Weekly Market Review - February 7, 2014

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Weekly Market Review - February 7, 2014

  1. 1. Market Review WEEK ENDING FEBRUARY 7, 2014 International Global equity markets regained stability amidst select pieces of positive economic and corporate data and increased hopes of further monetary support by the ECB.The MSCI AC World index moved up 0.76% led by gains in US and Europe, while the Emerging Markets put up mixed performance. Treasury bond yields in key markets exhibited mixed trends – yields on German bunds firmed up as ECB kept rates on hold and economic data out of the region was quite encouraging. Meanwhile, weaker-than-expected employment gains led yields to ease in the US. The Reuters Jefferies CRB index started off the month on a positive note, helped by strong gains in copper and gold prices. The US dollar index was impacted by weaker economic data at home, while the euro rallied as contrary to expectations ECB did not offer additional stimulus. • Asia-Pacific: Regional equity markets remained under pressure – Japan, Hong Kong and South Korea were amongst the top losers. Chinese equity markets resumed trading at close of week and recorded gains on the back of strong rally in technology stocks. Indonesia GDP data surprised on the upside – economy grew by 5.7% as stronger exports offset impact of slowing domestic demand. Reserve Bank of Australia raised economic growth forecasts and maintained its main cash rate at 2.5%. Meanwhile,Australia retail sales topped market estimates and sharp expansion in exports helped push trade surplus to multi-year highs. Philippines left benchmark rates unchanged after last week’s strong GDP data. In a bid to strengthen local securities market and avoid a repeat of last year’s penny stock crash, Singapore announced new trading rules that stipulate minimum trading prices and collateral requirements, amongst others. • Europe: European equities got a boost from good earnings and economic data. Europe’s leading central banks, ECB and BoE kept rates on hold. Amongst notable economic data released this week, Euro zone manufacturing PMI moved up to 54 from 52.7, showing sustained improvement in the region. Except France all country PMI indicators came in above 50.At the same time, Eurozone December retail sales fell by 1.6% and German industrial output contracted 0.6% after a 2.4% jump recorded in November. Germany’s trade surplus also narrowed to €14.2 bln from €19.1 bln. UK manufacturing PMI dipped slightly but showed sector continued to expand in January and trade deficit fell. • Americas: US and Canada equities gained as investor risk aversion ebbed and markets shrugged off soft US economic data. US non-farm payrolls increased by less than expected 113000 and the unemployment rate edged lower to 6.6%, likely due to fall in participation rate.The ISM manufacturing PMI dropped to 51.3 from 56.5, new factory orders declined and the US trade deficit increased about 12% to $38.7 bln in December. The Congressional Budget Office said it expects fiscal deficit to narrow to 3% this year. Unemployment is expected to remain at 6.7% and GDP growth at 3.1%. Brazil inflation rate slowed Encouraged by the recent policy changes, Moody’s upgraded Mexico credit rating one notch to A3. On the M&A front, Coca-Cola is acquiring 10% stake in Keurig coffee brewer for around $1.3 bln.
  2. 2. Weekly Weekly change (%) change (%) MSCI AC World Index 0.76 Xetra DAX -0.05 FTSE Eurotop 100 0.53 CAC 40 1.50 MSCI AC Asia Pacific -1.14 FTSE 100 0.94 Dow Jones 0.61 Hang Seng -1.81 Nasdaq 0.54 Nikkei -3.03 S&P 500 0.81 KOSPI -0.96 India - Equity After a weak start, Indian equity markets gained on improved global sentiment and better PMI readings. While frontline indices closed in the negative territory, mid and small cap stocks moved up. Healthcare, auto and metal stocks were amongst the top gainers, while IT stocks lost ground. FII inflows were negative this week (-173.3 mln). During the week, 2G telecom spectrum auctions witnessed strong demand from operators and it appears the government will be able to meet budgeted revenue estimates from the auctions. Meanwhile,Vodafone plc was granted approval to buy out minority shareholders in its India unit for over Rs. 10,000 crore. • Earnings: Latest earnings season has been largely in line with expectations – earnings growth appears to be bottoming out on the back of strong performance by export-oriented sectors. Corporate India’s earnings growth had been quite muted over the past couple of years