Hong Kong and China stock markets both dropped as investors confidence in the market waned on disappointment over no additional stimulus plans. In particular, news that central bank will remain cautious in reducing banks’ reserve requirements ratio to prevent home prices from rising further negatively influenced investor sentiment.
China’s Ministry of Commerce also stated export conditions will likely worsen in the second half after export growth slowed to 1 percent from a year earlier in July.
Moreover, data showed aggregate profit of the non-financial state-owned enterprises for the period of between January and June dropped as well.
Meanwhile, Premier Wen JiaBao said the country’s economy is still facing downward pressure and warned current economic problems may persist.
Among the sectors, coal producers declined the most as market was concerned about oversupply in the sector. China recently cut coal-output targets for 2012 for its three largest coal-producing regions. The cuts are partially intended to help stabilize domestic coal prices as demand has fallen sharply due to the slowing economy.
Market rallied at the beginning of the week, as banking stocks from the previous week rebounded as the plunge from the previous week was seen overdone and because of the news on inflation.
Headline inflation unexpectedly dropped to a 3-year low, according to government data, boosting hopes for monetary easing by the Reserve Bank of India. The wholesale price index (WPI) rose by lower-than-expected 6.87 percent year on year, down from 7.25 percent in June. This lowest figure since November 2009 was attributable to lower domestic gasoline and vegetable prices.
However, gains were limited by the core inflation data which rose to 5.44 percent from 4.9 percent year on year and that raises concerns that recent increase in crude oil price and drought may increase inflation pressure in the coming months.
Moreover, concerns were also raised after the release of the Comptroller and Auditor General’s (CAG) report, a government auditor’s report, on coal, power and aviation. According to the CAG report, thousands of crores have been lost in the way in which coal mines were allocated to private players while another report found faults with how the Delhi international airport was privatized.
The week ended with the local index almost flat in Brazilian real, with a negative performance of 0.3 percent. The 2012 second quarter earnings season finished and showed weaker results in general, even with some positive surprises coming from economic data releases throughout the week.
Healthcare stocks were the main positive highlight of the week. Weaker results coming from the sector have been released in the previous week, delivering uninspiring numbers from almost all companies. However, investors corrected part of the underperformance seen in the previous week, resulting in the better performance of the sector in the past few days.
Telecoms presented poor performance, after all companies missing consensus estimates. Oi was the main negative within the sector, with investors still cautious about the company´s guidance and also about Moody´s alert of a possible downgrade of Oi´s debt rating.
In Brazil, earnings season finished this week, confirming a relative disappointing set of results released by most companies, in particular with the consumer discretionary and telecom sectors. Although downward revisions in valuations are expected to occur in short term, the recent economic indicators in Brazil led us confident about a rebound in economy during the second half of 2012, reinforcing the positive view for the coming months.
Questions about global economic growth will likely to be on focus next week. Worldwide flash purchasing managers’ index (PMI), an estimate for PMI, will be released and they will be one of the first August leading indicators. Wednesday sees the release of Chinese flash PMI. In Brazil, Thursday sees the release of unemployment rate and current account data whilst Tuesday sees the release of CPI Preview (IPCA-15).
This report was provided by Mirae Asset Global Investments.