By Raymond Chan, CIO, Dresdner RCM Asia After a weak third quarter, global equity markets reboun...
By Raymond Chan, CIO, Dresdner RCM Asia
After a weak third quarter, global equity markets rebounded sharply during the first two months of the quarter.
Economic data remained patchy, however, prompting further monetary easing from the Fed, the ECB and central banks across Asia. The best performances within Asia came from Taiwan and South Korea, led by export stocks and techs in particular.
The bigger surprise of the quarter was the gain in India, as industrial activity re-accelerated and the reform programme got back on track. Most of the Southeast Asia struggled to see positive returns. Markets such as Malaysia, Indonesia and the Philippines were particularly lacklustre.
The Australian index struggled to take much headway during the quarter, with industrials, financials and consumer staples among the weak sectors as corporate results disappointed investors. However, the basic materials sector outperformed.
At the sector level, there has been a wide range of relative performance within Asia ex-Japan. Energy and basic materials were the best performing sectors of the year, while technology, telecoms, industrials and health care all showed substantial falls.
For the last quarter of the year, materials and consumer discretionary sectors performed well, delivering double-digit returns, while utilities and financials lagged behind.
After a slight pause in momentum during November, the region's economies continued to demonstrate some resilience over the quarter as a whole. Export-oriented stocks rebounded in the fourth quarter in Korea, though investors remained sceptical about the sustainability of the domestic consumer credit cycle.
The market was also concerned with the country's vulnerability as an energy importer should conflict in the Middle East drive oil prices higher. Renewed tensions between the US and North Korea severely damaged investor sentiment.
In Taiwan, technology stocks underperformed during the quarter, but the China-related plays performed exceptionally well. Shipping stocks sky-rocketed on the expectation of direct trade with China.
East Asia's two other big markets, Hong Kong and Singapore suffered. Hong Kong's market failed again to benefit from China's strong economic growth. With domestic demand deeply depressed, the property market remained in the doldrums.
In Australia, the economic cycle is in an advanced stage where basic industries that have exposure to global commodities should continue to outperform. In Taiwan, the most important driver of the market will be the potential for a PC replacement cycle to boost demand for electronic goods as capex in the US first stabilises and then recovers.
Hong Kong continues to be dragged down by the deflationary spiral. The weakness in US dollar should help diminish deflationary pressure, reduce real interest rates and unleash some of the liquidity that has been building up in the banking system into the equity market.
Economic resilience over the quarter.
Export-oriented stocks rebounded in Korea.
Industrial activity increased in India.
Inflation may gain the upper hand.
US dollar plunge could hit Asia.
Economic data remains patchy.
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