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Asia ETF Roundup (Market) – July 2019

U.S. cuts rates – first time since 2008; China Q2 GDP growth at 6.2%.

Jackie Choy, CFA 08/08/19

For the latest ETF industry news, please refer to our “Asia ETF Roundup (Industry) – July 2019”.

Major Markets Performance

As expected, the U.S. Federal Reserve cut rates by 25bps, marking the first rate cut since 2008. The S&P 500 marked a new record high during the month, closing the month up 1.3%. In the U.K., Boris Johnson became the country’s new Prime Minister. The FTSE 100 Index edged up 2.2% for the month. U.S.-China trade talks resumed in Shanghai towards the end of the month. Instead of a breakthrough there was a setback as the U.S. announced a fresh round of tariffs on Chinese goods in early August. Chinese equity markets generally edged down during the month (HSCEI -1.9%; Shanghai Composite -1.6%; CSI 300 +0.3%). The South Korean equity market was one of the weakest performing markets in Asia, falling 5.0%, in response to North Korea launching a number of missile tests during the month. Emerging markets’ performance was mixed. Vietnamese equities rose 4.0% while Indian stocks fell 5.5% (as measured by their respective MSCI indices in U.S. dollar terms).

The U.S. dollar appreciated by 2.5% (as measured by the ICE Spot Index) in July. The Euro and the British Pound depreciated 2.2% and 3.8%, respectively, versus the greenback. Meanwhile, Asian currencies’ performance against the U.S. dollar were mixed. The Korean Won was one the weakest performing currencies among the group for the month, depreciating around 2.4% against the greenback. The Chinese Yuan depreciated slightly by 0.2% against the U.S. dollar.

Precious metals’ prices continued their positive momentum from June. In July, silver prices rose strongly by 8.2%, followed by platinum and gold, appreciated 6.7% and 1.3%, respectively.

Economic and Market News

U.S., Australia, South Korea, Indonesia and Russia Cut Rates; Pakistan Hikes Rates
U.S. Cuts Rates by 25bps – The Federal Reserve decided on 31 July 2019 to cut target range for the federal funds rate by 25bps to 2.00% to 2.25%. Federal Reserve Chairman Jerome Powell stated, “It is intended to insure against downside risks from weak global growth and trade policy uncertainty.” This is the first time the Fed cut interest rates since 2008.
Australia Cuts Rates by 25bps – The Reserve Bank of Australia decided on 2 July 2019 to cut its cash rate by 25bps to 1.0%. This is the second consecutive month that the Bank cut its cash rate.
Pakistan Hikes Rates by 100bps – The State Bank of Pakistan decided on 16 July 2019 to raise its policy rate by 100bps to 13.25%. The Bank has cumulatively raised interest rates by 325bps this year.
South Korea Cuts Rates by 25bps – The Bank of Korea decided on 18 June 2019 to cut its base rate by 25bps to 1.5%. This is the first time the Bank cut interest rates since June 2016. The Bank last raised interest rate in November 2018 by 25bps.
Indonesia Cuts Rates by 25 bps – Bank Indonesia decided on 18 July 2019 to cut BI 7-day (reverse) repo rate by 25bps to 5.75%. This is the first time the Bank cut interest rates since September 2017. The Bank last raised interest rate in November 2018 by 25bps.
Russia Cuts Rates by 25bps – The Central Bank of the Russia Federation decided on 26 July 2019 to cut key rate by 25bps to 7.25%. This is the second consecutive month that the Bank cut its key rate.

China Economic Data: Q2 GDP Growth at 6.2%; Inflation Remains at 2.7% in June; Caixin/Markit and Official PMI Edged Up to 49.9 and 49.7 in July
• China's 2019 Q2 GDP growth slowed to 6.2%, as compared to a growth rate of 6.4% in Q1. This is the slowest pace since Q1 1992. Together with the first quarter, China’s GDP growth registered at 6.3% for the first half of 2019. Recall that the government’s 2019 target growth was set at "6% - 6.5%".
• China’s inflation rate stayed at 2.7% for June, same as May’s reading.
• China’s Caixin/Markit PMI neared to the 50-point level and registered at 49.9 in July. June’s reading was 49.4. The official PMI also rose slightly to 49.7 in July, up from June’s of 49.4.

 

 

 

About Author Jackie Choy, CFA

Jackie Choy, CFA  

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