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Global Emerging Markets Strategy
August Monthly Recap — Carnage
August Recap — EM equities fell by 9.2% in August, their worst performance since
October 2008. GEMs underperformed Developed Markets (-7.3%) for the fourth time in
the past five months. Early in the month, GEMs endured a six-day, 16% sell-off, the
third worst such decline since 1988, due to reduced expectations for the global
economy, before rallying by 6.2%, from the market trough on August 22 to month-end.
Regions — MSCI Latin America was the best performing region in August (-5.9%) and
outperformed MSCI GEMs by 330bp; this was the region’s largest monthly
outperformance since July 2010. MSCI EMEA declined for the fourth straight month,
falling by 8.5%, while Asia fell by 10.6%, its worst month since October 2008.
Countries — The top performing EMs and the only markets to see gains in August
were small countries, led by Peru (+5.9%), Morocco (+3.2%) and Colombia (+0.7%).
South Africa (-1.5%) was the best performer amongst the 'Big Seven' markets, while
China (-9.4%) underperformed MSCI GEMs for the third straight month. Hungary
(-16.9%), Turkey (-14.8%) and Russia (-13.5%) were the worst performers in August.
Commodities/Sectors — Overall, commodity prices fell only modestly in August (CRB
index -1.7%), led by copper (-5.6%); oil prices fell 7.3% to $89/barrel for WTI (Brent
declined by only 2.1%). In terms of sectors, defensives led the way, with Telecoms and
Consumer Staples falling by 1.4% and 2.4% respectively, while Industrials (-12.2%),
Energy (-11.5%) and IT (-11.2%) were the laggards last month.
Fixed Income and FX — The Dollar TWI rose by 0.4% in August (a modest dollar rally
for a ‘risk-off’ period), while our EM currency proxy rose by 1.6%. US bond yields fell
sharply, by 59bp to 2.21% in a flight-to-quality trade, while EM yields fell to 5.60%. Our
measure of the discount rate, the MSCI-Weighted Debt Yield, fell by 10bp to 4.11%.
India
Markets
Indian equities fell by 12.5% in August, representing the worst monthly decline since
January of this year (-13.1%) and lagged MSCI Asia's performance (-10.6%). While
all sectors fell in August, Consumer Discretionary declined the least (-1.8%), followed
by Consumer Staples (-7.3%) and Energy (-8.3%). Following gains in both June and
July, Telecoms by far, was the worst performing sector (-24.8%) in August, while
Information Technology fell 17.2%. The local Sensex declined by 8.4% in August,
while the Rupee fell modestly (-3.5%).
Macro
India's Industrial Production rose 8.8% YoY in June, sharply higher than the
previous month's upwardly revised increase of 5.95% and comfortably exceeded
market expectations of 5.5%. Meanwhile, India’s 1QFY12 GDP came in at 7.7%
YoY from 7.8% in the previous quarter, largely in line with Citi and consensus
expectations (Citi: 7.5%; Consensus: 7.6%). This release, which included a
strong rebound in business investment, has eased fears of a sharp slowdown in
the Indian economy. Nonetheless, Citi economists have revised their GDP
forecasts to 7.6% in FY12 and 8.2% in FY13 (from 8.1% and 8.4%, respectively),
following the recent aggressive monetary tightening (125bps of rate hikes in the
last 3 months), structural policy issues and worsening prospects for the global
economy.
India's wholesale price-based inflation (WPI) showed preliminary signs of easing
in July, as it declined to an eight-month low of 9.2% YoY from 9.4% in June, due
to moderating food price pressures. However, Citi economists expect inflation to
remain elevated for the next few months with the FY12 average expected to be
above 9% compared to 8.6% in FY11. Thus, Citi economists expect the odds are
tilted towards one more 25bp rate hike in September, despite the recent worries
over global growth and weak financial markets, raising the policy rate to 8.25%
by end 2011, from 8.00% currently.
India's export orders reached $108.3 bn in the April-July period, representing
growth of 54% YoY, while import orders came in at $151bn, rising 40% YoY and
resulting in a trade deficit of $42.7bn.
Current Events / Corporate Activity
Liverpool Football Club announced the launch of its first official soccer academy
in India, as it aims to spread the game in a country where cricket is by far the
dominant sport. The academy has been named after former Liverpool and
England player, Steve McMahon, who is a partner in the venture along with
Liverpool and India’s Carnoustie Group, an infrastructure and hospitality
company. The first Steve McMahon Football Academy (SMFA) will kick off in
October at the Genesis Global School in Noida, to the east of Delhi, where it
hopes to enroll about 500 students aged eight to 16 who will be trained by
professional coaches.
