Categorized | Market Update

Market update 22/01/2013

Positive macro data lifted sentiment further

Last Week’s Highlights

Risk assets across equities and commodities continued to edge higher last week. Most impressive were a set of positive surprises from Chinese economic data. China’s GDP growth confirms a cyclical rebound of the economy. The reading of 7.9% in Q4, which makes the annual GDP growth 7.8%, is broadly in line with market expectations. The Dec data on industrial production and FAI revealed that structural changes are taking place. With contribution to GDP growth (7.8%), consumption accounted for 4.04%, overtaking investment (3.93%) as the largest contributor to GDP growth. And retail sales grew 15.2% in Dec, accelerated in both urban and rural areas.

Performance

MSCI World was up 0.48% last week led by US and Japan. S&P 500 was up 0.95% and Topix ended up +1.42%, rising for the tenth consecutive week, a first since 1986. And MSCI Asia ex-Japan was also rose 0.72%: Indonesia JCI (+3.71%) and China Shanghai Composite (+3.3%) outperformed their regional peers significantly while Taiwan (-1.15%) and Korea (- 0.44%) were laggards. Commodities also rallied last week: Oil (+2.14%) Gold (+1.29%) and Silver (+4.65%).

The Week Ahead

There will be a BOJ Board meeting on Tuesday. And the market expects a 2% inflation target and further asset purchases to be announced (increase of JPY10trn) and the abolishment of the 0.1% floor on the cash rate.
And key data release to watch are Euro area PMI (Thursday) and UK GDP (Friday). Elsewhere in Asia, Taiwan’s export growth (Monday) and Korea’s 4Q GDP growth (Thursday) are also on the watch list.

   

Economic Outlook

China – Macro data confirm mild rebound

GDP growth confirms a cyclical rebound of the economy. China’s GDP grew at 7.9% in 4Q12, which makes the annual GDP growth 7.8%, broadly in line with Citi’s expectation.

The December data on industrial production and FAI reveal that structural changes are taking place with Chinese industries. With contribution to GDP growth (7.8%), consumption accounted for 4.04%, overtaking investment (3.93%) as the largest contributor to GDP growth.

Retail sales growth accelerated from 14.9% in November to 15.2% in December, the highest growth rate since March 2012. December retail sales accelerated in both urban and rural areas: in urban areas sales increased from 15% to 15.2%, and grew from 14.6% to 15.1% in rural areas. Recent warming up in the property market brought furniture sales up from 23.9% in November to 32.4% in December.

Equities

Chinese equities may see further upside

The Chinese equity markets had broken out from their last year’s lows, in line with Citi analysts’ expectation in their 2H12 market outlook. Further gains will depend on earnings upside and expansion in valuations. Though the re-rating is unlikely to recover losses since 2009, particularly for A-share indices, it may offer another 15-20% upside in both the H- and A-share markets in 1H this year.

Corporate earnings are highly correlated with economic recovery. The industrial profits had inched up 3% in Jan-Nov 2012 from a year ago, and may record around 20% growth this year. The historical relationship between industrial profit growth and MSCI China earnings suggests that the less than 10% consensus earnings growth could be revised upward to low teen digits (12- 15%). And upward earnings revision may start as early as Jan this year.

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Symbol Bid Ask Spread
EURUSD 1.18120 1.18140 2
GBPUSD 1.32030 1.32060 3
USDCAD 1.24600 1.24630 3
USDJPY 113.030 113.050 2
USDCHF 0.98020 0.98050 3
AUDUSD 0.78660 0.78690 3
NZDUSD 0.70390 0.70440 5
EURGBP 0.89450 0.89480 3
EURCHF 1.15800 1.15830 3
EURJPY 133.520 133.550 3
AUDJPY 88.910 88.960 5
GBPJPY 149.240 149.300 6
XAUUSD 1280.73 1281.13 40
XAGUSD 16.960 17.010 5