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Asia ETF Roundup (Market) – September 2018

Rate Hikes - U.S., Hong Kong, Turkey, Russia, Philippines, Indonesia

Jackie Choy, CFA 11/10/18

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

Major Markets Performance

Major equity markets around the globe generally posted positive returns during the month of September. The S&P 500 again notched fresh all-time highs during the month, ending the month 0.4% higher. Meanwhile, Japan’s Nikkei 225 also had a strong month, rising 5.5%. Even though the U.S. announced another round of tariffs on US$200 billion of Chinese goods during the month, the Chinese onshore markets rose around 3%. Emerging- and frontier- markets delivered mixed performances in September. The Indian market tumbled 9.2% as the Indian Rupee dropped 2.2% against the greenback. Stocks in the Philippines slumped 8.4% during the month. Meanwhile, the Russian market recorded a 9.4% gain, and Brazilian stocks climbed 6.8% (all figures proxied by the respective MSCI country indices in U.S. dollar terms).

The U.S. dollar was little changed (-0.01% as measured by the ICE Spot Index). Asian currencies took varied paths against the dollar. The Thai Baht rose 1.2% while the Japanese Yen and Indonesian Rupiah fell 2.4% and 1.2%, respectively. The Chinese Yuan dropped 0.7%, putting its year-to-date depreciation at 5.4%.

Precious metals’ performance was mixed during the month. Gold and silver prices continued to slide, dropping 1.3%-2.4% while the price of platinum rose 2.9%.

Economic and Market News

Rate Hikes: U.S., Hong Kong, Russia, Philippines, Indonesia; Turkey Puts Rates at 24%

  • U.S. Raises Rates by 25 bps – On 26 September, the U.S. Federal Reserve lifted its target range for the federal funds rate by 25 bps, for the third time this year, to 2%-2.25% considering realized and expected labor market conditions and inflation.
  • Hong Kong Raises Rates by 25 bps – On 27 September, the Hong Kong Monetary Authority hiked its base rate by 25 bps to 2.5% following the U.S. rate hike.
  • Turkey Raises Rates to 24% – On 13 September, the central bank of Turkey lifted its policy rate by 625 bps to 24% to support price stability.
  • Russia Raises Rates by 25 bps – On 14 September, the Bank of Russia raised its benchmark rate by 25 bps to 7.5% in light of increased inflation risk. The bank highlighted in its statement that it will “consider the necessity of further increases in the key rate, taking into account inflation and economic dynamics against the forecast, as well as risks posed by external conditions and the reaction of financial markets”. The bank last cut rates by 25 bps in March 2018.
  • Philippines Raises Rates by 50 bps – On 27 September, the Philippines central bank announced it would increase its interest rate by 50 bps to 4.5% on the ground of “persistent signs of sustained and broadening price pressures”. The bank has increased its rates by 150 bps in total in 2018.
  • Indonesia Raises Rates by 25 bps – On 27 September, Indonesia’s central bank raised its policy rate by 25 bps to 5.75%. The bank highlighted that this was part of its efforts to “lower the current account deficit within a manageable threshold while maintaining the attractiveness of the domestic financial markets, thus further strengthens Indonesia’s external resilience despite widespread global uncertainty”. The bank has increased its key rate by 150 bps in total in 2018.

Chinese Economic Data: Inflation at 2.3% in August; Official PMI at 50.8 in September; Caixin/Markit PMI Fell to 50.0

  • China’s inflation rate registered at 2.3% in August, up from July’s reading of 2.1%.
  • China’s official PMI reading for September landed at 50.8, lower than August’s reading of 51.3. Meanwhile, the Caixin/Markit PMI for September registered at 50.0, down from August’s reading of 50.6, reaching a 15-month low.
About Author Jackie Choy, CFA

Jackie Choy, CFA  

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