still hold on to margins despite increasing credit costs and slowing credit growth.
The Indian government announced that it will infuse 140 billion rupees, or about US$2.2 billion into public sector banks in an effort to strengthen their balance sheets and help meet capital adequacy norms.
In October, the Tokyo Stock Price Index was basically flat, up 0.01% in local currency terms (down -0.09% in U.S. dollar terms). Until mid-month, investors were largely focused on the U.S. government shutdown, the debt ceiling debate and U.S. Federal Reserve’s policy regarding bond purchases. Following the resolution of the U.S. issues, focus shifted to quarterly earnings results that started to be released toward the latter half of the month. Corporate earnings announced during the month were slightly ahead of expectations but had only limited impact on the overall market.
Commodity-related sectors continued to show mixed performance with the metal products sector being the top performer, while industries such as rubber, steel, marine transportation and oil performed poorly. The construction segment outperformed on the back of strong housing orders as consumers began front loading orders ahead of next year’s anticipated consumption tax hike. Meanwhile, security brokerages were weak following a strong September, and amid heightened market uncertainties that stemmed from the U.S government shutdown.
Macroeconomic data out of Japan remained positive. The country gained a net 190,000 jobs in September, which is particularly good when compared with the 148,000 gain in U.S. non-farm payrolls for the same month. The September consumer price index, excluding food and energy, showed that prices remained flat year-over-year—the first such instance since December 2008. Wage growth was also positive but the pace of improvement has slowed from earlier in the year.
During the month, Prime Minister Shinzo Abe formally announced his intentions to proceed with a consumption tax hike in April 2014. The government intends to put together a policy package including a corporate tax cut in order to offset some of the negative impact on the economy. The intention has been to incentivize higher wages, increased capital spending and job creation.
During the month, the Korea Composite Stock Price Index rose 1.66% in local currency terms (up 2.59% in U.S. dollar terms) as the Korean won appreciated 1.36% against the U.S. dollar.
Trade data continued to be robust, with an estimated trade surplus of US$4.9 billion. Monthly exports exceeded US$50 billion for the first time, beating out the previous record of about US$49 billion in mid-2011. The government attributed the growth to the economic recovery in the U.S. and Europe, strong overseas sales of information technology products and automobiles. It also credited a further diversified export base, including smaller export products such as electronics parts and cosmetics. A rebound of exports to global emerging markets, which had been volatile in recent months, was also experienced.
During the month, the Bank of Korea maintained its policy rate of 2.5% amid concerns over the continued recovery of the global economy. The country has also seen recent improvements to employment, particularly among the services industries as well as a rise in employment of the country’s older demographic. The consumer price index for September slowed to 0.8%, down from 1.3% for the previous month due in part to declines in food and fuel prices. The central bank has anticipated low inflation for the short term, despite an expected increase in public utility charges.
Southeast Asian Nations
In October, the MSCI South East Asia Index rose 5.80% in U.S. dollar terms. Notably, the Philippines Composite Index advanced 6.36% in local currency terms (7.12% in U.S. dollar terms) and the Jakarta Composite Index advanced 4.51% in local currency terms (6.54% in U.S. dollar terms).
The Philippines recorded a balance of payments (BOP) surplus in September worth US$456 million, improving from a US$318 million deficit in August. The September surplus brings the year-to-date BOP surplus to US$3.8 billion, and is on pace to meet the central bank’s fiscal year estimate of a BOP surplus of US$4.4 billion. The World Bank’s “Doing Business 2014” report ranked the Philippines among the top 10 economies that have made the biggest improvements in business regulations over the past year—up from a ranking of 138 previously to 108. While its new ranking is an improvement, it still reflects a low score. Among the criteria used in the ranking was ease of starting a business and ease of doing business, dealing with construction permits, getting electricity, credit, paying taxes, enforcing contracts and resolving insolvency.
Indonesia’s headline consumer price inflation dropped modestly in October, at 8.3% from 8.4% the previous month with a consensus projection of 8.4%. Bank Indonesia has indicated it expects inflation to drop during 2014 to below 5%, due to softening food inflation and a higher base effect from June. The Jakarta governor, Joko Widodo, set the city’s minimum wage for 2014 at 2.44 million rupiah per month (about US$215), up 10% from 2013 and marking the smallest minimum wage increase since 2011. This is far lower than the wage its labor unions had demanded (about US$326).
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.