Weekly Market Review - June 28, 2013


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Weekly Market Review - June 28, 2013

  1. 1. International Global financial markets stabilised as investors digested further comments from the US Federal Reserve and took a breather from the sell-off last week. The MSCI AC World Index closed up 1.26%, in a volatile week that saw Emerging Markets and Japanese equities bounce back sharply. However, the index fell by over 1% this quarter due to the declines in EM indices (especially in Europe and Latin America). Global benchmark treasury bonds also pared recent losses and yields closed slightly lower this week. Renewed buying interest helped gold close off lows of $1200/ounce touched this week, but continued to witness pressure and the Reuters Jefferies CRB Index fell by 0.88%.The US dollar continued to strengthen against major currencies, while the yen depreciated and weaker UK GDP data weighed on the pound. • Asia-Pacific: Bargain hunting lifted regional stock indices – Indonesia, Japan and India were amongst the major gainers. For the quarter, Japan, Malaysia and Taiwan bucked the overall weakness. Japanese economic data was positive and reinforced views that the new monetary policy was helping - consumer prices and unemployment rate remained flat, while industrial production and retail sales rose by 2% and 1.5% respectively. Chinese equity markets clawed back some of the losses and inter-bank money market rates eased after the central bank signalled liquidity support (but cautioned against rapid loan growth). InTaiwan, the central bank left policy rates unchanged.Australian witnessed a change in leadership after former Prime Minister Kevin Rudd became the leader of the ruling Australian Labor Party. • Europe: European equities climbed up on the back of gains in automotive and retail stocks, and for the quarter, Hungary stood out in terms of gains.At the EU summit this week, European leaders agreed to tackle some of the key issues facing the region. Leaders agreed on bank bail-in rules that would require creditors to partake in losses at troubled banks. Insured deposits of up to $130,000 would be exempted. Policymakers also agreed to leverage European Investment Bank resources to lend to small- and-medium businesses in the region, while deciding to spend close to €6 bln to support job creation in the region. On the economic front, Germany reported rise in retail sales and unemployment declined. Kabel Deutschland accepted Vodafone’s takeover offer of $10 bln. • Americas: US equity indices gained this week and the technology dominated Nasdaq index outperformed counterparts. Mexico stocks also posted sharp gains, while Brazil saw a relatively muted rally. On the economic front, US Q1-2013 GDP growth rate was revised down to 1.8% (annualized) from previous estimate of 2.4%. The Conference Board’s consumer confidence index rose and core durable goods orders increased. US Senate cleared the immigration reform bill this week. Monthly GDP data this week showed Canada’s economy continues to see improvement. On the corporate front, Pfizer announced additional $10 bln buyback plans taking its total repurchase program to $40 bln. The sustained protests in Brazil led to the government offering a national referendum on political reforms, amongst other measures. Market Review WEEK ENDED JUNE 28, 2013
  2. 2. Weekly Weekly change (%) change (%) MSCI AC World Index 1.26 Xetra DAX 2.18 FTSE Eurotop 100 1.92 CAC 40 2.21 MSCI AC Asia Pacific 2.18 FTSE 100 1.62 Dow Jones 0.74 Hang Seng 2.66 Nasdaq 1.37 Nikkei 3.38 S&P 500 0.87 KOSPI 2.22 India - Equity A strong surge towards the end of the week helped the markets bounce back from lows. Despite negative FII flows (-$709 mln), signs of renewed government commitment towards reforms and positive news on the current account deficit front, boosted investor sentiment. Mid and small cap indices however closed in the red.A hike in gas prices and new pricing formula, had boosted Oil & gas stocks. In contrast, consumer durables and FMCG indices closed in the red. Trends in BoP and INR Source: CLSA, RBI, CEIC • Macro: Helped by strong capital flows and a moderate current account deficit (CAD), India’s Balance of Payments recorded a surplus of $2.7 billion ($0.78 billion last quarter) in the quarter ended March 2013. Rise in exports combined with lesser imports helped the trade deficit narrow to $45.6 billion from $58.4 billion in the sequentially previous quarter. Invisible receipts were higher compared to the December quarter and helped the CAD narrow to 3.6% of GDP from 6.7% of GDP. Even as capital inflows moderated in Q4FY13, they were more than sufficient to fund the CAD.As we have been stating, CAD remains one of the key risks facing India and the government has been cognizant of the same and has announced various measures to curb gold imports and encourage foreign investments are positive. However, the recent change in global environment with investors moving away from EM assets due to expectations of a reduction in global liquidity, will pose a challenge. Overall BoP and INR 35 40 45 50 55 60 65(15) (10) (5) 0 5 10 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 (USD bn) (INR/USD, reverse axis) Overall BoP INR/USD
  3. 3. • Policy: Two key measures were cleared by the government – a) Hike in gas pricing, b) Setting up of coal regulator. The Cabinet accepted the recommendations of the C Rangarajan committee that will link domestic gas prices to imports and global prices. The change in gas pricing will come into effect beginning April 2014 and is likely to result in domestic gas price doubling to $8.4/mmbtu. The government has also indicated that subsidy may be provided to cushion impact on production costs of fertilizers and gas-based power projects.The final details are expected over the next few months, but these measure are positive and can incentivize further investments in oil & gas sector.This augurs well for the country’s energy security and can help reduce dependence on imports. Similarly, the move to set up a coal regulator is positive and could improve transparency on allocation of coal blocks and pricing. Weekly change (%) S&P BSE Sensex 3.31 CNX Nifty 3.08 CNX 500 2.05 CNX Midcap 0.32 S&P BSE Smallcap -1.29 India - Debt Indian bond yields and the rupee managed to close the week off lows on better macro data and policy progress. • Yield movements: Bond yields closed slightly higher across maturity buckets.Yields on the 10-year and 5-year papers increased by 3 bps and 1 bp respectively, while those on the 1-year paper were flat at 7.47%.Yield on the 30 year Gilts firmed up 13 bps. Corporate bond yields also stood higher over the week. • Liquidity/ Borrowings: Demand for liquidity at RBI’s LAF window averaged about Rs. 65,500 crore this week and overnight call money rates hovered around the 7.25% levels. Scheduled bond auctions of GOI securities worth Rs. 14,000 crores received bids of close to Rs. 42000 crores and were fully subscribed. • Forex: Towards the close of week, the rupee bounced back sharply from all-time lows of Rs.60.71/$ on the back of lower CAD, reform moves and corporate inflows. As of Jun 21, 2013, India’s forex reserves stood at $288 bln, $2.8 bln less than previous week levels. • Macro: Fiscal deficit for Apr-May 2013 stood at 33.3% of budgeted estimates vis-à-vis 27.6% recorded during the corresponding period last year. Government spending seems to have normalized in the current fiscal as expenditure increased 13.9%yoy in the period under review compared to 2% growth recorded in the second half of last fiscal. However, data showed tax receipts have been below expectations in FY14YTD – gross tax collections have fallen by 8% compared to 19.2% growth assumed in the Budget. Investors will closely watch revenue trends for any negative surprise amidst the economic slowdown.
  4. 4. 28.06.2013 21.06.2013 Exchange rate (Rs./$) 59.39 59.27 Average repos (Rs. Cr) 65,483 67,713 1-yr gilt yield (%) 7.47 7.47 5-yr gilt yield (%) 7.62 7.61 10-yr gilt yield (%) 7.60 7.57 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