Weekly Market Review - September 13, 2013


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Weekly Market Review - September 13, 2013

  1. 1. International Global investor sentiment remained positive ahead of next week’s US Federal Reserve meeting as investors took comfort from easing Syria tensions and positive data out of China.The MSCI AC World Index gained 2.21% led by strong gains in Asian on the back of improved economic growth trends. Global Treasury bond yields were largely range bound as investors speculated about the possible outcome of next week’s meeting. The Reuters Jefferies CRB index declined 0.79% led by fall in crude oil and gold prices, amidst progress on Syria discussions and Fed policy uncertainty. In currency markets, the US dollar continued to strengthen and the Sterling pound was boosted by positive UK economic news flow. • Asia-Pacific: Most of the region’s markets closed in positive territory – Indonesia, China and Japan equities were amongst the top gainers. Japan’s Q2 real GDP growth was revised upwards to 3.8% from 2.6% estimated earlier. However, the current account surplus shrank in July and domestic core machinery orders were flat month-on-month. China reported strong growth in industrial production (+10.4%), fixed asset investment (+20.3%) and exports (+7.2%). Central banks in South Korea and Philippines left policy rates unchanged, while Bank Indonesia hiked rates (benchmark and FASBI rate up by 25 bps each to 7.25% and 5.5% respectively) and lowered 2013 & 2014 GDP growth forecasts. Conservative Party won elections in Australia. On the corporate front, Suntory bought two beverage brands from GlaxoSmithKline for $2.1 bln. • Europe: Regional equity markets fared well led by strong gains in Germany. In terms of economic data, Eurozone industrial production declined by 1.5%mom with German output down 1.7%.The number of employed persons in Euro area shrunk by 0.1% in Q2 (-0.5% previous quarter). On the other hand, UK unemployment rate dipped to 7.7% from 7.8% and construction activity accelerated.France unveiled a 10- year industrial policy that aims to revive flagging industry growth and create 450,000 jobs. Russia kept policy rates on hold and has announced a simplification of its policy rate framework - 1 week auction repo rate will become the main policy rate and will shift to inflation-targeting by 2015. US and Russian leaders met in Geneva to find a non-military solution to the Syrian crisis. Reports suggest Sanofi may be buying back L’Oreal’s stake in its business. • Americas: Positive corporate news flow helped US equity indices add gains while Canadian stocks moved up on better China data and rise in housing prices. US retail sales rose 0.2% in August and the Thomson Reuters/University of Michigan index of consumer sentiment (preliminary) declined to 76.8 from 82.1 last month. Chile’s central bank kept policy on hold. Mexico unveiled fiscal reforms that will help raise weak tax revenues to fund social programmes and offer near term stimulus. On the corporate front, Koch Industries agreed to buy Molex for $7.2 bln and Ares Private Equity joined hands with Canada Pension Plan Investment to purchase Neiman Marcus for $6 bln.Verizon will undertake the largest ever bond issuance of $49 bln, to fund its acquisition of Vodafone’s stake in Verizon Wireless and Dell shareholders approved the move to take the company private. Market Review WEEK ENDED SEPTEMBER 13, 2013
  2. 2. Weekly Weekly change (%) change (%) MSCI AC World Index 2.21 Xetra DAX 2.82 FTSE Eurotop 100 1.48 CAC 40 1.61 MSCI AC Asia Pacific 2.49 FTSE 100 0.56 Dow Jones 3.04 Hang Seng 1.30 Nasdaq 1.70 Nikkei 3.92 S&P 500 1.98 KOSPI 2.00 India - Equity Positive FII inflows (~$657 mln), encouraging economic data and a stronger rupee helped Indian equity markets stage a sharp rally this week. Gains were broad based across market caps and sectors. Real estate stocks were the top gainers, while IT stocks closed marginally negative. Diversified infrastructure conglomerate Jaiprakash Associates announced the sale of their Gujarat cement unit to UltraTech Cement for Rs. 3,800 crores. • Macro: There was positive news flow on the economic front in terms of trade as well as industrial production. India’s