Markets staged a broad retreat over the week ended July 11, 2014, with the MSCI AC world equity index posting losses of 1.41 per cent as all regional indices lost ground. The worst performing region for the week was Europe, falling 3.09 per cent on the back of worries over renewed concerns on the state of the banking sector following Portugal’s Banco Esposito Santo’s parent’s trouble meeting some of its debt obligations, leading some to espouse that the bank might be facing some financial difficulties given its links to other companies within the group. Apart from Europe, other developed markets also suffered losses, with Japan dropping 1.03 per cent, while the US posted a decline of 1.28 per cent.
Emerging and Asian markets outperformed their developed markets peers, with the MSCI Emerging Markets index declining 0.34 per cent and the MSCI Asia ex Japan index falling by 0.83 per cent respectively over the week. Among the East Asian equity markets under our coverage, Korea and Hong Kong posted the largest declines, with losses of 1.98 and 1.32 per cent respectively. China and Taiwan were not left unscathed, with the two countries dropping by 1.02 and 0.31 per cent respectively.
The Southeast Asian markets outperformed their East Asian peers, helped by the performances of Indonesia (4.98 per cent), Thailand (2.08 per cent) and Singapore (1.02 per cent). Malaysia was the sole Southeast Asian market under our coverage to post losses, with the benchmark Kuala Lumpur Composite index losing 0.09 per cent over the course of the week. The Emerging Markets was the best performing regional market on a relative basis, posting losses of 0.34 per cent. Apart from East Asia (as mentioned above), much of the slump in the Emerging markets can be attributed to India, which saw its Sensex index fall 4.14 per cent in the wake of the budget in India. Other emerging markets such as Brazil and Russia posted positive returns, with the former delivering gains of 0.97 per cent and the latter a return of 1.68 per cent.
Japan: Economy watchers fret over current conditions, positive over outlook
Despite Japan’s economy watchers survey for current conditions rising to 47.7 in June after a prior reading of 45.1, the latest reading marked a third consecutive month of decline to levels below 50, implying there were more survey respondents that were pessimistic over current economic conditions as compared to those who were optimistic over current economic conditions. The index has begun to fall after reaching historical highs in March 2014, where it recorded a reading of 57.9, an indication that economists as well as market analysts continue to remain worried over the potential negative economic impacts brought about by a hike in the consumption tax. While the current situation continues to worry economists and analysts alike, the outlook index performed better, with the reading dropping slightly to 53.5 from a prior level of 53.8, a level still higher than 50, showing that markets believed that the potential negative impacts if any are expected to be temporary.
US: FOMC minutes point to exit debate
Minutes from the US Federal Reserve’s policy meeting released last week revealed that the Fed has begun detailing how it plans to transit the US economy out of a period of loose monetary policy. While Fed officials have generally remained in consensus that the monthly asset purchasing programme would end sometime in October, the minutes have also revealed that the Fed envisions using overnight repurchase agreements in tandem with the interest it pays banks on excess reserves to set a ceiling and floor for its target interest rate. Additionally, the Fed has also expressed their concern that recent levels of low volatility in financial markets could suggest that investors “were not factoring in sufficient uncertainty.”
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