Weekly Market Review, May 17, 2013


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Weekly Market Review, May 17, 2013

  1. 1. InternationalLeading equity indices across developed markets remained buoyant as strong economic data out of the UShelped overcome weak news flow elsewhere and on further signs of sustained easy monetary policy across theworld.The MSCI AC World Index finished 0.95% higher than last week levels on the back of sustained rallyin Japan and US equity markets. Bond markets witnessed a bit of volatility due to on-going debate about thetiming of the pull back from quantitative easing in US and increased global risk appetite.Whilst bond yieldseased in Europe, they were higher (especially at the long end) in Japan and US. In commodity markets, goldprices continued to edge lower while crude oil prices bounced back from lows. Overall the Reuters JefferiesCRB index closed down 0.37%.The dollar got a boost from the spate of positive economic releases in the US,while the euro weakened on concerns growth in the Eurozone economy remains tepid.• Asia-Pacific: Sustained weakness in yen and positive corporate earnings & economic data helped Japanesestock indices advance further this week. Japan’s Q1 GDP growth surprised on the upside – the economyexpanded by 3.5%qoq (annualized) on the back of strong growth in consumption and net exports. Marchcore machinery orders also rose significantly, raising expectations of a capex recovery underway. Japanleadership said they are also working on a reform programme to lift economic growth. Equities in Shanghaialso closed stronger this week. Chinese industrial production and retail sales growth accelerated in Aprilbut was below market expectations. Malaysia’s economy grew by 4.1%yoy in Q1, primarily owing to weakexport demand. Bank Indonesia left policy rates unchanged at 5.75%.• Europe: Led by automotive stocks, regional equity markets closed in the positive territory this week.Aside from reversal in car sales trends, other macro data was weak. Eurozone GDP contracted by0.2%qoq as output declined in more than half of the 17 economies and Germany managed to grow by0.1%qoq. Russia’s economy also witnessed slower growth in Q1 due to fall in investment and lowercommodity prices. European banking regulator widened scope of bank bonus regulations to includeanyone with €500,000 pay. Fitch upgraded Greece sovereign rating one level to B-. Israel reducedbenchmark policy rates by 25bp to 1.5%, while Turkey announced a 50 bps cut in short term interestrates and higher reserve requirements for banks’ forex liabilities to stem further appreciation in the lira.European Commission has launched a probe into alleged oil price fixing and conducted raids on BP,Royal Dutch Shell and Statoil along with Platts (price reporting agency)• Americas: US equity markets remained buoyant and the S&P 500 index touched fresh highs this week.Economic data out of the US was broadly positive – the Thomson Reuters/University of Michiganconsumer confidence index rose to multi-year highs, retail sales increased and the Conference Board’sleading economic indicators index gained. However, US industrial production declined and consumer& producer level inflation indices fell due to lower energy costs. Chile’s central bank kept policy ratesunchanged. Mexico GDP growth slowed to 0.8%yoy (3.2% last quarter) due to rising peso and fall inpublic spending, apart from holidays. On the corporate front, Brazil’s Petrobras raised $11 bln in debtcapital and Citigroup sold its Brazilian units to Itau-Unibanco.Verizon announced a substantial dividendpayout of $7 bln.Market ReviewWEEK ENDED MAY 17, 2013
  2. 2. Weekly Weeklychange (%) change (%)MSCI AC World Index 0.95 Xetra DAX 1.44FTSE Eurotop 100 1.09 CAC 40 1.20MSCI AC Asia Pacific 0.45 FTSE 100 1.48Dow Jones 1.56 Hang Seng -1.02Nasdaq 1.82 Nikkei 3.63S&P 500 2.07 KOSPI 2.16India - EquityIndian equity markets extended gains amidst expectations of further monetary easing and positive globalsentiment. Mid cap stocks outperformed large caps. Real estate, healthcare and banking stocks were thetop gainers, while FMCG and IT stocks lost ground. FIIs bought equities to the tune of $708 mln in thefirst four trading days of the week.