Investment Market Update By Area
Far East and Global Investment Market
by Joanne Roberts, Director, October 2019 (stats. to 30/09/2019)
Asian equity markets ended the month higher, supported by signs of an easing in trade tensions between the US and China. Senior officials from both sides confirmed that talks would take place in Washington D.C. in October.
The positive turn in early-September trade news flow saw a quick reversal following later reports that the US was considering delisting Chinese companies from American exchanges and limiting US financial investments in China.
Both Korea and Taiwan outperformed thanks to a recovery in the technology sector.
Korean equities outperformed, posting a significant rebound driven by a recovery in the semiconductor sector and upswing in technology demand. Taiwan similarly posted strong gains, again due largely to a rebound in the tech sector, aided by Apple’s launch of three new iPhone models as well as increased 5G-related demand.
Indian markets rallied following a surprise cut in corporate tax rates there, while Japanese equities also ended the period higher.
Indian equities also ended September higher after the government announced a surprise cut in corporate taxes to 22% from 30%. The move is broadly expected to benefit a wide number of industries, boost corporate earnings and buoy investor sentiment at a time when domestic economic growth continues to slow.
The Reserve Bank of India cut key lending interest rates in August and is expected to initiate further cuts in the months to come.
Chinese equities underperformed regional peers despite an earlier easing in US-China trade tensions. Talks are set to recommence in October following President Trump’s raising of tariffs on Chinese goods in August.
China retaliated with its own set of tariffs on US imports but had since released a number of exemptions as a “goodwill gesture”. However, reports that the White House was considering a block on US financial investments in China as well as the possible delisting of Chinese companies from US stock exchanges saw gains made earlier in the month disappear.
The People’s Bank of China cut reserve requirements for all banks by 0.50%, stating that it will maintain a prudent monetary policy, maintaining reasonable and abundant liquidity.
In Japan, equity markets ended the month higher as easing trade tensions between the US and China saw an improvement in investor sentiment. While the Bank of Japan (BoJ) decided to leave monetary policy unchanged, the US Federal Reserve’s September interest rate cut did raise market confidence. However, the BoJ’s September Tankan survey showed a continuing decline in business confidence among the country’s biggest manufacturers amid ongoing global political and economic uncertainties.
Despite concerns about the economic outlook, the government introduced an increase in the consumption tax to 10% from 8% effective 1 October with the aim of servicing its public debt load and to fund social care programmes.
Emerging equity markets advanced higher in September with all the regions registering gains. Latin America was the best performer, followed by Asia. From a country perspective, Turkey, Pakistan and Argentina came top with the best sector returns coming from technology, energy and industrials.
Renewed expectations of engagement between the US and China over their trade war bolstered sentiment towards technology stocks along with strong demand for iPhone and 5G. Energy companies drew support from a rise in oil prices following a drone attack at the world’s largest crude production site in Saudi Arabia, although a restoration of output resulted in Brent crude giving up most of its earlier gains. Gold prices also tracked lower after their strong rally in August.
On the political front, President Bolsonaro’s pension reforms in Brazil took another step forward following the approval of the Senate constitutional affairs committee.
Colombia was the only equity market in the Latin American region to finish in negative territory last month.
Equity markets in EMEA (Europe, Middle East and Africa) posted modest gains with the best of the returns coming from emerging Europe – Turkey, Russia and Greece.
Performance elsewhere was more mixed with the UAE being the largest detractor.
Russian banks also had a healthy month in terms of equity performance with oil and gas companies drawing support from higher energy prices – natural gas prices rose by 2.0%. By contrast, South Africa was a laggard due to weakness in index heavyweight Naspers, a company with a 35% weighting in the local equity market.
While interest rate cuts in the Eurozone and the US attracted global headlines, central banks in Latin America were also active with Brazil, Mexico and Chile reducing interest rates by 0.50%, 0.25% and 0.50% respectively.
To bolster a sluggish economy and steer inflation back up towards the target, interest rates in Brazil were reduced to 5%, a record low. Furthermore, Copom (the monetary policy committee in Brazil) kept the wording unchanged regarding prospects for possible further interest rate cuts over coming months.
The decision to cut interest rates to 7.75% in Mexico was split with two members voting for a larger reduction of 0.50%. In an accompanying statement, Banxico (Mexico’s central bank) left the door open for further cuts.
The rise in Turkish equities was bolstered by a strong showing in banking stocks, following a 3.25% interest rate cut by the central bank in the wake of continued disinflation.
For the third time this year interest rates were lowered in Russia – down 0.25% to 7.0%.
In China, September’s Consumer Prices Index rose 3% year on year, versus a 2.9% expectation. This was following a 2.9% increase in August. The CPI came in slightly higher than consensus, but with the higher food price component this should come as too much as a surprise.
India's retail inflation, which is based on the country's consumer price index, rose for the eighth month in a row in September to 3.99%. This is the highest since July 2018.
However, it continues to remain in the comfort zone agreed on by the national government and the Reserve Bank of India in 2016, which is 4%, with a 2% swing in both directions.
According to data supplied by the Ministry of Statistics and Programme Implementation, the retail inflation level was spurred mainly by food inflation, which almost doubled to 5.1%, up from 2.99% in August. This was the highest level since August 2016.