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Analysen 11.03.2016

Investors Should Continue Looking Into Emerging Asian Markets

Investors Should Continue Looking Into Emerging Asian Markets

For the European Central Bank (ECB) and the Bank of Japan (BOJ), the initial response to the negative interest rate experiment has not worked out as planned.


For the European Central Bank (ECB) and the Bank of Japan (BOJ), the initial response to the negative interest rate experiment has not worked out as planned. The idea of pulling borrowing costs below zero goes against rational economic theory. Besides deterring the idea that future value of money should be greater than net preserve value, these policies hurt banks as costs are unlikely passed to depositors, lowering the profitability of providing loans.

The aforementioned has weighed on markets for most of 2016. Market pressure steams from ebbing confidence that central banks in developed markets have means to offset deflationary pressure. However, a gap exists between central bank capabilities and market expectations, in our opinion. Central banks are lenders of last resort, instituting policies that alone do not resuscitate the economy but instead provide parameters conducive for growth. Besides quantifying credibility of central banks, investors should also include two additional considerations: economic dynamics and potential benefits from a subsequent year of low energy prices. These three qualities are present across most of Emerging Asia.

Across Southeast Asia, central banks continue to apply both independent and prudent approaches to ensure economic stability. The Reserve Bank of India’s Raghuram Rajan looks to rebuild foreign reserves in order to maintain manageable inflation levels. Bank Indonesia cut interest rates twice year to date to spur growth. Bangko Sentral ng Pilipinas (Philippines) incumbent governor Amando Tetango has been instrumental to control physical asset prices while Bank Negara Malaysia’s governor Zeti Akhtar Aziz is credited for ensuring the bank’s autonomy going forward.

Supported by sensible central banks, the outlook for Asian economic growth remains encouraging. Although expanding below previous years, the regional economy continues to demonstrate resilience due to domestic demand. In 2015, India and the Philippines expanded 7.1% and 5.7% respectively, which were key beneficiaries of falling oil prices. Indonesia expanded 4.7% on the back of an improving current account deficit. Malaysia, a net commodity producer, expanded 4.9% as private consumption offset the fall in energy prices.

Middle class households throughout Emerging Asia benefit on subdued oil prices given the region is a net importer of energy. Continue softness in global oil should allow central banks in the region more maneuvering to support the economy. Real and positive interest rate moves are more effective to stimulate demand, and thus investors should continue to prefer markets where central banks operate in a supportive economic environment. It should be no surprised that amid the early year correction as a result overreaching policies put forward by developed central banks, ASEAN equities have been outperformers. Supported by strengthening currencies against the USD, investors are rotating into Southeast Asia, as rising intraregional trade and relatively lower exposure to the global trade cycle becomes more valuable amid volatility.

ChristopherChu.jpg
Christopher Chu, Assistant Fund Manager - Asia

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Meistgelesene News

Market insight 26.04.2018

The ECB stays cautious due to low and fragile core inflation

The ECB has not changed its current strategy

  • The ECB has recognized that the slowdown in Q1 was broad based, but it was mainly due to temporary factors; so the ECB remains confident on growth.
  • The inflation  should finally converge at/or slightly below 2%, but the ECB has noticed that the core inflation has not shown convincing signals of being on an upward trend; for this reason, a still large monetary accommodation still looks justified according to the ECB.
  • According to M. Draghi, there was no discussion on monetary policy; no pre-commitment of any change in the ECB’s communication in June.
  • As core inflation is not a firm trend, the ECB will take some time before officially shifting its communication and its strategy. This increases the probability of a change in communication only in the next July meeting and favors a smooth end of the QE in Q4-18.

 

US: Initial jobless claims (Apr.21): 209k vs 230k expected (prior: 233k revised from 232k)

  • Continuing claims: 1837 k after 1866 k.

 

US: Durable goods orders (March): 2.6% m/m vs 1.6% expected (prior: 3.5% revised from 3%)

  • Orders have been boosted by civil aircrafts (44% m/m).
  • Orders for capital goods non-defense ex aircraft (core orders) were down by 0.1% m/m after 0.9% m/m the prior month. By sector, the picture was mixed: a rebound in computers, but falling orders for machinery and flat in equipment.
  • Shipments were up by 0.3% m/m (-0.7% m/m for core orders); inventories were up by 0.1% m/m (+0.3% m/m for core orders).

 

US: Wholesale inventories (March): 0.5% m/m vs 0.7% expected (prior: 1%)

  • Inventories of durable goods were up close to 1% m/m.