• Trade: Bucking the recent trend of a decline in trade deficit, April data showed a sharp expansionmainly due to a steep rise in gold imports - the trade deficit rose from $10.3 bln to $17.8 bln lastmonth. While exports growth remained positive (1.7%yoy), imports were up 11%yoy with non-oilimports, excluding gold, contracting by 3%yoy.Source : MSTraditionally, Gold and Energy have been the prime drivers of our imports. In recent years, there hasbeen increasing evidence of non-oil imports share growing due to the supply constraints.Whilst theand the recent correction in global commodity prices can help ease some of the trade pressures in thenear term, there is an urgent need to address the supply constraints arising out of the fundamentalissues.The government needs to focus on these issues apart from ensuring healthy foreign flows. Onthe latter, we have seen various measures and now RBI has disallowed use of credit lines for importof gold by all entities other than jewellery exporters. Apart from encouraging foreign flows, the mainrequirements are to boost investment activity and encourage financial savings as opposed to physicalsavings.-15%-13%-11%-9%-7%-5%-3%Apr-09Jul-09Oct-09Jan-10Apr-10Jul-10Oct-10Jan-11Apr-11Jul-11Oct-11Jan-12Apr-12Jul-12Oct-12Jan-13Apr-13Trade Deficit (3-months Trailing, as % of GDPannualized)Trade Deficit (Monthly, as % of GDP annualized)
  3. 3. Weekly change (%)S&P BSE Sensex 1.01CNX Nifty 1.52CNX 500 1.63CNX Midcap 2.21S&P BSE Smallcap 0.53India - DebtRenewed hopes of monetary easing amidst fall in inflation helped Indian bond yields extend easing streak.Towards the close of week, reiteration of negative outlook by S&P led to some pullback in bond prices.RBI introduced the new 10-year benchmark, GOI 7.16% 2023, this week• Yield Movements: Yields on the 10-Yr benchmark gilt fell 24 bps. The 5-Yr Gilt yield fell 16 bpswhile the 5–yr AAA corporate bond yields fell about 30 bps.Yields for 1 yr Gilt and the 30 yr Gilt yieldsfell 18 bps and 27 bps respectively as spreads between the two compressed to 16 bps.• Liquidity/ Borrowings: Liquidity remained tight with repos averaging Rs. 103,500 crore as againstRs. 102,084 crore last week.The overnight rates closed slightly higher at 7.20% compared to 7.10% lastweek.The scheduled auctions in four dated G-secs worth Rs. 15,000 crore received good response andthere was no devolvement on primary dealers.• Forex: The rupee continued to edge lower against the US dollar owing to strong importer demand forthe greenback and relative strength following solid economic data. Forex reserves as of May 10, stoodat $293.6 bln compared to $294.7 bln in the previous week.Source: CEIC, CLSA Asia Pacific Markets• Macro: India’s inflation data surprised positively this week – headline inflation decreased from 6% inMarch to 4.9% on the back of lower food & commodity prices as well as fall in core inflation. Consumerprice inflation dipped 100 bps to 9.4% led by fall in food and fuel prices. While the latest inflationreadings are comforting, there continue to be significant supply constraints in the economy and this canweigh on inflation as well as current account deficit (due to rise in imports).The last policy statementclearly indicates that lower inflation may not be the only pre-condition to rate cuts. Besides, the stillelevated consumer price inflation and upward revisions to prior period headline numbers may alsoinfluence the RBI to act otherwise.456789101112Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13(% YoY) CPI-new WPI
  4. 4. 17.05.2013 10.05.2013Exchange rate (Rs./$) 54.88 54.81Average repos (Rs. Cr) 103,501 102,0841-yr gilt yield (%) 7.26 7.445-yr gilt yield (%) 7.24 7.4010-yr gilt yield (%) 7.39 7.63Source: Reuters, CCIL.The information contained in this commentary is not a complete presentation of every material fact regarding any industry,security or the fund andis neither an offer for units nor an invitation to invest.This communication is meant for use by the recipient and not for circulation/reproductionwithout prior approval.The views expressed by the portfolio managers are based on current market conditions and information available to themand 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 dependingupon the factors and forces affecting the securities market.The past performance of the mutual funds managed by the Franklin Templeton Groupand its affiliates is not necessarily indicative of future performance of the schemes. Please refer to the Scheme Information Documentcarefully before investing. Statutory Details: Franklin Templeton Mutual Fund in India has been set up as a trust by Templeton InternationalInc. (liability restricted to the seed corpus of Rs.1 lac) with Franklin Templeton Trustee Services Pvt. Ltd. as the trustee (Trustee under the IndianTrust Act 1882) and with Franklin Templeton Asset Management (India) Pvt. Ltd. as the Investment Manager.Copyright © 2012 Franklin Templeton Investments.All rights reserved