Weekly Overview: March 5 to March 10, 2007

This week Asian stock suffered a "Black Monday". The Yen carry trade liquidation, as well as US economic growth slowdown, continued to hit the international stock markets .....

YT Kum, CFA 12.03.2007
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This week Asian stock suffered a "Black Monday". The Yen carry trade liquidation, as well as US economic growth slowdown, continued to hit the international stock markets. Hang Seng Index Monday slumped and experienced the worst day since 9/11, and later fluctuated in the other days. HSBC last year had the slowest earning growth during the recent five years, dragging down its stock price. Li & Fung was hit by the slowing-down US economy but later rebounded. ICBC and China Life, who will be added in as HSI constituents, rose steadily, while China Mobile and HSBC, whose weights will decrease, fall or flat this week. Although Hong Kong stock market was in an untamed zone, the index did not fall as much as before. HS

I fell 307 points, or 1.58%, to 19134.88. The H-share index rebounded with performance of the A shares in mainland market, ending up with a rise of 2.73%, settling at 9231.21.

Taiwan stocks fell and slowly rebounded, but the selling pressure was still heavy. TSEC weighted index finally dropped by 1.34%, closing at 7,568.20. South Asia stock markets were also in oscillation, while Malaysia Monday had a biggest drop in more than five years and Tuesday immediately got a biggest rise in three years. Indonesia surprisingly cut its interest rate by 0.25% to 9.00%, and this is the tenth rate cut in a year. Real Estate stocks boost up Singapore market, and the Singapore Straits Times Index added 2.11% to 3,143.71.

In Japan, yen appreciation led to the market worries about earning prospects of exporters, making stock prices of Toyota Motor and Canon etc. run inversely with the yen. M&A were active among Securities companies. Nikko Cordial, the third largest broker in Japan, foundered for its accounting scandal and the risk of delisting, but later rebounded greatly for the news that Citigroup would bid to raise its stake in the scandal-tainted company. Mitsubishi UFJ Financial Group planned to acquire Kabu.com for 22.56 billions yen, boosting up stock price of the latter. Japan Q4 capital spending was up 16.8%, higher than expectation of 13.7%, indicating the economy expanding fastest in the four years. But on the other hand, the index of leading indicators fell to 35.0% in January, making it the third consecutive month that the index has moved below 50% limit and predicting Japanese economic development about six months down the road is limited. NIKKEI 225 has been volatile during the week, and even dropped below 17000 points for some days, but finally rebounded and closed at 17,164.04 with a slight decline of 0.31%.

US economic growth continued to be weak. ISM's Non-Manufacturing Business Activity Index in February registered 54.3, which was lower than the market expectation of 57.2 and showing the economy expanding at a slowest pace in recent four years. Factory orders fell 5.6%, the most in more than six years, after a 2.6% increase in December. Fed's Beige Book showed that the housing market was still weak. Department of Labor published that the increase of February non-farm jobs became the lowest in more than two year. The economic growth slowdown led to growing worries over US sub-prime mortgage lending market, and shares of the mortgage lenders suffered a sell-off with market fears. New Century plunged for the news that it could be driven out of business. On the other hand, the Commerce Department reported that US trade deficit narrowed in January to 59.1 billion dollars thanks to record-breaking export growth, boosting up shares of exporters. For the week, Dow Jones Industrial Average rose by 1.34% to 12,276.32, and S&P 500 added 1.13% to 1,402.85, while Nasdaq Composite increased by 0.83%, closed at 2,387.55.

Hit by slowdown of US economic growth, European stocks also suffered a "Black Monday" but later rebounded. Eurozone GDP growth strengthened to 0.9% (q/q), or 3.3 %( y/y), the same with market expectation, for exports had been growing at the fastest rate for six years. Germany, France and Italy were accelerating, and ECB expected the average annual real GDP growth in a range between 2.1% and 2.9% this year, higher than the previous forecast. This week ECB decided to raise interest rate by 0.25% to 3.75%, but BOE maintained its rate unchanged for the declining domestic inflation. Price increase of basic metals boosted up the metal stocks, and a lot of M&A news also helped to propel the market. For the week, London FTSE 100 edged up by 2.11 %, closed at 6,245.20; Frankfurt Xetra DAX increased by 1.71% to 6,716.52; Paris CAC 40 declined by 2.09%,settling at 5,537.84.

In currency, the Yen fell in oscillation with decrease of the Yen carry trade liquidation activities. Friday the dollar quotes at 118.32 Yen and the euro was $1.3115. British pound quotes $1.9322 and Aussie, $0.7801. Oil prices rose for the decrease of petroleum inventories (both crude and product), but later dropped when warm weather loomed in US and the dealers began to lock in their recent profits. April delivery crude contract on the New York Mercantile Exchange settled at $60.05 a barrel. Rebounding of Stock market propelled gold price, with spot settled at $650.1 per ounce.

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About Author

YT Kum, CFA  YT Kum is a consultant for Morningstar, contributing to manager selection and asset allocation activities in Asia, and is responsible for providing investment thought leadership on topics relevent to investors in Asia.  

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