Weekly Market Review - August 9, 2013


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Weekly Market Review - August 9, 2013

  1. 1. International Global equity markets were in consolidation mode amidst fresh economic data out of major economies pointing towards growth momentum and renewed concerns about global liquidity support. The MSCI AC World index declined 0.45% led by negative trend in most markets. Global treasury bond yields rose amidst renewed debate about Fed tapering, with the exception of US long dated treasury yields, which were supported by strong demand at bond auctions. Commodity prices moved up on hopes the improved economic conditions in China and other large economies will boost demand, and the Reuters Jefferies CRB index closed up 0.57%. The International Energy Agency cut oil demand growth forecast from 930,000 b/d in 2013 to 900,000 b/d. It also reduced demand growth for 2014 by 9.1% to 1.1 million b/d. In currency markets, the sterling was bolstered by solid domestic economic data. Many Asian currencies also gained ground against the US dollar on positive data out of China. • Asia-Pacific: Chinese economic data surprised on the upside and helped Shanghai equities notch gains – industrial production expanded 9.7%, and exports and imports growth accelerated, alongside industrial production and fixed asset investment. Real estate investment also increased, but retail sales were slightly lower than previous month. Consumer prices rose by 2.7%yoy, the same pace as last month. Most other regional markets however closed in the negative territory. Japanese equities were amongst the top losers as a rising yen led to concerns about exporters profitability. Bank of Korea and Japan maintained status quo on policy, while the central bank of Australia announced a 25 bps rate cut to 2.5%. Singapore raised its economic growth projections for the current year to 2.5%-3.5% from 1- 3% forecast previously. On the corporate front, DBS pulled back from its bid to acquire Bank Danamon. • Europe: Regional equity markets fared relatively well, but trends were divergent amongst key markets – French equities rallied amidst positive trade data and led by optimism around banking stocks. German and UK equity benchmark indices however closed marginally lower. German exports, industrial production and new orders data was robust. Italy’s economic conditions improved as Q2 GDP growth came in at -0.2%, much better than -0.6% recorded in sequential previous quarter. Stronger exports growth helped UK Q2 trade deficit narrow. Bank of England guided monetary policy will remain easy till such time the unemployment rate has eased to at least 7%, provided inflation trends remain within comfort zone of around 2%. In the central bank’s view, the unemployment rate is likely to remain above this threshold until Q3-2016. On the M&A front, America Movil approached KPN with a €7.2 bln offer for the remaining 70% it does not own in the firm. • Americas: US and Canadian equity indices edged lower amidst the debate about withdrawal of stimulus by US Federal Reserve. On the economic front, helped by strong growth in exports, US trade deficit narrowed by 22% to $34.2 bln in June. ISM non-manufacturing index continued to rise, indicating activity in the services sector is also contributing positively to growth. In Canada, the June trade gap reduced as exports rose faster than imports. Mexico industrial production came in below expectations and the central bank downgraded growth forecasts citing fall in public Market Review WEEK ENDED AUGUST 09, 2013
  2. 2. spending and sluggish manufacturing growth. Amazon founder purchased Washington Post for $250 mln and New York Times Company agreed to sell the Boston Globe for $70 mln to John Henry. Weekly Weekly change (%) change (%) MSCI AC World Index -0.45 Xetra DAX -0.82 FTSE Eurotop 100 0.22 CAC 40 0.76 MSCI AC Asia Pacific -1.25 FTSE 100 -0.97 Dow Jones -1.49 Hang Seng -1.73 Nasdaq -0.80 Nikkei -5.88 S&P 500 -1.07 KOSPI -2.22 India - Equity Indian equity markets extended declines amidst continued weakness in the rupee and muted FII flows. Small cap stocks however managed to rebound and closed in the positive zone. While capital goods and consumer durables underperformed broad markets, metal and real estate stocks bounced back from lows. • Macro/Policy: The