Weekly Market Review - October 25, 2013
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Weekly Market Review - October 25, 2013 Document Transcript

  • 1. Market Review WEEK ENDING OCTOBER 25, 2013 International Global equity markets exhibited divergent trends this week. Expectations that the Federal Reserve will maintain stimulus helped equity markets in the West extend gains. Sentiment in Emerging Markets was however dampened by liquidity tightening in China and mixed earnings news flow. As a result, the MSCI AC World Index ended the week only 0.4% higher. Benchmark treasury bond yields eased in key markets as weaker than expected economic data out of the US fuelled expectations that Federal Reserve will defer tapering. Decline in crude oil and other key commodity prices led the Reuters Jefferies CRB index to close down 1.52%. In currency markets, the US dollar was weighed down by lower than expected economic data. The sterling strengthened as latest GDP estimates showed UK economic growth accelerated last quarter. • Asia-Pacific: Regional equity markets underperformed global counterparts led by sharp declines in China and Japan markets. The former came under pressure as the People Bank of China refrained from cash injections and short term borrowing costs spiked. Besides, Beijing authorities unveiled measures to check sustained rise in property prices. China’s flash manufacturing PMI increased to 50.9 from 50.2. Japan trade deficit rose to record highs as imports increased by 3.8% while exports declined 0.3%. Malaysian government said it will introduce a 6% general sales tax from April 2015 to boost government revenues and aid fiscal consolidation. Helped by strong growth in domestic consumption and investment, South Korea GDP growth accelerated to 3.3%yoy from 2.3%yoy in June quarter. • Europe / Africa: Except France, most regional markets recorded strong gains on hopes of delay in Fed Tapering. The ECB said it will initiate a review of European bank balance sheets in November. On the economic front, Eurozone flash PMI composite index eased to 52.2 from 51.4, suggesting moderation in the pace of growth. Spain preliminary GDP estimates showed the economy has turned the corner with GDP expanding by 0.1% in September quarter. UK GDP growth accelerated to 0.8% (from 0.7%) led by expansion in services sector and business confidence rose. Central banks in Sweden, Norway and Turkey kept policy on hold. South Africa government reduced 2013 growth estimates to 2.1% from 2.7% due to labour unrest and power supply issues. • Americas: US equity markets closed week near record highs as investors bet QE tapering will be pushed back due to soft economic data. Canadian markets also recorded sharp gains led by rally in mining and energy producer stocks. The Thomson Reuters/University of Michigan consumer sentiment index fell and the Markit flash manufacturing PMI was down to 51.1 from 55.3. US non-farm payrolls expanded by 148,000, less than monthly average of about 180000 in 2013YTD. US durable goods orders posted strong gains. Elsewhere in the region, central banks in Canada and Colombia left policy rates unchanged. Mexico’s central bank reduced the inter-banking rate by 25 bps to 3.5% and indicated that policy rates will not be reduced further in the near future.
  • 2. Weekly change (%) Weekly change (%) MSCI AC World Index 0.39 Xetra DAX 1.36 FTSE Eurotop 100 0.60 CAC 40 -0.32 MSCI AC Asia Pacific -1.49 FTSE 100 1.49 Dow Jones 1.11 Hang Seng -2.75 Nasdaq 0.74 Nikkei -3.25 S&P 500 0.88 KOSPI -0.88 India - Equity While frontline equity indices edged lower this week amidst profit-booking, mid and small cap indices posted strong gains. Trends were divergent in sectoral indices – capital goods witnessed a sharp rally while real estate, FMCG and healthcare underperformed broad markets. FIIs bought equities to the tune of $558 mln in the first four trading days of the week. • Policy: This week, the government approved capital infusion to the tune of Rs. 14,000 crore in Indian public sector banks.The funding is expected to boost these banks’ capital adequacy and help meet credit demand. In addition, comments from Indian policymakers indicated they are keen to take steps that can possibly safeguard the economy from adverse impact of a shift in global liquidity trends. Measures proposed include augmenting foreign investment flows, streamlining procedures and implementing financial sector reforms to shore up global investor confidence. The latter will be based on recommendations made by the Financial Sector Legislative Reforms Commission earlier this year.These include a complete overhaul of the financial legal & institutional structure, including unified regulator, tightening consumer protection framework and a separate public debt management agency. Focus will be on boosting governance and operational efficiency, where measures can be pushed through executive route, and can help boost foreign investor confidence. BSE Sensex 1-year forward PE levels Source: CLSA Asia-Pacific Markets • Outlook: The global environment has turned positive with the resolution of the US budget impasse and there are increased expectations that any Fed tapering will be pushed back further. As mentioned in the past, we believe it is important that policymakers utilize this window to make adequate changes to prepare for the eventuality of lower global liquidity. Besides, measures to improve the confidence of the business sector and reduce policy clearance delays will go a long way in boosting economic activity. We feel that the current pessimism around future economic growth has been overdone and investors should take advantage of current pessimism to get exposure to long term stories.
  • 3. Ç Weekly change (%) S&P BSE Sensex CNX Nifty CNX 500 CNX Midcap S&P BSE Smallcap -0.95 -0.72 -0.29 0.29 1.53 India - Debt Bond yields were range bound this week, ahead of RBI’s quarterly monetary policy meet next week. FIIs pulled out nearly $800 mln from bond markets in the first four trading days of the week. • Yield movements: Treasury bond yields closed the week slightly lower - yields on the 10-yr benchmark gilts increased 1 bp, while yields on 5-year gilts decreased by 3 bps. 1 yr gilt yields decreased by 6 bps, while those on 30 year GOI papers dipped 3 bps. • Liquidity/borrowings: Systemic liquidity conditions were largely stable and overnight call money rates hovered around the 9% mark. There were no scheduled GOI bond auctions for this week.The Indian rupee closed slightly lower than last week levels on concerns of monetary tightening. As of October 18, India’s forex reserves stood at $281 bln, up $1.8 bln from previous week levels. • Forex: Latest data pointed towards increased inflationary pressures with both WPI (wholesale) and CPI (consumer) moving up in September to 6.46% and 9.84%, respectively. Unlike recent trends of food prices pushing inflation, there has been a rise in non-food and core inflation.This probably reflects the pass through impact of the weak rupee in terms of import prices. • Policy: In the recent monetary reviews, the focus has been on restoring repo as the key rate (instead of MSF) and containing inflationary pressures in the economy. Given the recent decline in trade deficit and positive response to forex swap window ($10.1 bln), concerns around the BoP situation appear to have receded.Against the backdrop of a possible delay in Fed tapering, temporary measures may be unwound. On the other hand, inflationary pressures remain a challenge - incremental data, following RBI’s repo rate hike last month, indicates rise in both food and non-food items. Credit growth also remains well ahead of deposit growth.The policy review will throw light on how RBI weighs the growth-inflation trade-off.
  • 4. Ç 25.10.2013 Exchange rate (Rs./$) Average repos (Rs. Cr) 1-yr gilt yield (%) 5-yr gilt yield (%) 10-yr gilt yield (%) 61.46 40,810 8.55 8.56 8.81 18.10.2013 61.27 39,781 8.61 8.59 8.80 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