Most Asian markets slipped into the red on Monday as the region became anxious in anticipation of more tightening measures from China. The central bank went on to announce further measures as an attempt to cool down the economy from overheating and place a slowdown on inflation. Thereafter, Asian markets managed to inch higher, fuelled by rising oil prices and a positive close on Wall Street. The move was in line with the latest trend of moving away from U.S. and European markets and into Asian markets, as investors begin looking for safer options to invest their money. Unfortunately, sentiments on China continue to drag confidence as investors remained worried on a possible third rate hike since October, as the Chinese government attempts to manage inflation.
The China A-share market started lower after last Friday's required reserve ratio hike, then rebounded in the middle of the week, but eventually gave ground amid concerns over potential tightening measures in view of stronger-than-expected macro data of the fourth quarter. The CSI 300 index slid 3.5%. In regard of sector performance, industrial and utilities outperformed, while healthcare, one of the top performers in 2010, experienced a continuing valuation correction and plummeted by 5.6%.
Last week the Greek and Cyprus markets continued their recovery registering gains over 5%. On the other hand, both the Egyptian and Turkish markets retreated by more than 5%. Egypt retreated as investors became worried that the Tunisian events might spread to Egypt as well and Turkey due to worries about the interest rate policy followed by the Turkish Central Bank. This week the performance of the markets will revolve around economic news coming out and any developments regarding the credit crisis.
Russian equities showed inexpressive performance, with the RTS index adding 0.8%. The week was started on a strong note, with the positive sentiment aided by the news on Rosneft's deal with BP. Later in the week, the market sentiment was undermined by weaker than expected US housing data and worries about China's potential monetary tightening. For the week ending Jan 19, EPFR reported total net flows into Russian equities spiking to USD741m. The outstanding net fl ows received by Russia-dedicated funds clearly demonstrate that investors' interest in Russia is at its peak. History (since 2007) shows that such spikes in investor activity are usually followed by negative performance of the MSCI Russia index over the coming one to three weeks.
The Latin American markets depreciated by 1.9% last week. The worst performing market was Peru which decreased by 3.3%. In the rest of the region, Brazil, Chile, Mexico and Colombia decreased by 2.1%, 1.4%, 1.4% and 1.2%, respectively. The underperformance of Peru was driven by the metal ore company Buenaventura (36.78% of MSCI Peru), which declined 6.8%. However, the utilities sector bounced back with Edegel increasing 10.3% versus a decline of 10.4% last week.
Post the recent sharp decline it was a week of consolidation for Indian equities as food inflation moderated for the second week in a row in the early part of January after spiking to nearly a two-year peak in late December.
Source: SFM World Funds
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