monthly markets update (india) - september 2011
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DESCRIPTIONMonthly review of key market segments within India including Equity (Domestic and International), Fixed Income, Currency, Economic Indicators, Mutual Funds & Recommended Portfolios (India).
- 1. September 2011Prepared by: iFAST Research Team
2. Monthly Markets Update - India September 2011 Key PointsThe month of August saw all the major global indices showing a downward trendThe major event during the month was the downgrading of US debt by S&PIndian markets were also severely impacted by the global eventsWe believe that Indian markets are presently undervalued and hence, advise investors to investat the current levelsWe expect RBI to increase policy rates in the 16 September meet, as inflation is still above 9%In the Mutual fund space, all the categories from the Equity and Hybrid segment deliverednegative month-on-month returns, while the debt segment gave positive returns during themonth 3. Monthly Markets Update - India September 2011Equity Markets UpdateInternational Markets (As at August 2011 end) Earnings Earnings2011 2011 2010P/E P/E P/E Growth GrowthMTDYTDReturn (%) Yr 2011 Yr 2012 Yr 2013 2011 (%) 2012 (%)Asia ex Japan (MSCI Asia ex Japan) -10.16%-9.17%17.00%11.510.0 8.914.50% 15.30% Emerging Markets (MSCI EM)-9.19% -9.83%16.40%10.2 9.0 8.117.40% 13.70% Europe (Stoxx 600)-10.49%-14.29% 8.60%9.9 8.8 8.17.60%12.20%Japan (Nikkei 225) -8.93% -12.45% -3.00%14.512.810.48.60%13.80% USA (S&P 500) -5.68% -3.10%12.80%12.210.9 9.817.20% 12.30% Australia (S&P/ASX 200) -2.90% -10.31% -2.60%11.710.6 9.87.90%10.50% Brazil (IBOV) -3.96% -18.48% 1.00%9.4 8.4 7.313.00% 11.70% China (HS Mainland 100) -9.32% -9.41%2.20% 10.0 8.7 7.722.90% 15.10% Hong Kong (HSI) -8.49% -10.72% 5.30% 10.9 9.7 8.717.10% 12.80% India (SENSEX)-8.36% -18.21% 17.40%14.012.010.913.10% 16.60%Indonesia (JCI)-7.00% 3.73% 46.10%15.112.510.923.70% 20.40% Malaysia (KLCI) -6.56% -4.72%19.30%14.312.611.46.90%14.20%Russia (RTSI$) -13.37%-3.84%22.50% 5.4 5.1 5.050.90% 6.00% Singapore (STI) -9.53% -10.19% 10.10%13.418.104.22.168%9.40% South Korea (KOSPI) -11.86%-8.33%21.90% 9.5 8.3 7.415.10% 14.80% Taiwan (Taiwan Weighted)-10.44%-13.10% 9.60% 14.011.510.3-6.80% 21.40% Technology Heavy (NASDAQ 100) -5.15% 0.69% 19.20%13.511.810.526.30% 14.00% Thailand (SET Index)-5.60% 3.61% 40.60%12.110.6 9.625.40% 14.20% 4. Monthly Markets Update - IndiaSeptember 2011 Global Market PerformanceGroup 7 Countries Global Indices- G7 (MTD Returns) 0.00%USA (S&P 500)Germany (DAX)France (CAC-40)UK (FTSE 100)Canada (S&P/TSX) Italy (FTSE MIB)Japan (Nikkei 225)-2.00%-4.00%-6.00%-8.00% -10.00% -12.00% -14.00% -16.00% -18.00% -20.00% -22.00%Events US Unemployment rate fell to 9.1% in Jul 11, down from 9.2% in Jun 11 US producer prices rose by 0.2% m-o-m in Jul 11, after a 0.4% m-o-m decline in Jun 11 2Q11 US GDP growth revised downwards to 1% q-o-q annualised (+1.3% previously), following 0.4% growth in 1Q 11 Germany Industrial production fell -1.1% m-o-m in Jun 11, after a downward-revised 0.9% rise in May 11 Germany GDP q-o-q grew 0.1% in Q2 2011, down significantly from a downward revised 1.3% growth in Q1 2011 Germany PMI manufacturing remained flat at 52 in Aug 11, literally unchanged from 52.1 in Jul 11 (lowest since Jul 2009) France Industrial production fell -1.6% m-o-m in Jun 11, after a downward-revised 1.9% growth in May 11 France PMI manufacturing fell to 49.3 in Aug 11, down from an upward-revised 50.5 in Jul 11 UK Core CPI rose 3.1% in Jul 11, up from 2.8% in Jun 11 UK ILO unemployment rate rose to 7.9% in Jun 11, up from 7.7% in May 11 UK PMI manufacturing fell to 49.1 in Jul 11, down from an upward-revised 51.4 in Jun 11 Bank of Japan (BOJ) held its target rate unchanged at a range between 0% to 0.1% in Aug 11 Industrial production dropped -1.7% y-o-y in Jun 11 following a decrease of -5.5% in May 11Market Outlook 5. Monthly Markets Update - IndiaSeptember 2011August saw US lawmakers finally agree to raise the US debt ceiling, bringing an end to political bickeringwhich has resulted in heightened uncertainty among consumers, investors and businesses alike. Despitethis positive development, credit ratings agency S&P downgraded the US sovereign credit rating onenotch to AA+ on 5 August 2011, much to the chagrin of various high-profile investors like Warren Buffett(who felt that the US should be a quadruple-A) and Bill Miller (who called the downgrade precipitous,wrong, and dangerous). As per our comments on the issue when S&P first lowered its outlook on theUS sovereign debt rating in April 2011, we view the downgrade as largely symbolic, and see nocorresponding increase in default risk or any significant economic repercussions for the economy. Giventhe weak growth seen in 1H 11 coupled with an anticipated slowdown in the Euro-zone, we nowforecast GDP growth to come in at just 1.6% for 2011.Manufacturing PMI indices across Europe continued to show growing weakness, with the core nationssuch as Germany, France and the UK showing manufacturing output is expected to contract