For the latest ETF industry news, please refer to our “Asia ETF Roundup (Industry) – December 2013 and January 2014”.
Major Markets Performance
Global stock markets and commodity markets “celebrated” the start of 2014 with relatively big moves and renewed concerns about emerging markets. The US market was down 4% for the month of January, marking the worst monthly decline since May 2012. Some emerging markets and their currencies also took a hit. Stock markets in Brazil and Malaysia markets dropped 11% and 6%, respectively (in USD terms, referencing the relevant MSCI indices) during the month. Other Asian stock indices dropped anywhere from 2% to 9%.
On the other hand, precious metal regained some ground after suffering serious losses last year. Gold and platinum gained 4% and 2%, respectively in January while silver dropped 1%. In 2013 the price of gold dropped 27%, while platinum declined 11%, and the price of silver plummeted 35%.
US Tapering; Emerging Markets Fighting Hard: Brazil, Turkey and South Africa Hike Rates; India Cuts Rates
· US Fed Tapering (1) – On 18 December 2013, the Fed announced that it would begin tapering in January 2014, reducing its monthly asset purchases by US$10 billion to US$75 billion a month. Also, the Fed “reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time”.
· US Fed Tapering (2) – On 29 January 2014, the Fed announced that it would taper its asset purchase plan further, reducing its monthly asset purchases by another US$10 billion, to US$65 billion a month, beginning in February.
· Brazil hikes rates by 50bps – On 15 January 2014, Brazil’s central bank raised its benchmark interest rate by 50bps to 10.5%. The central bank last hiked rates by 50bps in November. This marked the seventh straight rate hike by the central bank.
· India cuts rates by 25bps – On 28 January 2014, the Reserve Bank of India (RBI) unexpectedly cut its policy repo rate by 25bps to 8.0% and reverse repo rate to 7.0%. The RBI noted that headline inflation has fallen significantly. The previous change in rates by the RBI was made back in October 2013 when it hiked rates by 25bps.
· Turkey hikes rates by 4.25% – On 28 January 2014, the central bank of Turkey raised its overnight lending rate aggressively by 4.25% to 12.0% and one-week repo rate to 10.0% from 4.5%, with the aim to defend its crumbling currency.
· South Africa hikes rates by 50bps – On 29 January 2014, the central bank of South Africa hiked its repo rate by 50bps to 5.5%.
IMF Projects Global Growth at 3.7% in 2014; 7.5% for China
The International Monetary Fund (IMF) published the IMF World Economic Outlook (WEO) Update and projected global GDP growth of 3.7% in 2014--0.1ppt higher than its previous forecast made in October. The latest IMF forecast shows global growth accelerating to 3.9% in 2015. On the other hand, the IMF projected China’s GDP growth to slow to 7.5% in 2014 and to further decelerate to 7.3% in 2015. This compares to the 7.7% growth rate (preliminary figure) China achieved in 2013.
Chinese Economic Data: 2013 GDP Growth at 7.7%; Inflation falls to 2.6% for 2013; HSBC/Market PMI Slows to 49.5 in January
· China’s 2013 GDP growth came in at 7.7% (preliminary figure), above the 7.5% target set by the government, though marking a slowdown versus 2012, when GDP grew 7.8%.
· China’s inflation softened to 3.0% in November 2013 and further to 2.5% in December, putting 2013 full year inflation at 2.6%--well below the annual target of 3.5%.
· Official January PMI registered at 50.5, slower than December’s 51.0 and November’s 51.4 readings. Meanwhile, the HSBC/Markit Purchasing Managers' Index slipped further, landing at 49.5 in January 2014. This compares to a November reading of 50.8 and a December level of 50.5 and marks a return to “contracting” territory.
Jackie Choy, CFA, is an ETF Strategist with Morningstar