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Asia ETF Roundup (Market) – September 2017

The U.S. Federal Reserve will start trimming its balance sheet in October; Brazil, Indonesia and Russia cut rates; RMB depreciated 0.7% against the USD. 

Jackie Choy 12/10/17

For the latest ETF industry news, please refer to our “Asia ETF Roundup (Industry) – September 2017”.

Major Markets Performance
Tensions in the Korean peninsula continued in September. It was reported that North Korea conducted a nuclear test in early September before launching another missile over Japan in mid-September. Nevertheless, the South Korean and the Japanese equity markets advanced 1.3% and 3.6%, respectively, during the month. Meanwhile, Chinese equity markets were generally down in the month of September (HSCEI -3.4%; CSI 300 +0.4%; Shanghai Composite -0.4%). On the other hand, most other emerging markets ended the month with gains. Brazilian, Vietnamese and Philippines stocks climbed by 4.2%, 4.1% and 3.2%, respectively (as measured by the respective MSCI indices in U.S. dollar terms).  

For the month of September, the ICE U.S. dollar spot Index rose by 0.4%, putting its year-to-date performance at -8.9%. The Indian Rupee, the Japanese Yen and the Korean Won depreciated against the greenback by 2.1%, 2.2% and 1.5%, respectively. The Renminbi, depreciated by 0.7% against the U.S. dollar, reversing its year-to-date uptrend, and narrowing its year-to-date gain to 4.6%.

Prices of precious metals retreated in September. Platinum prices dropped the most, falling 6.7%. Silver and gold prices dropped by 2.8% and 2.2%, respectively.



Economic and Market News

The U.S. Federal Reserve Will Begin Trimming its Balance Sheet in October; Brazil, Indonesia and Russia Cut Rates  

  • Fed to Trim Balance Sheet in October; Rates on Hold - On 20 September 2017, the Fed announced that it will start trimming its balance sheet in October 2017. Rates were left unchanged to “support some further strengthening in labor market conditions and a sustained return to 2 percent inflation”.
  • Brazil Cuts Rates by 100bps - On 6 September 2017, Brazil’s central bank reduced interest rates by 100bps to 8.25%. The bank stated that the interest rate reduction will help keep inflation nearer its 4.5% target. 
  • Russia Cuts Rates by 50bps - On 15 September 2017, the Bank of Russia reduced interest rates by 50bps to 8.5%. The bank expects the policy rate easing to help keep inflation targets close to 4%.
  • Indonesia Cuts Rates by 25bps - On 22 September 2017, the Bank of Indonesia reduced BI 7-day reverse-repos rate from 4.50% to 4.25% to “support the ongoing improvements in banking intermediation and domestic economic recovery”.


S&P Downgrades China’s Credit Rating; HK Credit Rating Followed
On 21 September 2017, S&P downgraded China’s credit ratings by one notch from AA- to A+ and changed the outlook from negative to stable. This is the first downgrade of China by S&P since 1999. S&P stated that the downgrade was due to “a prolonged period of strong credit growth which has increased China's economic and financial risks.” Following China’s downgrade, S&P downgraded Hong Kong’s credit rating the next day from AAA to AA+ and changed the outlook from negative to stable due to its “strong institutional and political linkages” with China.  

Chinese Economic Data: Inflation Rate Rises to 1.8% in August; Caixin/Markit PMI Drops to 51.0, Official PMI Registers at 52.4

  • China’s inflation rate rose to a 7-month high of 1.8% for the month of August. This compares to a reading of 1.4% in July.
  • For the month of September, China’s official PMI data recorded an uptick to 52.4 in September from 51.7 in August. Meanwhile, the Caixin/Markit Purchasing Managers' Index dropped to 51.0 in September from 51.6 in August. 
About Author Jackie Choy

Jackie Choy  

is the director of ETF Research for Morningstar Investment Management Asia