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Weekly Market Review June 14, 2013


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Weekly Market Review June 14, 2013

  1. 1. InternationalThe shadow of uncertainty over global liquidity continued to weigh on global financial markets, but thefall in equity markets lost momentum towards the end of the week.The MSCI AC World Index lost 0.7%and equity markets in Emerging Markets continued to underperform developed markets.The World Bankreduced its global economic growth forecast for 2013 by 0.2% to 2.2% citing weakness in Europe andslowdown in emerging markets, and is expected to gain momentum to 2014 (3% growth).The report alsoexpects global trade to accelerate albeit at a slow pace of 4% in 2014 and overall net capital flows intodeveloping countries to increase by 7.5% in 2013. Global treasury bond markets snapped their losing streakand yields eased slightly as investors weighed fresh US economic data. In commodity markets, the ReutersJefferies CRB Index fell by 0.5%. Crude oil prices firmed up as geo-political tensions in the Middle Eaststoked supply worries. EM currencies continued to witness heightened volatility this week andpolicymakers resorted to a range of measures to curb the fall.The yen strengthened against the US dollar.• Asia-Pacific: Japanese equity markets witnessed heightened volatility and closed the week with losses amidsta stronger yen, even as economic data was positive. Japan’s Q1 GDP estimated was revised upwards to 4.1%(earlier estimate of 3.5%) and BoJ maintained status quo on monetary policy. Emerging Asian equity marketsalso closed in the negative territory mainly on global liquidity concerns. Bank Indonesia raised interest ratesby 25 bps to 6% to anchor inflation expectations,and also hiked the FASBI rate to support the rupiah.Centralbanks in Korea and Philippines kept policy on hold. In China, industrial production expanded by 9.2%,slightly lower than the 9.3% pace recorded previous month,but trade data surprised on the downside.Chineseinter-bank liquidity tightened and money market rates jumped and a government debt auction was notcompletely sold, for the first time in close to 2 years.• Europe/Middle East: European equity markets gyrated to global worries about liquidity reversal butmanaged to pare losses at close of week. On the economic front, Eurozone and UK industrial productionrose further in April, and UK labour report was positive. Helped by domestic consumption andgovernment spending, Turkey’s economy expanded by 6.5% qoq and the central bank launched forexselling auctions to stem depreciation in the lira. MSCI’s move to upgrade UAE and Qatar to EmergingMarket status led a sharp rally in local markets and MSCI downgraded Greece to the EM grouping.Greece’s government did not receive any bids for its stake sale in natural gas firm Depa, impacting itsprivatization efforts.AstraZeneca is acquiring US firm Pearl Therapeutics for close to $1.2 bln.• Americas: Regional equity markets remained under pressure,with Brazil witnessing sharp declines.S&P liftedthe long-term rating outlook on US to stable from negative, citing receding fiscal risks and policy support forgrowth. On the economic front, US retail sales rose and initial jobless claims were also positive but ThomsonReuters/University of Michigan consumer sentiment index dropped to 82.7 from 84.5 last month. USindustrial production was also flat. Elsewhere in the region, as part of, Brazil abolished the IOF tax on currencyderivatives, as part of its ongoing efforts to stabilize the real. M&A activity was high this week - Gannett isbuying Belo Corporation for about $1.5 bln and Google is acquiring Israeli company Waze for about $1.3 bln.Market ReviewWEEK ENDING JUNE 14, 2013
  2. 2. Weekly Weeklychange (%) change (%)MSCI AC World Index -0.70 Xetra DAX -1.54FTSE Eurotop 100 -1.74 CAC 40 -1.74MSCI AC Asia Pacific 0.33 FTSE 100 -1.62Dow Jones -1.17 Hang Seng -2.81Nasdaq -1.32 Nikkei -1.48S&P 500 -1.01 KOSPI -1.80India - EquityIndian equity markets remained under pressure amidst the overall weakness in EM equity markets, due toconcerns over reversal in global liquidity. Except oil & gas all sectoral indices closed in the negativeterritory. FIIs sold equities to the tune of $377 mln in the first four trading days of the week. On thecorporate front, Apollo Tyres is acquiring US-based Cooper Tire for Rs.14500 crore.• Foreign Investments: The committee set up by SEBI under K. M. Chandrasekhar, has put forthvarious suggestions to simplify the routes and procedure for foreign investment. Some of thekeyrecommendations include –• Introduction of a new investor class called “Foreign Portfolio Investor (FPI)” consisting of currentcategories such as FIIs/sub-accounts/QFIs, with the investment limit at 24%• To allow FPIs to register with depository participants instead of SEBI - simplifies the registrationprocess.• Investments upto 10% equity of a company to be portfolio investments and anything above 10% canbe FDI.• Introduction of a risk-based approach to KYC with three categories of FPIs.IIP Growth (YoY% and YoY%, 3MMA)Source: Morgan Stanley-7%-1%5%11%17%23%Apr-06Oct-06Apr-07Oct-07Apr-08Oct-08Apr-09Oct-09Apr-10Oct-10Apr-11Oct-11Apr-12Oct-12Apr-13YoY%YoY% 3MMA
