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Asia ETF Roundup (Market) – May 2018

A number of emerging- and frontier-markets raise interest rates.

Jackie Choy 07/06/18

For the latest ETF industry news, please refer to our “Asia ETF Roundup (Industry) – May 2018”.

Major Markets Performance

Global equity markets’ performance was mixed for the month. Investors’ attention shifted to a simmering crisis in Italy. The S&P 500 and UK’s FTSE 100 each rose around 2% while Japan’s Nikkei 225 and Hong Kong’s Hang Seng Index both dropped 1% for the month. Ahead of MSCI’s China A-Share inclusion to the its Emerging Markets Index, the Chinese onshore markets rose 0.4%-1.2%. In Korea, the KOSPI fell 3.7%. Performances of emerging- and frontier-markets were generally weak for the month. The Brazilian market plunged 17%, owing to mounting concerns ahead of the general election in October. Stocks in Malaysia, Vietnam and Pakistan also plunged 8-10% (all figures proxied by the respective MSCI country indices in U.S. dollar terms).

The U.S. dollar gained 2.3% in May, as measured by the ICE Spot Index. Many Asian currencies depreciated against the greenback. In particular, the Chinese Yuan registered a 0.9% decline versus the U.S. dollar during the month, narrowing its year-to-date increase to 1.7%.

Precious metals’ performance varied during the end of month. Silver and platinum prices recorded gains of 1.0% and 0.2%, respectively, while gold prices dropped 0.6%.

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Economic and Market News

U.S. Keeps Rates On Hold But May Hike Soon; Argentina, Indonesia, Philippines, Pakistan Raise Rates

  • U.S. Keeps Rates On Hold But May Hike – The U.S. Fed decided on 2 May to keep target federal funds rate at 1.5% to 1.75%. In the FOMC meetings minutes released on 23 May, it was mentioned that “Most participants judged that if incoming information broadly confirmed their current economic outlook, it would likely soon be appropriate for the Committee to take another step in removing policy accommodation.”
  • Argentina Raises Rates by 975bps – On 3 and 4 May, Argentina’s central bank raised its policy rate by 975bps in total, putting rates at 40%, with the aim of supporting its currency. The bank just recently raised interest rates on 27 April, by 300bps.
  • Philippine Raises Rates by 25bps – On 10 May, the Philippines’ central bank raised its policy rate by 25 bps to 3.25%. The bank noted that “strong domestic demand allows some scope for a measured adjustment in the policy rate without adversely affecting the country’s economic growth momentum.”
  • Indonesia Raises Rates by 50bps – On 17 and 30 May, the Bank Indonesia raised its benchmark seven-day repo rate by 25bps each time, putting rates at 4.75%.
  • Pakistan Raises Rates by 50bps – On 25 May, the State Bank of Pakistan raised its policy rate by 50bps to 6.5%. The Bank last raised its key interest rate in January 2018, by 25 bps.

Chinese Economic Data: Inflation at 1.8% in April; Official PMI Rose to 51.9 in May; Caixin/Markit PMI Unchanged at 51.1

  • China’s inflation rate registered at 1.8% in April, down from March’s reading of 2.1%.
  • China’s official PMI reading for May rose to 51.9 from April’s reading of 51.4. Meanwhile, the Caixin/Markit PMI for May registered at 51.1, unchanged from April’s reading.

 

About Author Jackie Choy

Jackie Choy  

is the director of ETF Research for Morningstar Investment Management Asia