due to various factors.We see this changing over the next year or so as companies de-lever and consolidate,and the macro situation improves.Over the past year,companies have been looking to raise additional capital through equity and sale of non-core assets (those with large debt burden). This trend is likely to extend into 2014, and augurs well for banks’ asset quality. Consolidation is also likely to provide a fillip to earnings growth.We expect margins to expand once the interest rates normalize and positive operating leverage kicks in. Capacity addition has been quite low and it can improve quite fast. • Economy: India’s PMI readings showed some improvement from last month – the manufacturing index moved up to 51.4 from 50.7 and services index gained 1.6 points to 48.3. As per CSO’s initial estimates, India growth will be about 4.9% in the current fiscal year, compared to 4.5% last fiscal. Growth in FY14 is helped by sharp rise in agriculture output (up 4.6% in FY14 vis-à-vis 1.4% last year) and a relatively resilient financial and business services sector. In contrast, manufacturing output is expected to contract by 0.2% (1.1% growth last year). CSO forecasts growth will pick up to 5.6% in FY15. While a cyclical pick-up is expected, the strength of the recovery will depend on economic reforms and investment cycle.
  3. 3. Weekly change (%) S&P BSE Sensex -0.67 CNX Nifty -0.43 CNX 500 -0.16 CNX Midcap 0.85 S&P BSE Smallcap 1.04 India - Debt Treasury bond yields eased as the rupee stabilized and investors hoped inflation data will lead RBI to not tighten rates further. The government concluded its FY13 borrowing programme this week with the auction of Rs. 10,000 crore worth GOI securities. • Yields: Government bond yields eased across maturity buckets, with yields decreasing more sharply at the longer end. The 10 year gilts finished the week down 8 bps, while the 1-year gilt eased 4 bps. The 30-year gilt yield dropped 19 bps to 9.02%. As a result, spreads between long and short dated papers narrowed from 34 bps to 19 bps. • Liquidity/borrowings: Systemic liquidity conditions were largely stable and overnight call money rates closed around 8.80% levels. Reverse repos averaged Rs. 28,860 crores as against Rs. 34,347 crores last week. Scheduled GOI bond auction of Rs.10,000 crores received bids of 2.3X the notified amount and there was no devolvement on primary dealers. • Forex: Relative weakness in the US dollar and expectations of a boost to foreign flows from Vodafone deal approval helped the Indian currency close 0.64% stronger against the US dollar. As of Jan 23 2013, forex reserves stood at $291 bln — down about $1.1 bln from last week’s levels. Source: CLSA, Bloomberg. As of end-January The Indian rupee has weathered the recent EM turmoil relatively well, reflecting investor comfort with the recent developments on the current account deficit and forex reserves front.
  4. 4. 07.02.2014 31.01.2014 Exchange rate (Rs./$) 62.28 62.68 Average repos (Rs. Cr) 28,860 34,347 1-yr gilt yield (%) 8.83 8.87 5-yr gilt yield (%) 8.88 8.97 10-yr gilt yield (%) 8.98 9.06 Source: Reuters, CCIL The information contained in this commentary is not a complete presentation of every material fact regarding any industry, security or the fund and is neither an offer for units nor an invitation to invest.This communication is meant for use by the recipient and not for circulation/reproduction without prior approval.The views expressed by the portfolio managers are based on current market conditions and information available to them and do not constitute investment advice. Risk Factors: All investments in mutual funds and securities are subject to market risks and the NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market.The past performance of the mutual funds managed by the Franklin Templeton Group and its affiliates is not necessarily indicative of future performance of the schemes. Please refer to the Scheme Information Document carefully before investing. Statutory Details: Franklin Templeton Mutual Fund in India has been set up as a trust by Templeton International Inc. (liability restricted to the seed corpus of Rs.1 lac) with Franklin Templeton Trustee Services Pvt. Ltd. as the trustee (Trustee under the Indian Trust Act 1882) and with Franklin Templeton Asset Management (India) Pvt. Ltd. as the Investment Manager. Copyright © 2013 Franklin Templeton Investments. All rights reserved Copyright © 2013 Franklin Templeton Investments. All rights reserved

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