Investment Market Update By Area
Far East and Global Investment Market
by Joanne Roberts, Director, July 2019 (stats. to 30/06/2019)
Asian equity markets saw a recovery in June on renewed confidence of a breakthrough in US-China trade talks ahead of a meeting between President Trump and President Xi at the G20 summit in Osaka, Japan.
The meeting concluded with an announcement that the two sides would resume negotiations while the US promised to temporarily halt a new 20% tariff on US$300bn worth of Chinese imports and to lower some restrictions on Chinese technology giant Huawei.
China, in turn, agreed to increase its purchase of US food and agricultural products.
Market sentiment was further boosted by indications from the US Federal Reserve (the Fed) that it would consider interest rate cuts soon as the global economic outlook remains opaque given weaker data and the net negative impact of ongoing trade tensions.
Singapore, Thailand, Korea and China led regional market gains while all Asian currencies rose against the US dollar.
Chinese equities gained on positive trade news flow while the central government indicated its ongoing support for the domestic market. The People’s Bank of China stated that it injected approximately US$108bn into the market in June to maintain liquidity in the banking system at a “reasonably sufficient level” while the Ministry of Finance issued new measures aimed at speeding up infrastructure spending.
Korean equities similarly enjoyed some respite, ending June higher after the previous month’s slide, with foreign buyers returning to the market as the domestic currency stabilised.
Conversely, Indian equities dipped slightly in June following a mid-May rally on the back of the ruling The Bharatiya Janata Party (BJP) return to power.
Japanese equities ended the period higher as optimism over the possibility of the US and China coming to some form of reconciliation cheered markets higher. Expectations of the Fed cutting rates further added to the positive momentum seen across June ahead of the G20 summit where Trump and Xi would meet.
Macroeconomic indicators for the period, however, were mixed with consumer price inflation lower in May, as was June manufacturing. The Bank of Japan’s (BOJ) “tankan” survey (reflects business confidence) showed that corporate confidence has worsened as export manufacturers suffered from the US-China trade war and related global slowdown.
Emerging equity markets rallied across the board during June with confidence boosted by growing expectations that central banks across several countries, including the US and China, stand ready to lower interest rates on global growth concerns. The futures market is currently pricing in three US interest rate cuts this year, starting in July.
In terms of regional equity performance, Asia came top, closely followed by Latin America and EMEA (Europe, Middle East and Africa). While Singapore and Thailand led the gains in Asia, China also had a healthy month as President Trump signalled a reversal of his policy preventing US groups from selling software and equipment to the Chinese telecoms equipment maker Huawei.
Strong demand for technology stocks provided extra lift to equity markets in Korea and Taiwan.
All emerging market sectors advanced higher.
Within the Latin American region, new MSCI Emerging Market Index entrant Argentina came top although economic momentum for the country remains weak. While activity data in Brazil also disappointed, almost all confidence indicators accelerated in June as the Mercosur and European Union celebrated a potential trade agreement after almost 20 years of negotiation.
Equity markets in Mexico closed higher after the country reached a temporary truce with the US to contain the flow of migrants into the latter in exchange for no escalation in tariffs on Mexican imports to the US.
Turkey was the strongest performing market in the EMEA region, followed by Russia and Poland. Opposition candidate Ekrem Imamogluwon the re-run on the Istanbul’s mayoral election with 54% of the vote, ending 25 years of the Justice and Development (AKP) rule in the city.
Aside from higher oil prices, Russia’s equity markets also benefited from a reduction in interest rates. Easing inflation and slowing economic growth prompted the central bank to cut interest rates from 7.75% to 7.50%. Furthermore, Central Bank of Russia, Governor Elvira Nabiullina left the door open for more easing if there are no negative surprises.
An unexpected cut in interest rates (50 basis points), coupled with higher copper prices supported the advance in Chile’s equity markets.
Hopes for a cut in Brazilian interest rates were bolstered by a fall in inflation. On the political front, the key social security reform bill made further progress with the expectation that the first vote in the Lower House will be concluded by mid-July.
In China, macroeconomic data was mixed, with the purchasing managers’ index (PMI) – a figure that represents current and future business conditions, in June flat with the previous month at 49.4 while May retail sales were up 2.1% month-on-month.