Emerging markets to remain volatile
The Russian equity market in the second half of 2011 was defined by elevated volatility and heightened correlation with the nation falling victim to extreme risk aversion driven by concern over the eurozone debt crisis and the heightened risk of a double dip recession.
The external environment is likely to remain challenging in 2012, as concerns over the eurozone sovereign debt crisis and a slowing global economy are likely to linger. Investors in all markets are still focused on further efforts by the European Central Bank and eurozone leaders to contain debt risks.
Depending on the action taken, or avoided, such as extra stimuli or other measures to stabilize financial markets and spur economic growth, all equity markets will remain nervous and volatile.
Russia, as a high beta theme within global markets, will continue to reflect that uncertainty. The stocks most exposed to the global economy, such as steel and materials exporters, will again be more sensitive to shifting investor sentiment.
Hong Kong and China
Hong Kong and China stock markets slid early last week when surging credit default swaps on Spain and declining foreign direct investment (FDI) weighed on them.
Revived sentiment on news that the reserve requirement ratio (RRR) may be cut to stimulate the economy reversed the losses.
FDI in China dropped 6.1 percent in March, compared to a year ago. It is a fifth straight month of decline, amid decreasing investment from Europe and competition of foreign investment among developing economies.
For the first quarter of 2012, FDI fell 2.8 percent, compared with a growth of 29.4 percent from a year prior.
On the policy front, the People’s Bank of China widened renminbi trading band for the first time in five years to promote price discovery and enhance the flexibility of the currency’s exchange rate in both directions, while markets see it as a step towards greater convertibility.
Elsewhere, bets on more open market operations like reverse repurchase agreements and redemption of central bank bills were also positive to sentiment.
The rising Indian market in terms of SENSEX index pared the loss of last week as the Reserve Bank of India (RBI) cut rates by 50 basis points, an extent that was larger than the 25 basis points market consensus.
Repo, the RBI’s lending rates, and reverse repo rates, the RBI’s borrowing rates from commercial banks, now stand at 8 percent and 7 percent, respectively.
The magnitude of the cut reflects the RBI’s priority in stimulating growth while a better growth and inflation outlook would translate into room for further easing.
However, March’s wholesale price inflation (WPI) disappointed the market on the upside when it reached 6.89 percent year-on-year, compared with the 6.65 percent of consensus.
On a positive note, WPI did moderate from the previous month’s 6.95 percent. On consumer price basis, prices rose 9.47 percent from a year ago, higher than the 8.83 percent in February. Crude price movement is one of the key factors affecting price trend.
This report is provided by Mirae Asset Finaicial Group.