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Asia ETF Roundup (Market) – June 2018

The U.S. Federal Reserve raised interest rates by 25bps; China lowered the reserve requirement ratio by 50bps.

Jackie Choy, CFA 05/07/18

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

Major Markets Performance
Major equity markets across the globe generally lost ground during the month of June amid intensifying concerns over a potential trade war between the U.S. and China. Chinese onshore and offshore markets suffered declines of 8%. Hong Kong’s Hang Seng Index fell 5%. Meanwhile the S&P 500 managed to finish the month with a gain of 0.5%. Emerging- and frontier-equity markets generally had a bad month. Equity markets in Brazil, Indonesia, Pakistan, Philippines and Thailand suffered declines of 6%-10% (all figures proxied by the respective MSCI country indices in U.S. dollar terms).

The U.S. dollar gained 0.7% in June, as measured by the ICE Spot Index. Asian currencies recorded declines against the greenback ranging from 1%-4%. It is worth noting that the Chinese Yuan registered a 3.4% depreciation against the U.S. dollar, putting its year-to-date performance at -1.7%.

Precious metals also had a bad month. Gold, platinum and silver prices dropped 3%-6% in June.


Economic and Market News
U.S., Hong Kong, India, Philippines Raise Rates; China Lowers RRR

  • U.S. Raises Rates by 25 bps – On 13 June, the U.S. Federal Reserve raised the federal funds rate by 25 bps to a target range of 1.75% to 2%. According to the FOMC’s Summary of Economic Projections, the median projection for the federal funds rate is 2.4% at end-2018, 3.1% at end-2019, and 3.4% at end-2020.
  • Hong Kong Raises Rates by 25 bps – On 14 June, the Hong Kong Monetary Authority raised its base rate by 25bps to 2.25%, following U.S. Fed’s hike.
  • India Raises Rates by 25 bps – On 6 June, the Reserve Bank of India lifted its policy rate by 25 bps to 6.25%. The Bank highlighted its neutral stance of monetary policy with the objective of achieving its medium-term inflation target of 4% within a band of +/-2%, while supporting growth.
  • Philippine Raises Rates by 25 bps – On 20 June, the Philippine central bank announced it was raising its benchmark interest rate by 25 bps to 3.5%, as a preemptive measure in case of any second-round effects from ongoing price pressures. The bank noted that “inflation expectations remained elevated for 2018”.
  • China Lowers RRRs by 50 bps – On 24 June, the People’s Bank of China announced it had cut required reserve ratios for some banks by 50 bps. According to the PBoC, the RRR cut for the 5 state-owned banks and 12 joint-stock banks would release Rmb 500 billion in liquidity and should be used to support the market-oriented debt-to-equity swap projects. Meanwhile, the RRR cut for postal savings banks, city and non-county rural commercial banks, and foreign banks would release Rmb 200 billion in liquidity and should be lent to small and micro enterprises to lower their financing costs.

Chinese Economic Data: Inflation Unchanged at 1.8% in May; Official PMI Fell to 51.5 in June; Caixin/Markit PMI Dropped Slightly to 51.0

  • China’s inflation rate registered at 1.8% in May, same as April’s reading.
  • China’s official PMI reading for June fell to 51.5 from May’s reading of 51.9. Meanwhile, the Caixin/Markit PMI for June registered at 51.0, compared to May’s reading of 51.1.


About Author Jackie Choy, CFA

Jackie Choy, CFA  

Jackie Choy, CFA is the Director of ETF Research for Morningstar Investment Management Asia