OVER the week ended August, 9 equity markets were generally weaker, with the exception of Brazil and Australia, which delivered week-on-week returns of 2.9 per cent and 1.6 per cent respectively. Japan was the weakest performer, posting a hefty decline of 3.7 per cent as the yen strengthened against major currencies like the US dollar; this suggests that Japanese market returns continue to have a fairly high correlation with currency strength/weakness.
Markets like Taiwan, South Korea and Hong Kong also delivered poor returns over the week, with declines of 3.2 per cent, two per cent and 2.1 per cent respectively. Despite a fairly strong corporate earnings season for US companies, the S&P 500 posted a 1.4 per cent decline, hurting returns for global equities on the whole (minus 0.8 per cent).
Malaysia’s exports continue to slump
Mirroring the general export weakness in the region, Malaysia’s exports for June fell for a fifth straight month, declining 6.9 per cent on a year-on-year basis, weakening from a downward-revised 5.1 per cent contraction in May.
Exports to major trading partners like China and Japan declined 20.5 per cent and 8.4 per cent compared to a year ago, mainly weighed down by weaker commodity demand and electrical and electronic output.
On a year-on-year basis, imports grew 1.3 per cent compared to the 2.3 per cent contraction in May, adding pressure to the declining trade surplus which stood at RM8.2 billion in the second quarter.
Trade rebounds in China, trend weak in Taiwan
In China, both exports and imports came in above expectations in July, rising 5.1 per cent and 10.9 per cent year-on-year respectively, a marked improvement from the 3.1 per cent and 0.7 per cent contractions the previous month.
While the surge in imports saw the trade balance shrink to the lowest level in four months, the measure is possibly indicative of improving economic activity, evidenced by the better-than-expected official Purchasing Managers Index (PMI) for July. The rebound in trade activity provided a welcome boost to investor confidence, with the local A-share market posting positive returns over the week, despite the lacklustre performance of global equities in general.
In contrast, Taiwan’s exports came in below expectations, at just 1.6 per cent year-on-year growth in July, and down from the 8.6 per cent growth seen in June. Imports contracted more-than-expected at minus 7.6 per cent, after a 6.8 per cent increase in the previous month. Exports to China and Hong Kong saw a 0.9 per cent decline, while lowered exports of information and communication technology products (dip by 7.7 per cent year-on-year) also weighed on the measure.
Europe PMIs getting better, German factory orders rebound
Aided by strength in the key German economy, the PMI Services reading for the eurozone showed a better-than-expected reading of 49.8 in July, just marginally below the 50 mark which separates expansion from contraction. On the other hand, the composite PMI rose to 50.5 in July, the highest level since August 2011 and was the first expansion in 18 months.
Germany’s factory orders posted a better-than-expected 3.8 per cent month-on-month gain in June, after a revised 0.5 per cent decline in May. On a year-on-year basis (adjusted for differences in workdays), factory orders were 4.3 per cent higher after a revised 1.8 per cent decline in the previous month.
The latest data point provides a positive read on the overall German economy which is still heavily dependent on manufacturing, and is consistent with the latest improvement seen in the PMI manufacturing gauge, which rose above the 50 mark (which separates expansion from contraction) for the first time in five months, suggesting that improvements in growth are likely to come in the second half of 2013.
Such signs of stabilisation are certainly welcome for the German economy as well as the broader eurozone region which has been contracting for 6 consecutive quarters already; the improvements in these critical indicators suggests that growth may eventually emerge in the second half of 2013.