Global equity markets declined as increased uncertainty led to weakness spreading to developed market
equities as well. With the exception of select Asian markets, most equity markets fell and the MSCI AC
World Index fell by 2.15% (down 2.3% for August). Bond yields eased from the recent highs, especially
at the long end, in key bond markets. However, for the month, almost all markets witnessed tightening
of yields on the back of concerns about reduce global liquidity. Gains in oil (concerns about military
action against Syria) and precious metals helped the Reuters CRB index register marginal weekly gains.
EM currencies continued to weaken against the US dollar, which lost ground against the Japanese Yen.
OECD data pointed towards a slowdown in global trade, especially major economies - merchandise
imports and exports decreased for G7 countries and BRICS countries (by 1.4% & 1.8% respectively).
• Asia-Pacific: Equity markets in South Korea, China, and Taiwan did well, while those in Singapore and
Japan declined. Japan’s consumer inflation rose by 0.7% yoy in July led by higher fuel and electricity costs.
The July data on industrial production and manufacturing was positive. Policymakers in Indonesia and
India announced fresh measures to support their weakening currencies - Indonesia’s central bank raised
its benchmark rate by 50 bps to 7%. China’s regulators imposed around $85 mln in fines on Everbright
Securities, for the trading error that roiled markets earlier in the month (labelled as insider trading). China
will witness a revival of bond futures trading from next week. Sinopec is planning to acquire a 33% stake
in Egypt’s Apache for $3.1 billion.
• Europe, Gulf and Africa: European equity markets remained under pressure as the fall in global risk
appetite pushed key indices down, even as national survey pointed towards a better environment. EC
survey for August pointed towards an improvement in economic sentiment in August and Germany’s
IFO survey for August was positive as well. Sweden is planning to introduce tougher norms for its
banking sector. Hungary cut benchmark rates by 20 bps to 3.8%. UK’s Parliament defeated a motion
to trigger military strikes against Syria.Turkey’s trade deficit in July increased and the Lira came under
pressure after central bank comments failed to assuage investor concerns. South Africa’s GDP grew at
3% in Q2 helped by a bounce back in manufacturing.Vodafone is reportedly in talks to divest its 45%
stake in Verizon Wireless for around $130 bln..
• Americas: Regional equity markets including those in US fell during the week with Latin American
markets (Brazil and Mexico underperforming). US economy’s Q2 GDP was revised upwards to 2.5%
from 1.7%, due to changes in the trade data. Canada witnessed a GDP growth of 1.7% helped by a
jump in consumption. Brazil joined the ranks of EM central banks looking to bolster their currencies
through higher rates - it raised the Selic rate by 50 bps to 9%. GDP pointed towards a 6% growth in
the Brazilian economy in the previous quarter, helped by a weaker currency and higher government
investment. On M&A front, Amgen is planning to buy Onyx for $10.4 bln to expand its business to
cancer drugs and AstraZeneca is planning to acquire Amplimmune. BATS and Direct Edge plan are
planning to merge, creating one of the top US stock exchange operators.
WEEK ENDED AUGUST 30, 2013
change (%) change (%)
MSCI AC World Index -2.15 Xetra DAX -3.73
FTSE Eurotop 100 -2.22 CAC 40 -3.33
MSCI AC Asia Pacific -0.92 FTSE 100 -1.22
Dow Jones -1.33 Hang Seng -0.60
Nasdaq -1.86 Nikkei -1.99
S&P 500 -1.84 KOSPI 3.01
India - Equity
Strong gains towards the end of the week helped domestic equity markets close a volatile month on a
positive note. Mid and small cap stocks continued to underperform and technology stocks witnessed
strong gains. For the month, the metals index closed with double digit gains. FIIs outflows during the first
four trading days amounted to around $ 440 mln.
• Policy: The on-going Parliament session witnessed heightened acrimony, but the government
managed to get two key bills (Food Security and Land Acquisition) cleared by the Lok Sabha.These
bills will now need to be approved by the Upper House. At this stage, there isn’t enough clarity on
the impact of Food Security Bill on the fiscal deficit. The new Land Acquisition norms need to be
evaluated in term of the impact on project timelines and acquisition costs.
Given the pressures witnessed in the financial markets, there appears to be a renewed effort to assuage
concerns about policy delays. The government indicated that the CCI has cleared a slew of
infrastructure projects (Rs.1.83 lakh crs) and FIPB has reportedly cleared pending acquisitions by
foreign investors in to the pharmaceutical sector.
• Macro: Latest GDP data indicated that the economic growth remain relatively low - GDP growth
was 4.4% in the June quarter (4.8% in the March quarter). On a sectoral basis, whilst agriculture
growth improved (2% versus 0.7% in March quarter) and services sector stable (6.6%), industry
decelerated with manufacturing and mining witnessing a contraction.
Source: CEIC, Morgan Stanley
These are certainly challenging times for the Indian economy and companies. The rise in short term
borrowing costs and the impact of a weak rupee on unhedged balance sheets during this quarter could
weigh on an already weak industrial activity levels. However, good farm production (monsoons have
been normal), potential boost to consumption due to the Food Security bill and rise in exports, could
help growth trends. The long term fundamentals and opportunities remain intact, but as we have been
saying it is important to boost confidence amongst investors and companies.
Weekly change (%)
S&P BSE Sensex 0.54
CNX Nifty 0.00
CNX 500 -0.19
CNX Midcap -0.76
S&P BSE Smallcap -1.07
India - Debt
The sharp fall in the rupee earlier in the week along with increasing concerns about the fiscal deficit
weighed on sentiment in the bond markets. In addition, the spike in global oil prices amidst a weak rupee
also dampened the mood. Yields moved up across the curve, especially at the short end and the cut-off
yields were set higher during the scheduled auctions. FII outflows were to the tune of $137 mln during
• Yield Movements: The 10-Yr benchmark yield went up by 37 bps.The 5-yr Gilt yield rose 38 bps
while the 5 – yr AAA corporate bond yields rose by 26 bps and the spread reduced further to 96 bps.
Yields for 1 yr gilts firmed up by 61 bps, while 30 yr Gilts increased 41 bps and the yield curve
• Liquidity/Borrowings: Liquidity remained tight with repos averaging around Rs. 39,000 crore. Four
securities were auctioned and received competitive bids for over Rs. 39,000 crs against the notified
amount of Rs.17,000 crs. RBI also announced OMOs to the tune of Rs.8000 crs for support liquidity.
• Forex: The rupee fell to new lows and breached the 68 level against the US dollar, before bouncing
back to lose at 65.7 against the US dollar. Forex reserves as of August 23rd were down to $278 bln. RBI
helped the sentiment by opening a forex swap window to meet the entire daily dollar requirements of
three PSU oil marketing companies (estimated to need $400-500m a day). Unlike other central banks
such as those in Indonesia, RBI has refrained from utilising its forex reserves for intervention.
• Macro/Policy: Latest data points towards a rise in fiscal deficit – grew by 5.2% in July and for Apr-
July 2013 stood at 62.8% of the budgeted estimate.The growth in fiscal deficit was around 28.8% versus
a budget estimate of 10.7%.