Over the week ended September 5, 2014, equity markets were generally higher across the board, led by the selected Asia and Emerging Market stock indices. Russia posted a strong rebound with a 6.12 per cent gain over the week as Ukraine and pro-Russian rebels reached a ceasefire agreement last week; much scepticism still remains as to whether this will last, while the EU pushed ahead with the implementation of Russian sanctions, adding to the continued uncertainty for the Russian equity market. Local Chinese stocks had a strong week on a better-than-expected Services PMI figure as well as rising expectations of government stimulus and corporate reforms, with the CSI300 gaining 5.29 per cent; the HSML100 index which tracks offshore China equities gained 3.54 per cent, while the Hong Kong stock market (which shares close ties with China) gained 2.63 per cent. On the whole, Asia ex-Japan equities were about 1.12 per cent higher week-on-week, with gains in Hong Kong and China stocks partially offset by weakness in South Korean equities (which posted a 1.16 per cent decline over the week).
Elsewhere in the world, stock markets in Europe, US and Japan were marginally higher (by between 0.6 and 1.03 per cent), bringing gains for the global stock market on the whole to 0.69 per cent over the week (based on the MSCI AC World Index). These figures mask the fairly strong gains for the European equity market (up 1.6 per cent in euro terms), although the depreciation of the euro over the week has taken away some of those gains for local investors. European equities received a boost from a surprise European Central Bank (ECB) benchmark rate cut as well as the ECB’s guidance to embark on selective asset purchases, although we note that these expectations have already been priced into the market for some time (evidenced by record-low sovereign bond yields, a weaker euro and a stock market which continued to rise in spite of negative economic data emerging from the region). Unlike the consensus which currently appears to revel in the ECB’s latest actions, we think the ECB is merely forced to respond to troubling economic data points which paint a less healthy picture of the recovery in the eurozone. Across the Atlantic, similar market sentiment appears to surround the US stock market, with the latest non-farm payrolls figure coming in below consensus expectations (near the lowest levels so far in 2014), and yet eliciting a positive response from investors who expect interest rate hikes to be delayed.
Southeast Asia: Singapore’s manufacturing contracts, Indonesia’s import decline
In Singapore, the Manufacturing sector PMI posted an unexpected decline to 49.7 in August, after a 51.5 reading in July. The consensus had expected a 51 reading. August’s contraction (a reading below 50) was the first so far in 2014 following seven consecutive months of expansion, with new orders and new export orders weighing down on the measure. The volatile nature of Singapore’s manufacturing sector means it remains to be seen if the latest data point marks a change in trend, or is simply a one-off due to sector specific inactivity.
Indonesia’s July import growth turned negative again, posting a 19.3 per cent year-on-year (y-o-y) decrease, well underperforming the consensus estimate of a 10 per cent y-o-y decrease. In the previous month, imports grew by a downward-revised 0.4 per cent y-o-y.
Non-oil and gas imports, which account for the majority of Indonesian total imports, contracted 25.5 per cent y-o-y as compared to the 1.6 per cent y-o-y growth in the previous month.
The biggest contributors to the drop were nuclear and mechanical appliances (down 21.4 per cent month-on-month) and machinery/electrical parts (down 18.5 per cent month-on-month). Consequently, this has helped to produce a US$124 million trade surplus in July, after a US$288 million deficit in the previous month.
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