Monsoon session of the Indian Parliament got underway this week and the Rajya Sabha approved the Companies Bill, which will repeal the extant Companies Act, 1956. The Bill is aimed at improving the corporate legislative framework across a range of areas including audit, shareholder rights and corporate governance practices. Key provisions include setting aside certain portion of profits for corporate social responsibility, stricter punishment for insider trading, introduces class action suits thereby empowering shareholders to take legal action against management wrongdoings. Overall, the regulation is progressive and should have a positive impact on Corporate India over the medium term. One will have to wait for the Corporate Affairs Ministry to unveil the operational rules/guidelines to get more clarity and for the bill to take effect in the true sense. Trends in Owernership of BSE 500 Source: CMIE, Citi Research 3.9% 5.3% 4.7% 4.8% 4.3% 4.7% 5.1% 5.2% 5.8% 5.8% 5.0% 3.7% 3.0% 3.9% 4.0% 3.9% 3.9% 3.6% 3.6% 3.5% 14.2% 13.4% 12.2% 11.2% 11.0% 10.1% 9.2% 8.2% 8.0% 7.8% 7.9% 7.7% 12.4% 12.9% 18.3% 19.3% 19.9% 17.4% 15.7% 16.0% 17.3% 17.6% 21.7% 4.4% 5.4% 3.7% 4.3% 16.6% 0% 4% 8% 12% 16% 20% 24% Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Insurance Domestic MFs Public FII+ADR+GDR
  3. 3. • Institutional Ownership Trends: As per latest data, FII ownership of Indian stocks (BSE 500) increased to an all-time high of 21.7% in June, following FII inflows of $3.2 bln during the quarter. At the same time, local institutions ownership has remained largely stagnant and retail holdings have been on the decline. We expect long term investors across the globe to maintain exposure to India and potentially add to their exposure at lower levels. However, as we have been saying, this time around the growth slowdown can be attributed to domestic factors. Whilst global investors are cognizant of India’s long term investment attractiveness, in a globalized world, investments tend to follow the path of least resistance. Given the negative newsflow on the macro front, there is a need to take up structural reforms in various areas to boost foreign investor confidence in the economy. Weekly change (%) S&P BSE Sensex -1.96 CNX Nifty -1.98 CNX 500 -1.50 CNX Midcap 0.31 S&P BSE Smallcap 1.09 India - Debt Indian yields witnessed a modest rise as the rupee fell further and RBI announced fresh measures to drain systemic liquidity. Earlier in the week, hopes that the government will announce more measures to boost foreign flows and speculation the new governor will favour growth had helped yields ease. Lower than expected cut-offs at the bond auctions also kept the increase in bond yields in check. • Yield Movements: With the exception of the 5-year paper, treasury bond yields moved up across maturity buckets.Yields on 1-year gilts were up by 10 bps, while those on 10-year gilt rose 4 bps.The 30-year benchmark gilts increased by 1 bp. • Liquidity/Borrowings: Overnight call money rates rose sharply to close at above 10%. RBI said it will auction Rs. 22000 worth cash management bills once every week to mop up liquidity and address volatility in forex markets. Scheduled GOI bond auctions received strong demand and were fully subscribed. • Forex: FII outflows from debt markets and importer demand for dollars led the rupee to weaken to fresh lows this week. RBI measures however helped the currency pull back and close marginally above last week levels. As of Aug 2, India’s forex reserves stood at $277 bln, down nearly $3 compared to last week levels.
  4. 4. Tax collection from various sources: Budgeted vs. actuals Source: CGA, CLSA • Macro: Latest government finances data shows the fiscal deficit increased to 48.4% of budgeted estimates vis-à-vis 37.1% recorded during the corresponding period last year and 33.3% at end of May. The rise is attributable primarily to slower-than-budgeted revenue growth.While it may be too early to judge the ability to meet fiscal projections, continued weak environment will make it challenging for the government to raise revenues as per expectations. 08.08.2013 02.08.2013 Exchange rate (Rs./$) 60.88 61.10 Average repos (Rs. Cr) 37,518 37,443 1-yr gilt yield (%) 9.89 9.79 5-yr gilt yield (%) 8.68 8.71 10-yr gilt yield (%) 8.50 8.46 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