 

Germany: GFK consumer confidence (May): 10.8 as expected (prior: 10.9)

  • Some cautiousness on future activity and income, despite good fundamentals.

 

Spain: Unemployment rate (Q1-18): 16.74% vs 16.45% expected (prior: 16.55%)

  • Unemployed has surprisingly decreased by close to 2% over the quarter; this could be viewed as a pause in a still positive trend.
Market insight 25.04.2018

France: consumer confidence under stabilization

France: Consumer confidence (Apr.): 101 vs 100 expected (prior: 100)

  • Sentiment is less negative on personal situation and on standard of living; in details, prices, and unemployment to a lesser extent, were sources of rising concerns.
  • In absolute terms, the index remained well above the levels reached before the financial crisis, pointing towards good fundamentals for households. The index could stabilize around these current levels, which stayed below levels reached in Q4-17.

 

Spain: PPI (March): -0.9% m/m (prior: 0% revised from 0.1%)

  • Prices were up by 1.3% y/y after 1.2% y/y past month. Energy prices have fallen by 3% m/m.

 

Poland: Unemployment rate (March): 6.6% vs 6.5% expected (prior: 6.8%)

  • The decrease of unemployed has accelerated: -35 k after -7 k past month.

 

Brazil: Current account (March): 798 M$ vs -100 M$ expected (prior: 290 M$ revised from 283 M$)

  • Current account has jumped into a surplus for the second month; FDI has also jumped from USD 4.7 bn to USD 6.5 bn over the month.

 

Turkey: Central bank has increased liquidity lending rate from 12.75% to 13.50%.

  • Repo rate was unchanged at 8%, overnight lending rate unchanged at 9.25% and overnight borrowing rate unchanged at 7.25%.
  • In its statement, central bank mentioned that it wanted to implement some tightening in order to preserve price stability, as inflation and expectations have increased.
Market insight 24.04.2018

Richmond Fed manufacturing fell sharply in April, disappointing German IFO survey

US: Richmond Fed manufacturing (Apr): -3 vs 16 expected (prior: 15)

  • The index fell sharply in April for the second consecutive month.
  • The underlying composition was generally weak, with sharp declines in the shipments and new orders components.

 

US: Consumer confidence (CB) (Apr): 128.7 vs 126 expected (prior: 127 revised from 127.7)

  • The improvement in confidence was spread evenly across the present situation and expectations indices.

 

US: New home sales (Mar): 694k vs 630k expected (prior: 667k revised from 618k)

  • On a m/m basis: 4% vs 1.9% expected (prior: 3.6% revised from -0.6%)
  • By region, March sales increased in the West (+28.3%), South (+0.8%) but declined in the Northeast (-54.8%) and Midwest (-2.4%). Inventory available on the market edged down to 5.2 months of available supply, towards the lower end of its 12-month range.

 

US: Housing prices (FFHA) (Feb): 0.6% q/q as expected (prior: 0.9% revised from 0.8%)

 

Germany: IFO (Apr): 102.1 vs 102.8 expected (prior: 103.3 revised from 103.2)

  • Expectations: 98.7 vs 99.5 expected (prior: 100 revised from 103.2)
  • Current assessment: 105.7 vs 106 expected (prior: 106.6 revised from 106.5)
  • The headline decline was driven by a drop in expectations. From a sector perspective, sentiment in manufacturing eased further from high levels, while construction and retail sentiment improved slightly.
  • Note that there have been methodological changes to the survey this month, which in theory should make it a better guide to German GDP growth.

 

France: Business confidence (Apr): 108 as expected (prior: 109)

  • Manufacturing: 109 vs 110 expected (prior: 110 revised from 111)

Auch lesenswert

Market insight 26.04.2018

The ECB stays cautious due to low and fragile core inflation

The ECB has not changed its current strategy

  • The ECB has recognized that the slowdown in Q1 was broad based, but it was mainly due to temporary factors; so the ECB remains confident on growth.
  • The inflation  should finally converge at/or slightly below 2%, but the ECB has noticed that the core inflation has not shown convincing signals of being on an upward trend; for this reason, a still large monetary accommodation still looks justified according to the ECB.
  • According to M. Draghi, there was no discussion on monetary policy; no pre-commitment of any change in the ECB’s communication in June.
  • As core inflation is not a firm trend, the ECB will take some time before officially shifting its communication and its strategy. This increases the probability of a change in communication only in the next July meeting and favors a smooth end of the QE in Q4-18.

