Weekly Market Review - September 06, 2013Document Transcript
Global equity markets gained on hopes of policy status quo on mixed economic data out of US, amidst
strong gains in Emerging Markets and some large M&A deals. This along with strength in Asia Pacific
and Europe, helped the MSCI AC World Index gain 2.10%. Global benchmark treasury bonds pared
losses towards close of week on hopes of a delay in Fed Tapering. In its latest economic assessment, the
OECD expressed optimism about growth trends in the developed world, but pointed towards a cloudy
outlook due to loss of momentum in major Emerging Economies. It also highlighted downside risks such
as the euro-area banking system’s vulnerability to renewed financial system volatility, deadlock over US
fiscal policy and capital flight from Emerging Markets. In commodity markets, crude oil prices continued
to trend higher amidst geopolitical uncertainty and lower US crude inventories, while gold benefitted
from the shift in investor expectations from Fed. Overall the Reuters Jefferies CRB index closed 0.75%
up.The sterling pound gained on the back of rising expectations of strong economic recovery.
• Asia-Pacific: Regional markets recorded strong gains this week - Hong Kong equities rose on
speculation that China is looking ease capital controls to boost the economy. China’s services PMI rose
to 52.8 from 51.3. The OECD said it expects China’s economy to pick up pace in the quarters ahead.
Japan equities benefitted from a weaker yen and Indian equities rallied following fresh policy measures to
stabilize the rupee.The Reserve Bank of Australia and Bank of Japan maintained status quo on monetary
policy. The latter also raised its economic outlook, citing firm consumer spending and modest gains in
capex. Indonesia exports fell and the trade deficit widened to a record $2.3 bln from $850 mln previously.
On the corporate front, US authorities approved Chinese firm Shuanghai International’s acquisition of
Smithfield Foods and Bank of America exited its China Construction Bank.
• Europe: European equity markets were buoyed by central bank newsflow and rising confidence in the
region’s economy. BoE and ECB left monetary policies unchanged. Noting the recent improvement in
the economy, ECB raised GDP growth estimates for 2013 to -0.4% (earlier -0.6%), but comments from
officials signalled caution about said the bank remains on the vigil to counter any rise in risks.
Eurozone Q2 GDP growth number was confirmed at 0.3%. German exports however declined by
1.1%mom and trade surplus narrowed. Switzerland economy expanded by 0.5% in Q2, slightly less
than 0.6% growth clocked in sequentially previous quarter. Poland also kept monetary policy on hold,
but changes to the pension system weighed on equity and bond markets. On the M&A front,Verizon
agreed to purchaseVodafone’s 45% stake in their American JV for $130 bln and Nokia said it is selling
its handset division to Microsoft for $5 bln.
• Americas: US and Canada equity markets moved up this week, but Brazil witnessed sharper gains
amidst hopes of increased demand for commodities and index heavyweight OGX soared after
exercising a $1 bln put option. US markets got a boost from renewed expectations of a delay in
stimulus withdrawal after non-farm payrolls expanded by 169,000 in August, less than market
expectations and prior two month figures were revised downwards. On the other hand, both ISM non-
WEEK ENDED SEPTEMBER 07, 2013
manufacturing and manufacturing indices ticked higher suggesting acceleration in growth. Economic
data from other parts of the region was also positive - Canada’s economy added 59,200 jobs and the
unemployment rate dipped by 0.1% to 7.1%. Helped by sustained rise in investment, Brazil Q2 GDP
grew by 1.5%qoq and was ahead of market expectations.While Colombia’s central bank left key policy
rate unchanged at 3.25%, Mexico reduced its overnight lending rate by 25 bps to 3.75%. Jarden is
acquiring Yankee Candle for about $1.8 bln. LinkedIn stock rose after the company said it plans to
issue $1 bln of equity.
change (%) change (%)
MSCI AC World Index 2.10 Xetra DAX 2.13
FTSE Eurotop 100 2.87 CAC 40 2.93
MSCI AC Asia Pacific 2.75 FTSE 100 2.10
Dow Jones 0.76 Hang Seng 4.09
Nasdaq 1.95 Nikkei 3.52
S&P 500 1.36 KOSPI 1.50
India - Equity
New measures by the central bank and ensuing recovery in the rupee, along with strong global cues
helped Indian equity markets gain this week. Barring technology stocks all sectoral indices closed in the
positive territory. Banking sector stocks were the top gainers as the RBI relaxed bank branch licensing
and indicated new licenses will be issued by January 2014, amongst others. FII flows also marginally
positive this week at $150 mln.
