Global equity markets entered a phase of panic selling last week. Fears over a sharp slowdown in global growth alongside a spike in sovereign yields across the Eurozone have provoked a sudden flight to safety.

Key current investment debates center on the ability of the U.S. and the Eurozone to meet the structural challenges of reducing debt burdens and regaining economic competitiveness, thereby returning to trend growth and full employment. The relative economic strength of the emerging markets is likely to lead to further capital allocation, inflows and currency appreciation over the long term.

Brazil

High volatility is likely to persist in the near term, with markets reacting to key economic data and the ability of key Eurozone countries Spain and Italy to rollover debt at affordable yields. Brazilian investors will also be paying close attention to retail sales data and the second-quarter releases from the banks and homebuilders, with credit quality and receivables management among the key focal points. Any further announcement by the ratings agencies regarding the U.S. sovereign outlook will add to this volatility.

Brazilian industrial production decreased by 1.6 percent month-on-month in June, on a seasonally adjusted basis, following an increase of 1.1 percent in May. Despite this short-term volatility, industrial production in Brazil continues at a high level, with recent data showing some correlation with the global economic slowdown. The production in the second quarter fell 0.7 percent quarter-on-quarter, indicating a likely moderation in their second-quarter GDP.

After the Brazilian Central Bank signaled a likely end to the current hiking cycle, economists increased inflation expectations at the beginning of this week, to 5.30 percent for 2012 and 4.51 percent in 2013. However, as the global economic slowdown intensifies, it is expected that inflation expectations will continue to rise.

Hong Kong (HK)/China

Hong Kong/China markets continued to slip this week. A plunge in stock markets began in Europe and the U.S. as investors become increasingly concerned about a global economic slowdown and the failure of policymakers to stabilize the financial markets.

In China, July’s HSBC PMI printed its first below-50 reading in a year, and the market expects industrial production growth to moderate in the coming months. Investors took profits on some YTD (year-to-date) outperforming stocks with high P/E (price/earnings) multiples. It is likely that the China market remains range bound amid weak market sentiments.

Different sets of Purchasing Managers’ Index (PMI) data all indicated a slowdown in China’s manufacturing activities in July. Coupled with tighter liquidity, investors are worried about China’s growth outlook. All sectors except Utilities and IT ended in negative territory in the MSCI China index.

India

The Indian market is going through a corporate earnings season for the quarter through April to June. Cost pressures, in terms of rising commodity prices, are clearly visible across sectors like autos, engineering and FMCG stocks, where margins have been under pressure. Among banks, private sector banks have been able to maintain asset quality despite a slowdown in growth. Meanwhile, public sector banks face challenges on both margins and asset quality. In general, an elevated and sticky level of inflation has resulted in a hawkish tone from the Reserve Bank of India. The risks that the European debt crisis may spread to Italy and Spain, and the increasing fear of the U.S. slipping into another recession, have kept the markets on tenterhooks. Within the portfolios, while remaining overweight in the consumption basket, we have added Oil & Gas and Utilities, while trimming down Commodities.

Indian markets dropped along with other Asian markets on weakening global economic data. In India, the lowering of the government’s economic growth forecast weighed on investor sentiment. The Prime Minister’s Economic Advisory Council now expects the economy to grow at 8.2 percent, down from a previous forecast of 9 percent.

This report is provided by Mirae Asset Financial Group.