exports increased by 13%yoy in August and imports fell by 0.7% (rise in oil imports was overshadowed by weaker demand for non-oil imports).As a result, the trade deficit narrowed to $10.9 bln from $12.3 bln in the previous month. Helped by export growth and various policy measures, the trade gap has more than halved from the peak of $21 bln in May.With the rupee stabilising, all eyes are on capital flows, which will be key to the Balance of Payments situation. Trade Balance US$ bln Source: CLSA Asia Pacific Markets Growth in industrial production accelerated in July – the IIP index was up 2.6%yoy compared with - 1.8%yoy in June (revised from -2.2%).The improvement was led by capital goods production (up 15.6%). However, given the historical volatility in capital goods, one needs to evaluate the trends over the next few months (keeping in mind the recent weakness in the manufacturing PMIs).Whilst exports can boost industrial production trends, tighter monetary conditions are likely to cap the upside • Telecom: TRAI’s (Telecom Regulatory Authority of India) latest proposals on spectrum pricing include significant price cuts in key circles (50% and more in metros and ~30-45% in Category A circles), allowing spectrum trading and bringing down spectrum usage charges to a flat fee of 3%.This is a positive for the (25) (20) (15) (10) (5) 0 Jan08 Apr08 Jul08 Oct08 Jan09 Apr09 Jul09 Oct09 Jan10 Apr10 Jul10 Oct10 Jan11 Apr11 Jul11 Oct11 Jan12 Apr12 Jul12 Oct12 Jan13 Apr13 Jul13 US$bn
  3. 3. sector and there are early signs of regulatory pressures receding. This along with lower competitive pressures would help incumbent players. Weekly change (%) S&P BSE Sensex 2.40 CNX Nifty 3.00 CNX 500 3.03 CNX Midcap 3.39 S&P BSE Smallcap 3.10 India - Debt Indian bond yields closed higher as latest economic data offset gains clocked earlier on stronger rupee. FIIs pulled out $218 mln during the first four days of the week. Attention now shifts to the FOMC meeting and RBI monetary policy meeting next week. • Yield Movements: Yields on 10-Yr benchmark gilts rose 26 bps, while the 5-year Gilt yield increased by 10 bps.Yields on the 5–year AAA corporate bonds firmed up by 6 bps and the spread narrowed to 105 bps from 108 bps. 1 yr gilt yields increased by 26 bps, while 30 year Gilts climbed 6 bps. • Liquidity/borrowings: Systemic liquidity came under further pressure - MSF borrowings touched a new high and overnight call money rates were a tad higher. CD and CP rates also inched up.At weekend RBI offered banks two day funding to facilitate smooth advance tax payments. • Forex: : Helped by positive FII flows and dollar selling by corporates, the Indian rupee staged a dramatic rally this week but closed off highs as economic panel reports suggested deficit challenges persist. Forex reserves as of September 06 were down to $274.8 bln from $275.5 bln at end of previous week. • Macro/Policy: As per latest data, consumer price inflation at 9.54% was little changed from 9.62% recorded last month due to renewed rise in food and fuel prices. Core CPI inflation also stood higher on firm services sector prices. Even as economic growth is slowing, FX pass through and supply constraints/inefficiencies appear to be offsetting demand led downward price revisions. In another attempt to boost foreign flows, SEBI this week said FIIs/QFIs can invest in Indian government securities directly (without purchasing investment quotas) till the overall investment limit reaches 90%. It
  4. 4. may be recalled the regulator had previously permitted corporate bond investments ‘on tap’ basis. The regulator also simplified KYC norms for foreign investors – based on their regulatory status investors have been split into three: a) Government entities, b) Non-Government entities, and c) Non-regulated entities. The first two categories will be subject to minimum documentation requirements. Overall, the new norms ease access to Indian markets and can potentially attract fresh flows into Indian debt markets. 13.09.2013 06.09.2013 Exchange rate (Rs./$) 63.49 65.24 Average repos (Rs. Cr) 39,480 39,613 1-yr gilt yield (%) 10.17 9.91 5-yr gilt yield (%) 8.96 8.86 10-yr gilt yield (%) 8.85 8.71 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