• Macro/Policy: Latest PMI data for India suggests the recent tightening of monetary conditions has
exacerbated the weakness in the economy. The HSBC manufacturing PMI index slid to 48.5 from
50.1, and the services PMI dipped to 47.6 from 47.9. This along with last week’s weaker-than-
expected GDP report caused many research houses to downgrade economic growth and earnings
estimates. On the rupee front, a lot will depend on global news flow in the weeks ahead - whilst the
Federal Reserve is unlikely to make any significant changes, given the impact on global financial
markets, it could initiate symbolic moves in the form of marginal reduction in bond purchases. The
policy tone will be closely scrutinized for future direction.
The Pension Bill received the Lok Sabha’s nod this week – the bill, which has been in the works for
a while now, provides the Pension Fund Regulatory and Development Authority statutory backing
and allows 26% FDI in the sector. India’s pension sector contrasts with many of its global counterparts
with conservative asset allocation, limited private player participation and few investment alternatives.
Given the country's long term growth potential and positive demographics, the sector would be of
interest to both global and domestic players. However, the fee levels need to be commercially viable
for long term players and there needs to be open access to all retirement assets (majority of the assets
are presently with EPFO and NPS I).
• Technology: Tech stocks have outperformed broad markets in recent months on expectations of
better earnings growth due to increased exports amidst signs of economic stabilization in the
developed world and a weakening rupee.While the rupee weakness can help in boosting margins on
existing pricing deals, the main factor is likely to be the improvement in demand in key markets such
as US, Europe and UK. The current environment (especially the depreciating rupee) can also help
companies take a long term view on deals, boosting growth trends. Looking beyond the near term, a
more important trend is that many of the companies have been diversifying their revenue base and
scaling up their focus on Horizon 3 services (Social, Mobile,Analytics and Cloud). Given the strategic
nature of the latter for clients, such business could be relatively stable. Overall, companies with a
diverse business model (in terms of vertical as well as geographies) and focused on high margin
segments appear well poised for medium term growth.
Weekly change (%)
S&P BSE Sensex 3.49
CNX Nifty 3.81
CNX 500 3.44
CNX Midcap 2.70
S&P BSE Smallcap 2.94
India - Debt
Indian debt markets snapped recent losing streak and bond prices rose after policy measures bolstered
sentiment. Profit-booking however resulted in yields closing off intra-week lows.
• Yield Movements: Yields edged lower across the curve - the 10-Yr benchmark yield declined 28
bps. The 5-year Gilt yield fell 41 bps while the 5–year AAA corporate bond yields eased by 29 bps
and the spread expanded to 108 bps from 96 bps.Yields for 1 yr gilts eased by 81 bps, while 30 year
Gilts decreased 33 bps.The yield curve remained inverted.
• Liquidity/Borrowings: Liquidity conditions remained tight with repos averaging around Rs. 39,000
crore. Scheduled GOI bond auction size was reduced to Rs. 10,000 crore from Rs. 15000 crore.
Auctions for the two securities received strong response and there was no devolvement on primary
• Forex: The rupee managed to eke weekly gains of 0.7% on the back of new RBI measures, FII inflows
and dollar sales by exporters.The currency however closed off intraweek high of Rs.65/$. Forex reserves
as of August 30 were down to $275.5 bln.
• Policy: In a bid to prop up the currency, the central bank enhanced limits for exporters to re-book
cancelled forward exchange contracts and offered banks a special window to swap foreign currency non-
resident (FCNR) deposits at concessional rates. The bank also increased overseas borrowing limit for
banks to 100% of unimpaired Tier I capital (earlier 50% unimpaired capital).
The events of the past month have further complicated the policy environment as the government along
with the central bank looked to support the rupee, without impacting economic growth. Initial remarks
by the new central bank head suggest policy continuity and an increased emphasis on communication
clarity. His address also laid emphasis on increasing financial inclusion and monitoring as well as sharing