followingseveral months of declining purchases. However, the same cannot be said for services which have seen abroad-based rise in the continent.Euro zone inflation for July maintained Junes pace of 2.5% on a year-on-year basis. Excluding volatilecomponents, core-inflation fell to a rate of 1.20% as compared to 1.60% year-on-year in June, within thetarget range of the ECB. Following their interest rate hike on 7 July 2011, we believe that the ECB couldpossibly be regretting its action as the rate hike now seems premature and worryingly reminiscent of2008, when following a rate hike; the ECB was forced to retreat as the global financial system fell apart.Japans ruling Democratic Party has chosen the present finance minister Yoshihiko Noda as its newleader and the countrys sixth prime minister within five years. Noda has been widely regarded as afiscal hawk as he has consistently called for a painful fiscal consolidation in order to rein in the countrysballooning fiscal deficit. During the campaign, he had argued again that a tax rise is necessary if fiscalresources still run short. Nodas succession as prime minister could accelerate the consumption tax hikewhich is negative to the economy.The Japanese government could also accelerate its fiscal consolidation plan after Moodys lowered itscredit rating to Aa3. The credit rating agency said large budget deficits as well as the highest debt-to-GDP ratio in major countries are the crucial reasons that drive the downgrade. Besides, frequentchanges in administrations impeded the government to enact a long-term economic and fiscal policy.Political deadlock is the major concern that could hinder the countrys long-term economicdevelopment. In spite of the downgrade, the Japanese bond market is largely unaffected. 6. Monthly Markets Update - India September 2011 Asia Pacific (Ex Japan) Global Indices- Asia Pacific (Ex Japan) (MTD Returns)0.00% South Korea Hong Kong (HSI) (S&P/ASX 200)Thailand (SET Singapore (STI) Malaysia (KLCI) Indonesia (JCI) Taiwan (Taiwan -2.00% (KOSPI) Weighted)Australia Index) -4.00% -6.00% -8.00%-10.00%-12.00%-14.00%Events Singapores Industrial production for Jul 11 increased 0.3% m-o-m, after an upward-revised 1.9% gain in Jun 11 Malaysias BNM may hold the Overnight Policy Rate at 3.0% for the rest of 2011 to accommodate economic growth Malaysias GDP growth for 2Q 2011 y-o-y moderated to 4.0% from an upward revised 4.9% in 1Q 2011 Indonesias GDP second quarter y-o-y growth recorded 6.49%, marginally higher than first quarter, 6.47% Indonesias Foreign reserves rose to $122.7 billion USD in July Thailands 2Q 2011 GDP growth slowed to 2.6% y-o-y, down from an upward revised 3.2% growth in 1Q 2011 The Bank of Korea (BOK) held its benchmark 7-day repo rate unchanged at 3.25% in Aug 11 The Korean Consumer Price Index (CPI) grew at 4.7% y-o-y in Jul 11 compared to a 4.4% increase in Jun 11 Taiwans 2Q11 GDP grew 5.02% y-o-y, compared to 6.16% y-o-y growth 1Q11 Hong Kongs 2Q11 GDP grew 5.1% y-o-y, compared to revised 7.5% y-o-y growth in 1Q11 Australias benchmark rate (RBA Cash Rate Target) stood at 4.75% Australias Trade balance fell to AUD 2052 mil surplus in Jun 11 from revised upward AUD 2699 mil in May 11Market Outlook 7. Monthly Markets Update - IndiaSeptember 2011Malaysias GDP growth for 2Q 2011 year-on-year moderated to 4.0% from an upward revised 4.9% in 1Q2011, mainly due to the slowdown in investment and government spending. The sustained growth indomestic consumption and the stronger growth in exports have mitigated the weaker growth ininvestment and government spending. Going forward, exports growth and government spending mayfall as the global economic growth is expected to slow down and the government would like to reduceits expenditure in order to lower the budget deficit.Indonesias GDP second quarter year-on-year growth recorded 6.49%, marginally higher than firstquarter, 6.47%. Industry breakdown showed that the transport industry grew the fastest by 10.7%followed by the hotel and restaurant industry and the construction industry which posted 9.6% and7.4% respectively on year-on-year basis. Similarly, household spending expanded steadily, advancing4.6% in the second quarter as compared to 4.5% in first quarter. GDP growth is expected to be sustainedin a strong pattern underpinned by the robust domestic consumption and rising investment. The risk ofheightened external uncertainties and slowdown in developed markets will feed into the real economygoing forward.Thailand recorded a 2.6% year-on-year GDP growth in 2Q which is slower than the revised upward 3.2%growth in the previous quarter and also missed the consensus forecast of 3.6% growth. This is mainlydue to the slower growth in exports resulted from the Japan natural disasters in March and theslowdown in Europe and US economy. The economic growth in the Europe and US are expected tofurther slowdown in the coming months which may further pressure Thailands economic growth. Letslook at some leading indicators for better judgment.2Q11 Taiwans GDP grew 5.02% year-on-year. Although it grew faster than ma