Thursday, October 24

Soft Chinese data and Crimean concerns hurt markets

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Global equities, as represented by the MSCI AC World index, slumped 2.1 per cent over the week ended March 14, 2014, amidst growing concerns over Crimea’s secession vote and worries on China. All regional indices posted losses, with Japan leading the losses as it tumbled 4.2 per cent. The rest of the indices fared marginally better; Europe (2.7 per cent), Asia ex Japan and emerging markets (2.7 per cent each) while the US dropped 1.6 per cent for the week.

On a single country basis, only two markets managed to post positive returns for the week. Indonesian equities rose 4.5 per cent upon confirmation that the Jakarta governor Joko Widodo had received a mandate from his political party to run in the presidential elections due to take place in July.

The Thai equity market was the other market to post positive returns over the week, rising two per cent as the police hinted at a possible lifting of the state of emergency as the political situation has improved, while the Bank of Thailand’s (BoT) decision to cut its benchmark interest rate by 25 basis points (bps) to lend support to the economy boosted investor optimism.

The Russian equity market was yet again the worst performer for the week, falling 8.1 per cent in the wake of concerns over likely economic sanctions due to its involvement in the on-going crisis in Ukraine and Crimea. The Russian equity market has been the worst performer on a year-to-date basis, slumping 26.7 per cent thus far in 2014, with month-to-date losses running at 16.1 per cent.

 

Emerging markets: BoT cut rates

In Thailand, the BoT cut its benchmark rate by 25bps rate, taking the headline rate to two per cent which is a move that was in line with consensus estimates. The central bank stated that “downside risks to growth have risen in the wake of the prolonged political situation” and that “monetary policy has some scope to ease, in order to lend more support to the economy and ensure continuous financial accommodation.”

BoT spokeswoman Roong Mallikamas also reiterated that “whether the central bank will ease further or not depends on economic data.” Consumer price index (CPI) rose by 1.96 per cent year-on-year (y-o-y) in February, higher than consensus estimates of a 1.91 per cent year-on-year increase and rising slightly from a 1.93 per cent y-o-y increase in the previous month. Thailand’s inflation has remained within the BoT’s policy target since the start of last year, giving the central bank room to remain dovish in the interim to stimulate the economy.

 

China: A week full of poor data

In China, the CPI rose two per cent y-o-y in February, lower than consensus estimates of a 2.1 per cent increase, marking the lowest rate of increase in 13 months. The Producer Price Index continued to fall for the 24th month, falling two per cent in February. Inflation pressure has been significantly alleviated in recent times, indicating a slowdown in economic growth.

Other news coming out from China included the release of exports for the month of February. February’s exports fell by 18.5 per cent on y-o-y basis, missing estimates and coming in significantly below January’s 10.6 per cent growth rate. While exports nosedived, imports continued to grow, rising 10.1 per cent on a y-o-y basis after a similar 10 per cent rise in January 2014. With imports outpacing exports, China’s trade balance dipped by USD$23 billion to US$225.2 billion. While exports were disappointing, they were likely affected by both the Chinese New Year celebrations as well as a high-base effect stemming trade anomalies (fake invoice data) in the preceding period. Moving forward, the authorities reckon that the effect of festivities on exports will wear off in March and better exports growth is to be expected.

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