Wednesday, November 30

Equities weekly: US Federal Reserve leaves asset purchases unchanged

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Over the week ended November 1, 2013, global equities represented by the MSCI AC World index gained 1.39 per cent. Mixed performance of emerging markets was observed, with North Asian equity markets being the best performers over the week and South East Asian equity markets underperforming.

The MSCI Asia Ex Japan index gained 3.03 per cent, while the MSCI Emerging Markets index was only up by 2.02 per cent. Indonesia was the worst performer over the week, declining 3.24 per cent in local currency terms, and 4.13 per cent in Malaysian ringgit terms; partially due to a slight appreciation of the Malaysian ringgit against the Indonesian rupiah. The Jakarta Composite Index (JCI) plunged last week on disappointing earnings results and a worse than expected trade balance data. Korean and Taiwanese equities (as represented by the KOSPI index and the TWSE index) recorded gains of 2.17 and 2.38 per cent respectively.

While China was the worst performer the previous week, the Chinese equity markets rebounded strongly over the week, with the HSML 100 index rallying by 5.57 per cent, the HSI index by 4.45 per cent and the Shanghai Composite index rallying by 2.53 per cent. Chinese equity markets surged on expectations of positive manufacturing data (PMI) and as well as on optimism as China’s top brass prepares for its coming political meeting, where vital economic reforms and policies are expected to be unveiled.

 

India: Repo rate raised in October 2013

The second policy statement from the Reserve Bank of India’s (RBI) governor, unlike the first, was on expected lines. Market participants were expecting the RBI to cut the Marginal Standing Facility (MSF) and a hike in the repo rate. The MSF rate was reduced by 25 basis points from nine to 8.75 per cent, and the repo rate was increased from 7.5 to 7.75 per cent. The Reserve Bank governor has unwound the exceptional liquidity tightening measures taken by the Central Bank in July 2013 and by doing this, the process of re-aligning the interest rate corridor to normal monetary policy operation is now complete. At this juncture, we continue to maintain our positive stance on the shorter end of the curve. A glance through the policy document reveals that inflation continues to be a concern for the RBI governor and team, which means that rate hikes are the way forward as far as the monetary policy stance is concerned.

 

Japan: Industrial production assessment improves

September’s industrial production increased by 5.4 per cent year-on-year (y-o-y), coming in slightly lower than consensus expectations, but up from a prior minus 0.4 per cent y-o-y in August. On a month-on-month basis, industrial production in September increased 1.5 per cent, lower than the expected 1.8 per cent and up from a decline of 0.9 per cent in August. The latest data marks the fastest increase in industrial production since April last year, and the second y-o-y increase in 2013. Even though the Ministry of Economy, Trade and Industry (METI) expected outputs data in October and November to remain volatile, but with the turnaround in data, its assessment of growth of industrial production has changed from a ‘moderate pace’ to an ‘accelerating pace’.

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