Weekly Market Review - September 13, 2013Document Transcript
Global investor sentiment remained positive ahead of next week’s US Federal Reserve meeting as investors
took comfort from easing Syria tensions and positive data out of China.The MSCI AC World Index gained
2.21% led by strong gains in Asian on the back of improved economic growth trends. Global Treasury bond
yields were largely range bound as investors speculated about the possible outcome of next week’s meeting.
The Reuters Jefferies CRB index declined 0.79% led by fall in crude oil and gold prices, amidst progress
on Syria discussions and Fed policy uncertainty. In currency markets, the US dollar continued to strengthen
and the Sterling pound was boosted by positive UK economic news flow.
• Asia-Pacific: Most of the region’s markets closed in positive territory – Indonesia, China and Japan equities
were amongst the top gainers. Japan’s Q2 real GDP growth was revised upwards to 3.8% from 2.6% estimated
earlier. However, the current account surplus shrank in July and domestic core machinery orders were flat
month-on-month. China reported strong growth in industrial production (+10.4%), fixed asset investment
(+20.3%) and exports (+7.2%). Central banks in South Korea and Philippines left policy rates unchanged,
while Bank Indonesia hiked rates (benchmark and FASBI rate up by 25 bps each to 7.25% and 5.5%
respectively) and lowered 2013 & 2014 GDP growth forecasts. Conservative Party won elections in Australia.
On the corporate front, Suntory bought two beverage brands from GlaxoSmithKline for $2.1 bln.
• Europe: Regional equity markets fared well led by strong gains in Germany. In terms of economic data,
Eurozone industrial production declined by 1.5%mom with German output down 1.7%.The number of
employed persons in Euro area shrunk by 0.1% in Q2 (-0.5% previous quarter). On the other hand, UK
unemployment rate dipped to 7.7% from 7.8% and construction activity accelerated.France unveiled a 10-
year industrial policy that aims to revive flagging industry growth and create 450,000 jobs. Russia kept
policy rates on hold and has announced a simplification of its policy rate framework - 1 week auction repo
rate will become the main policy rate and will shift to inflation-targeting by 2015. US and Russian leaders
met in Geneva to find a non-military solution to the Syrian crisis. Reports suggest Sanofi may be buying
back L’Oreal’s stake in its business.
• Americas: Positive corporate news flow helped US equity indices add gains while Canadian stocks moved
up on better China data and rise in housing prices. US retail sales rose 0.2% in August and the Thomson
Reuters/University of Michigan index of consumer sentiment (preliminary) declined to 76.8 from 82.1
last month. Chile’s central bank kept policy on hold. Mexico unveiled fiscal reforms that will help raise
weak tax revenues to fund social programmes and offer near term stimulus. On the corporate front, Koch
Industries agreed to buy Molex for $7.2 bln and Ares Private Equity joined hands with Canada Pension
Plan Investment to purchase Neiman Marcus for $6 bln.Verizon will undertake the largest ever bond
issuance of $49 bln, to fund its acquisition of Vodafone’s stake in Verizon Wireless and Dell shareholders
approved the move to take the company private.
WEEK ENDED SEPTEMBER 13, 2013
change (%) change (%)
MSCI AC World Index 2.21 Xetra DAX 2.82
FTSE Eurotop 100 1.48 CAC 40 1.61
MSCI AC Asia Pacific 2.49 FTSE 100 0.56
Dow Jones 3.04 Hang Seng 1.30
Nasdaq 1.70 Nikkei 3.92
S&P 500 1.98 KOSPI 2.00
India - Equity
Positive FII inflows (~$657 mln), encouraging economic data and a stronger rupee helped Indian equity
markets stage a sharp rally this week. Gains were broad based across market caps and sectors. Real estate
stocks were the top gainers, while IT stocks closed marginally negative. Diversified infrastructure
conglomerate Jaiprakash Associates announced the sale of their Gujarat cement unit to UltraTech Cement
for Rs. 3,800 crores.
• Macro: There was positive news flow on the economic front in terms of trade as well as industrial
production. India’s exports increased by 13%yoy in August and imports fell by 0.7% (rise in oil imports
was overshadowed by weaker demand for non-oil imports).As a result, the trade deficit narrowed to $10.9
bln from $12.3 bln in the previous month. Helped by export growth and various policy measures, the
trade gap has more than halved from the peak of $21 bln in May.With the rupee stabilising, all eyes are
on capital flows, which will be key to the Balance of Payments situation.
Trade Balance US$ bln
Source: CLSA Asia Pacific Markets
Growth in industrial production accelerated in July – the IIP index was up 2.6%yoy compared with -
1.8%yoy in June (revised from -2.2%).The improvement was led by capital goods production (up 15.6%).
However, given the historical volatility in capital goods, one needs to evaluate the trends over the next
few months (keeping in mind the recent weakness in the manufacturing PMIs).Whilst exports can boost
industrial production trends, tighter monetary conditions are likely to cap the upside
• Telecom: TRAI’s (Telecom Regulatory Authority of India) latest proposals on spectrum pricing include
significant price cuts in key circles (50% and more in metros and ~30-45% in Category A circles), allowing
spectrum trading and bringing down spectrum usage charges to a flat fee of 3%.This is a positive for the
sector and there are early signs of regulatory pressures receding. This along with lower competitive
pressures would help incumbent players.
Weekly change (%)
S&P BSE Sensex 2.40
CNX Nifty 3.00
CNX 500 3.03
CNX Midcap 3.39
S&P BSE Smallcap 3.10
India - Debt
Indian bond yields closed higher as latest economic data offset gains clocked earlier on stronger rupee. FIIs
pulled out $218 mln during the first four days of the week. Attention now shifts to the FOMC meeting
and RBI monetary policy meeting next week.
• Yield Movements: Yields on 10-Yr benchmark gilts rose 26 bps, while the 5-year Gilt yield
increased by 10 bps.Yields on the 5–year AAA corporate bonds firmed up by 6 bps and the spread
narrowed to 105 bps from 108 bps. 1 yr gilt yields increased by 26 bps, while 30 year Gilts climbed
• Liquidity/borrowings: Systemic liquidity came under further pressure - MSF borrowings touched a new
high and overnight call money rates were a tad higher. CD and CP rates also inched up.At weekend RBI
offered banks two day funding to facilitate smooth advance tax payments.
• Forex: : Helped by positive FII flows and dollar selling by corporates, the Indian rupee staged a dramatic
rally this week but closed off highs as economic panel reports suggested deficit challenges persist. Forex
reserves as of September 06 were down to $274.8 bln from $275.5 bln at end of previous week.
• Macro/Policy: As per latest data, consumer price inflation at 9.54% was little changed from 9.62%
recorded last month due to renewed rise in food and fuel prices. Core CPI inflation also stood higher on
firm services sector prices. Even as economic growth is slowing, FX pass through and supply
constraints/inefficiencies appear to be offsetting demand led downward price revisions.
In another attempt to boost foreign flows, SEBI this week said FIIs/QFIs can invest in Indian government
securities directly (without purchasing investment quotas) till the overall investment limit reaches 90%. It