Emerging markets‘ mediocre performance
China and Hong Kong
The Hong Kong stock market ended the week generally unchanged despite a dip when spiking Spanish bond yields reignited euro debt concerns. On the other hand, increasing liquidity fueled domestic sentiment in China markets which registered gains for the week.
Broad money supply surprised the market on the upside in March with M2 growing by 13.4 percent year on year and new Renminbi lending during the month reaching 1.01 trillion.
The rebound of home sales in first-tier cities in the first quarter may be attributable as falling housing prices and preferential loan rates for first-home buyers stimulated mortgage growth. Banks rose on new loans growth despite a drop earlier in the week after Premier Wen Jiabao said the nation needs to break a banking monopoly of a few big banks while the private financing pilot program in the Zhejiang province may be expanded to serve the purpose.
Elsewhere, consumer price growth resumed to acceleration at 3.6 percent year on year in March mainly driven but surge of food prices, especially vegetable prices, compared with 3.2 percent year on year the previous month.
Despite improving liquidity and rising inflation, a decelerating economic growth in the first quarter of 2012 may provide conviction for continued policy easing. The first quarter’s GDP surprised the market on the downside with the annual growth rate at 8.1 percent, lower than the estimate of 8.4 percent.
The Indian market stays flat this week as negative news flows are counter balanced by positive expectation.
The current account deficit has reached an all-time high of $19.4 billion, as higher oil and gold import widened the trade deficit. Industrial production in February increased less than predicted because of weaker overseas demand, signaling an economy slowdown.
In light of this, there is expectation that central bank might reduce lenders’ reserve ratio and interest rate in the near future to boost economy. The expectation has supported the equity market performance.
There are still concerns for the Reserve Bank of India (RBI) to lower interest rate. The high account deficit together with high inflation is the main concerns which would stop the RBI in decreasing interest rate aggressively.
India’s inflation is not fully under control due to risk around oil prices and weaker rupee. However, the government is also under pressure to reduce rates in order to bolster domestic spending and counter export threats from Chinese expansion slowdown, moderating U.S. jobs growth and Europe’s debt crisis. The RBI’s priority in handling the above issues might affect the Indian stock market in the near term.
The Russian equity market in the second half of 2011 was defined by elevated volatility and heightened correlation with Russia falling victim to extreme risk aversion driven by concern over the euro zone debt crisis and the heightened risk of a double dip.
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 will are still focused on further efforts by the European Central Bank and eurozone leaders to contain debt risks. Depending on the actions taken or avoided ― for example, extra stimuli or other measures to stabilize financial markets and spur economic growth ― all equity markets will remain very 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 steels and materials exporters will again be more sensitive to shifting investor sentiment.
Monetary policy is again in focus in Brazil during the week ahead. The April Copom (monetary policy committee) meeting is expected to deliver a further 75 basis points of easing, with rates falling to 9 percent. Mirae Asset believes this is likely to be the last rate cut of the current cycle, as the central bank and government attempt to add stimulus to push GDP growth rates back towards the 4 percent level.
Several equity offerings are expected to close in the coming weeks, including Qualicorp, Fibria, Unicasa and BTG Pactual. Primary equity issuance within Brazil has dried up since the first half of 2011 due to adverse market conditions, but with the year-to-date improvement in appetite and sentiment, we are likely to see a higher flow of equity capital market deals throughout the second quarter of 2012.
This report was provided by Mirae Asset Global Investments.