 

US: Initial jobless claims (Apr.21): 209k vs 230k expected (prior: 233k revised from 232k)

  • Continuing claims: 1837 k after 1866 k.

 

US: Durable goods orders (March): 2.6% m/m vs 1.6% expected (prior: 3.5% revised from 3%)

  • Orders have been boosted by civil aircrafts (44% m/m).
  • Orders for capital goods non-defense ex aircraft (core orders) were down by 0.1% m/m after 0.9% m/m the prior month. By sector, the picture was mixed: a rebound in computers, but falling orders for machinery and flat in equipment.
  • Shipments were up by 0.3% m/m (-0.7% m/m for core orders); inventories were up by 0.1% m/m (+0.3% m/m for core orders).

 

US: Wholesale inventories (March): 0.5% m/m vs 0.7% expected (prior: 1%)

  • Inventories of durable goods were up close to 1% m/m.

 

Germany: GFK consumer confidence (May): 10.8 as expected (prior: 10.9)

  • Some cautiousness on future activity and income, despite good fundamentals.

 

Spain: Unemployment rate (Q1-18): 16.74% vs 16.45% expected (prior: 16.55%)

  • Unemployed has surprisingly decreased by close to 2% over the quarter; this could be viewed as a pause in a still positive trend.
Market insight 25.04.2018

France: consumer confidence under stabilization

France: Consumer confidence (Apr.): 101 vs 100 expected (prior: 100)

  • Sentiment is less negative on personal situation and on standard of living; in details, prices, and unemployment to a lesser extent, were sources of rising concerns.
  • In absolute terms, the index remained well above the levels reached before the financial crisis, pointing towards good fundamentals for households. The index could stabilize around these current levels, which stayed below levels reached in Q4-17.

 

Spain: PPI (March): -0.9% m/m (prior: 0% revised from 0.1%)

  • Prices were up by 1.3% y/y after 1.2% y/y past month. Energy prices have fallen by 3% m/m.

 

Poland: Unemployment rate (March): 6.6% vs 6.5% expected (prior: 6.8%)

  • The decrease of unemployed has accelerated: -35 k after -7 k past month.

 

Brazil: Current account (March): 798 M$ vs -100 M$ expected (prior: 290 M$ revised from 283 M$)

  • Current account has jumped into a surplus for the second month; FDI has also jumped from USD 4.7 bn to USD 6.5 bn over the month.

 

Turkey: Central bank has increased liquidity lending rate from 12.75% to 13.50%.

  • Repo rate was unchanged at 8%, overnight lending rate unchanged at 9.25% and overnight borrowing rate unchanged at 7.25%.
  • In its statement, central bank mentioned that it wanted to implement some tightening in order to preserve price stability, as inflation and expectations have increased.
Market insight 24.04.2018

Richmond Fed manufacturing fell sharply in April, disappointing German IFO survey

US: Richmond Fed manufacturing (Apr): -3 vs 16 expected (prior: 15)

  • The index fell sharply in April for the second consecutive month.
  • The underlying composition was generally weak, with sharp declines in the shipments and new orders components.

 

US: Consumer confidence (CB) (Apr): 128.7 vs 126 expected (prior: 127 revised from 127.7)

  • The improvement in confidence was spread evenly across the present situation and expectations indices.

 

US: New home sales (Mar): 694k vs 630k expected (prior: 667k revised from 618k)

  • On a m/m basis: 4% vs 1.9% expected (prior: 3.6% revised from -0.6%)
  • By region, March sales increased in the West (+28.3%), South (+0.8%) but declined in the Northeast (-54.8%) and Midwest (-2.4%). Inventory available on the market edged down to 5.2 months of available supply, towards the lower end of its 12-month range.

 

US: Housing prices (FFHA) (Feb): 0.6% q/q as expected (prior: 0.9% revised from 0.8%)

 

Germany: IFO (Apr): 102.1 vs 102.8 expected (prior: 103.3 revised from 103.2)

  • Expectations: 98.7 vs 99.5 expected (prior: 100 revised from 103.2)
  • Current assessment: 105.7 vs 106 expected (prior: 106.6 revised from 106.5)
  • The headline decline was driven by a drop in expectations. From a sector perspective, sentiment in manufacturing eased further from high levels, while construction and retail sentiment improved slightly.
  • Note that there have been methodological changes to the survey this month, which in theory should make it a better guide to German GDP growth.

 

France: Business confidence (Apr): 108 as expected (prior: 109)

  • Manufacturing: 109 vs 110 expected (prior: 110 revised from 111)