  3. 3. • Macro: Growth in India’s industrial production moderated to 2.3% in April 2013 from a revisedgrowthof 3.4% in March.The slowdown was led by fall in mining sector output as well as decelerationin manufacturing and electricity segments. As per use-based classification, capital goods productionposted a modest increase of 1%, despite low base. Overall the industry growth trends remain lacklustre,but headline GDP growth might get a fillip by the good monsoons supporting farm production.Weekly change (%)S&P BSE Sensex -1.29CNX Nifty -1.23CNX 500 -2.06CNX Midcap -4.04S&P BSE Smallcap -3.18India - DebtConcerns the rise in rupee will add to inflationary issues and FII outflows ($1.4 bln) led Indian bond yieldsto rise this week. Fitch revised outlook on India’s credit rating to Stable from Negative, citing progress onfiscal consolidation and other government efforts to boost investment activity.SEBI formally notified $5 bln increase in FII debt limits for government securities to $30 bln, but said theincreased limit will be available only to long term investors such as sovereign wealth funds, endowmentsand pension funds.• Yield movements: The yield curve steepened further this week as yields at the shorter end of thecurve witnessed smaller rise compared to the longer end of the curve.Yields on the 10-year and 5-yearpapers increased by 11 bps and 12 bps respectively, while those on the 1-year paper rose 3 bps.Yield onthe 30 year Gilts stood 15 bps higher than last week levels.• Liquidity/borrowings: Overnight call money rates dipped to 7.15% compared to 7.40% last week anddemand for liquidity at RBI’s LAF window averaged Rs. 65,000 crores.• Forex: Helped by change in Fitch outlook as well as RBI intervention in currency markets, the Indianrupee managed to bounce back from lifetime lows of close to Rs.59/$ to close at Rs.57.51/$ levels.Forex reserves as of June 7 stood at $289 bln, $1.8 bln higher than previous week levels.Trends in WPI and CPISource: Morgan Stanley Source: CLSA Asia-Pacific Markets-6%-2%2%6%10%14%18%May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13Food InflationNon Food InflationHeadline Inflation (WPI)YoY%3456789101112Jan 12 Mar 12May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13May 13(% YoY) CPI-new Core CPI-new
  4. 4. • Macro/Policy: Inflation data this week showed mixed trends – headline wholesale inflation eased,consumer price inflation levels remained elevated.The latter was primarily due to rise in food and fuelinflation.RBI has indicated a discomfort with higher CPI inflation and the current account deficit levels. Thisalong with the recent sharp depreciation in the rupee has cast a shadow on the ongoing monetaryeasing. However, growth data remains weak and there is a need to support growth.14.06.2013 7.06.2013Exchange rate (Rs./$) 57.51 57.06Average repos (Rs. Cr) 65,413 61,3201-yr gilt yield (%) 7.34 7.315-yr gilt yield (%) 7.44 7.3210-yr gilt yield (%) 7.47 7.36Source: Reuters, CCIL.The information contained in this commentary is not a complete presentation of every material fact regarding any industry,security or the fund andis neither an offer for units nor an invitation to invest.This communication is meant for use by the recipient and not for circulation/reproductionwithout prior approval.The views expressed by the portfolio managers are based on current market conditions and information available to themand 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 dependingupon the factors and forces affecting the securities market.The past performance of the mutual funds managed by the Franklin Templeton Groupand its affiliates is not necessarily indicative of future performance of the schemes. Please refer to the Scheme Information Documentcarefully before investing. Statutory Details: Franklin Templeton Mutual Fund in India has been set up as a trust by Templeton InternationalInc. (liability restricted to the seed corpus of Rs.1 lac) with Franklin Templeton Trustee Services Pvt. Ltd. as the trustee (Trustee under the IndianTrust Act 1882) and with Franklin Templeton Asset Management (India) Pvt. Ltd. as the Investment Manager.Copyright © 2013 Franklin Templeton Investments.All rights reserved