ANNA Hazare, leader of an anti- corruption campaign in India, ended his hunger
strike last month after MPs pledged a tougher law against graft. Both houses of
parliament had earlier passed a resolution agreeing ''in principle'' to the three
conditions set by Mr Hazare, 74, who modelled his protest methods on those of
Indian independence icon Mahatma Gandhi.The move ends a political deadlock
12 days after the activist started his fast.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Global Emerging Markets Strategy
August Monthly Recap — Carnage
August Recap — EM equities fell by 9.2% in August, their worst performance since
October 2008. GEMs underperformed Developed Markets (-7.3%) for the fourth time in
the past five months. Early in the month, GEMs endured a six-day, 16% sell-off, the
third worst such decline since 1988, due to reduced expectations for the global
economy, before rallying by 6.2%, from the market trough on August 22 to month-end.
Regions — MSCI Latin America was the best performing region in August (-5.9%) and
outperformed MSCI GEMs by 330bp; this was the region’s largest monthly
outperformance since July 2010. MSCI EMEA declined for the fourth straight month,
falling by 8.5%, while Asia fell by 10.6%, its worst month since October 2008.
Countries — The top performing EMs and the only markets to see gains in August
were small countries, led by Peru (+5.9%), Morocco (+3.2%) and Colombia (+0.7%).
South Africa (-1.5%) was the best performer amongst the 'Big Seven' markets, while
China (-9.4%) underperformed MSCI GEMs for the third straight month. Hungary
(-16.9%), Turkey (-14.8%) and Russia (-13.5%) were the worst performers in August.
Commodities/Sectors — Overall, commodity prices fell only modestly in August (CRB
index -1.7%), led by copper (-5.6%); oil prices fell 7.3% to $89/barrel for WTI (Brent
declined by only 2.1%). In terms of sectors, defensives led the way, with Telecoms and
Consumer Staples falling by 1.4% and 2.4% respectively, while Industrials (-12.2%),
Energy (-11.5%) and IT (-11.2%) were the laggards last month.
Fixed Income and FX — The Dollar TWI rose by 0.4% in August (a modest dollar rally
for a ‘risk-off’ period), while our EM currency proxy rose by 1.6%. US bond yields fell
sharply, by 59bp to 2.21% in a flight-to-quality trade, while EM yields fell to 5.60%. Our
measure of the discount rate, the MSCI-Weighted Debt Yield, fell by 10bp to 4.11%.
India
Markets
Indian equities fell by 12.5% in August, representing the worst monthly decline since
January of this year (-13.1%) and lagged MSCI Asia's performance (-10.6%). While
all sectors fell in August, Consumer Discretionary declined the least (-1.8%), followed
by Consumer Staples (-7.3%) and Energy (-8.3%). Following gains in both June and
July, Telecoms by far, was the worst performing sector (-24.8%) in August, while
Information Technology fell 17.2%. The local Sensex declined by 8.4% in August,
while the Rupee fell modestly (-3.5%).
Macro
India's Industrial Production rose 8.8% YoY in June, sharply higher than the
previous month's upwardly revised increase of 5.95% and comfortably exceeded
market expectations of 5.5%. Meanwhile, India’s 1QFY12 GDP came in at 7.7%
YoY from 7.8% in the previous quarter, largely in line with Citi and consensus
expectations (Citi: 7.5%; Consensus: 7.6%). This release, which included a
strong rebound in business investment, has eased fears of a sharp slowdown in
the Indian economy. Nonetheless, Citi economists have revised their GDP
forecasts to 7.6% in FY12 and 8.2% in FY13 (from 8.1% and 8.4%, respectively),
following the recent aggressive monetary tightening (125bps of rate hikes in the
last 3 months), structural policy issues and worsening prospects for the global
economy.
India's wholesale price-based inflation (WPI) showed preliminary signs of easing
in July, as it declined to an eight-month low of 9.2% YoY from 9.4% in June, due
to moderating food price pressures. However, Citi economists expect inflation to
remain elevated for the next few months with the FY12 average expected to be
above 9% compared to 8.6% in FY11. Thus, Citi economists expect the odds are
tilted towards one more 25bp rate hike in September, despite the recent worries
over global growth and weak financial markets, raising the policy rate to 8.25%
by end 2011, from 8.00% currently.
India's export orders reached $108.3 bn in the April-July period, representing
growth of 54% YoY, while import orders came in at $151bn, rising 40% YoY and
resulting in a trade deficit of $42.7bn.
Current Events / Corporate Activity
Liverpool Football Club announced the launch of its first official soccer academy
in India, as it aims to spread the game in a country where cricket is by far the
dominant sport. The academy has been named after former Liverpool and
England player, Steve McMahon, who is a partner in the venture along with
Liverpool and India’s Carnoustie Group, an infrastructure and hospitality
company. The first Steve McMahon Football Academy (SMFA) will kick off in
October at the Genesis Global School in Noida, to the east of Delhi, where it
hopes to enroll about 500 students aged eight to 16 who will be trained by
professional coaches.
ANNA Hazare, leader of an anti- corruption campaign in India, ended his hunger
strike last month after MPs pledged a tougher law against graft. Both houses of
parliament had earlier passed a resolution agreeing ''in principle'' to the three
conditions set by Mr Hazare, 74, who modelled his protest methods on those of
Indian independence icon Mahatma Gandhi.The move ends a political deadlock
12 days after the activist started his fast.
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