Weekly Market Review - September 27, 2013


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Weekly Market Review - September 27, 2013

  1. 1. International Global equity markets witnessed consolidation after last week’s rally (due to the Federal Reserve surprise) as concerns about the political impasse over US budget overshadowed positive economic data from key countries. The MSCI AC World index closed down 0.62% led by Emerging Markets. US Treasury bond yields rose on concerns about the debt ceiling, while those in Europe eased on comments by officials that further stimulus may be considered depending on evolution of economic growth. In commodity markets, crude oil prices edged lower on indications that a non-military solution to the Syrian crisis was likely.The Reuters Jefferies CRB index declined 0.16%. The sterling and the yen strengthened (as comments from officials suggested corporate tax rates may not be reduced), while the US dollar was impacted by budget uncertainty. • Asia-Pacific: Regional equity fell led by sharp declines in Indonesia, India and China. On the economic front, Japan’s consumer price inflation rose to 0.9%yoy led by increase in energy costs and .As per latest data, Chinese industrial firm profits grew over 24%yoy in August, adding to signs the economy is stabilizing. Moving further in its efforts to liberalize currency controls, Chinese government stated its intent to pilot capital account convertibility for yuan in a free trade zone being set up in Shanghai.Taiwan’s central bank left policy rates unchanged. On the corporate front,Alibaba said it will move its $60 bln IPO to US from Hong Kong due to issues with differential voting rights on shares. KKR is in talks for buying out a majority stake in Panasonic’s healthcare unit for $1.7 bln. • Europe: Markets in the region were dragged down by concerns about political situation in Italy and US budget. In Germany, the ruling party led by Merkel in the incumbent coalition government won elections by near super-majority. France’s latest budget attempts to balance need for fiscal control and growth – the authorities will levy new taxes to raise revenues while public spending is projected to rise 0.5%. Euro area composite PMI moved up and German IFO rose marginally in September. Israel and Hungary central bank reduced policy rates by 25 bps (to 1%) and 20 bps (to 3.60%) respectively. ICAP is to pay a $87 mln penalty for allegedly manipulating the LIBOR. UK government is looking to sell up to £3.3 bln privatization of Royal Mail. • Americas: US equity indices slid as investors focused on budget news flow, even as economic data remained quite positive. Tech stocks however managed to stay positive. Canada retail sales expanded by 0.6%, reversing the decline posted last month. Brazil recorded a current account deficit of $5.5 bln in August, much lower than July levels of $9 bln.The central bank however revised down 2013 estimates of trade surplus to $2 bln from $7 bln earlier. On the M&A front, Applied Metals is buying rival Tokyo Electron for $10 bln. A consortium led by Canada’s Fairfax Financial is buying out Blackberry for $4.7 bln. JP Morgan offered to pay $11 bln for settling mortgage probes. Market Review WEEK ENDED SEPTEMBER 27, 2013
  2. 2. Weekly Weekly change (%) change (%) MSCI AC World Index -0.62 Xetra DAX -0.16 FTSE Eurotop 100 -0.40 CAC 40 -0.40 MSCI AC Asia Pacific 0.09 FTSE 100 -1.27 Dow Jones -1.25 Hang Seng -1.26 Nasdaq 0.18 Nikkei 0.12 S&P 500 -1.06 KOSPI 0.31 India - Equity Indian equity markets edged lower on global concerns and worries about monetary tightening. In continuation of recent trends, FII flows remained positive - $135 mln during the first four trading days of the week and close to $2 bln for the month. Mid and small caps fared better than large caps. Amongst sectors, banking and real estate sectors were the top losers while healthcare, technology and consumer durables gained. • Policy: The Cabinet Committee on Economic Affairs approved the methodology for coal blocks auctioning.This marks the first step in creating a structured and transparent process for allocation of coal. Uncertainty about fuel availability had led to sub-optimal utilization of power production capacity in recent years and weighed on the performance of private power producers. Whilst the policy clarity on auctions is welcome, we need to see how this plays out on the ground as the onus of securing approvals and land acquisition still rests with corporates. Change in coal-based power generation capacity and domestic coal output growth Source: Ministry of Coal, CEA, CLSA Following last week’s monetary policy decision, investors remain concerned about economic growth prospects.While a tighter monetary policy regime may weigh on short term growth, we believe that stable inflation levels are important for long term growth prospects (and ability to sustain a high growth trajectory). Overall, the current environment can be viewed as an adjustment phase for the Indian economy as we correct fiscal largesse and increased leveraged amongst certain segments of Corporate India.The latter is reflected in companies looking to raise additional capital through equity and sale of non-core assets (those with large debt burden). Such changes can help lay a stronger foundation for the next growth phase in India.
  3. 3. Weekly change (%) S&P BSE Sensex -2.65 CNX Nifty -2.98 CNX 500 -2.28 CNX Midcap -0.46 S&P BSE Smallcap 0.21 India - Debt Indian bond markets started off the week on a pessimistic note following last week’s partial devolvement of GOI bond auctions and concerns about monetary tightening. Markets however pared losses later in the week after the borrowing calendar came in along expected lines and RBI assured liquidity support. Short term funding rates however eased in response to last week’s cut in the MSF rate. Source: Bloomberg, CLSA • Yield Movements: Yields on the 10-Yr benchmark gilts rose 44 bps, while the 5-year Gilt yield increased by 19 bps.Yields on the 5–year AAA corporate bonds was largely flat over the week and the spread narrowed to 98 bps from 118 bps. 1 yr gilt yields decreased by 8 bps, while 30 year Gilts dipped by 1 bp. Spreads between the long and short dated securities (1/30 year gilts) turned positive. • Liquidity/borrowings: Systemic liquidity improved slightly from last week levels but overall borrowing under MSF window remained high and the total deficit stood above Rs. 1 trillion mark. Scheduled GOI bond auctions received strong response and were fully subscribed. • Forex: The Indian rupee reversed gains towards the close of week on dollar buying by corporates. Helped by currency revaluation, forex reserves were up at $270.4 bln as of September 20. • Policy: The latest government borrowing calendar was in line with market expectations – gross borrowings are pegged at Rs. 2.35 lakh crore in H2-FY13. Most of the borrowing is concentrated in the 10-14 year maturity bucket.The auction calendar however did not provide clarity on the Budget proposal about debt buyback/switch to a longer maturity paper for Rs. 50,000 crore worth of GOI paper. Meanwhile, the central bank has assured investors that it will maintain adequate systemic liquidity and undertake OMOs if required, so as to facilitate government borrowings and meet currency demand, ahead of the festive season.
  4. 4. 27.09.2013 20.09.2013 Exchange rate (Rs./$) 62.51 62.23 Average repos (Rs. Cr) 40,383 39,757 1-yr gilt yield (%) 9.05 9.13 5-yr gilt yield (%) 8.84 8.65 10-yr gilt yield (%) 9.03 8.59 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 © 2012 Franklin Templeton Investments.All rights reserved