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Asia ETF Roundup (Market) –November 2017

U.K. and South Korea raise rates; S&P downgrades Venezuela and South Africa; Moody’s Upgrades India.

Jackie Choy 07/12/17

For the latest ETF industry news, please refer to our “Asia ETF Roundup (Industry) – November 2017”.

Major Markets Performance 
The world shifted its attention from Catalonia to Germany during the month of November. Despite Germany’s failed coalition talks and the continued unrest in Catalonia, the Euro rebounded 2.4%, against the U.S. dollar in November. In the U.S., tax reform proposals were announced. The S&P 500 Index ended the month with a gain of 2.8%. In Asia, geopolitical tensions flared yet again after North Korea launched a new high-altitude missile on 29 November. This ended a 75-day lull in the nation’s rocket tests. The performance of major Asian equity markets was mixed for November. Hong Kong’s Hang Seng Index was up 3%. The Hang Seng got a boost from its largest constituent, Tencent (00700, listed in Hong Kong), which made new highs during the month, and gained 14% by month’s end. Meanwhile, emerging- and frontier-markets generally ended November with gains. The MSCI Vietnam Index rose 17.5% in November in USD terms. Vietnam’s biggest-ever IPO, Vincom Retail, debuted in November trading.

The US dollar weakened (-1.5%, as measured by the ICE Spot Index) in November. Many Asian currencies appreciated versus the greenback (Korean Won +2.9%; Malaysian Ringgit +3.5%; Philippine Peso +2.7%). The RMB appreciated 0.3% for the month, putting its year-to-date gains versus the US dollar at 5.1%.

The performance of gold and platinum rebounded following two consecutive months of declines. Gold and platinum prices rose by 0.8% and 2.7%, respectively, in November. Silver prices declined by 1.5%.

 

Economic and Market News 

U.K. and South Korea Hike Rates

  • U.K. Hikes Rates by 25bps – As mentioned in last month’s Roundup, the Bank of England hiked rates by 25bps to 0.50% on 2 November 2017. The rate hike is intended to “tighten modestly the stance of monetary policy in order to return inflation sustainably to the target [2%]”.
  • South Korea Hikes Rates by 25bps – On 30 November 2017, the Bank of Korea raised interest rates by 25bps to 1.5%. The Bank last cut rates to a record low in June 2016. This is the first time in 6 years that the Bank has increased interest rates.
  • FOMC Meeting Minutes Reveal Concerns on Financial Market Imbalances – On 22 November 2017, the Federal Open Market Committee released the meeting minutes of its 31 October – 1 November meeting, which detailed the discussion that led to the unanimous decision to put the federal funds rate on hold. The minutes also reveal that “In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances. They worried that a sharp reversal in asset prices could have damaging effects on the economy.”

 

 

S&P Downgrades Venezuela’s Foreign Sovereign Credit Ratings
On 13 November 2017, S&P downgraded Venezuela’s long- and short-term foreign sovereign debt credit ratings to “SD (Selective Default)” and “D (Default)”, respectively, after Venezuela failed to pay two coupon payments after the 30-day grace period on two of its debt issues. At the same time, S&P downgraded its ratings for the relevant debt issues to D, and subsequently on 21 November, S&P downgraded ratings for another two debt issues with overdue coupons to “D”.

S&P Downgrades South Africa’s Foreign and Local Sovereign Credit Rating
On 24 November 2017, S&P lowered its long-term foreign currency sovereign credit rating on the Republic of South Africa to BB from BB+ and affirmed the B short-term foreign currency sovereign credit rating. Meanwhile, the long-term local currency sovereign credit rating was lowered to BB+ from BBB and the short-term local currency sovereign credit rating was lowered to B from A-3, both below investment grade. S&P stated that “the downgrade reflects our opinion of further deterioration of South Africa’s economic outlook and its public finances.”

With South Africa’s local debt status changed from “investment grade” to “junk” by S&P, investors should beware of the resultant treatment of South Africa’s local bonds within different indices, which could vary across index providers.

Moody’s Upgrades India’s Sovereign Credit Rating
On 11 November 2017, Moody’s upgraded India’s sovereign credit rating to Baa2 from Baa3. This marks India’s first upgrade in 14 years. Moody’s expects that “continued progress on economic and institutional reforms will, over time, enhance India's high growth potential and its large and stable financing base for government debt”.

Chinese Economic Data: Inflation Rose to 1.9% in October; Caixin/Markit PMI at 50.8,Official PMI Registers at 51.8

  • China’s inflation rate rose to 1.9% for the month of October. This compares to a reading of 1.6% in September.
  • China’s official PMI rose to 51.8 in November from 51.6 in October. Meanwhile, the Caixin/Markit Purchasing Managers' Index declined to 50.8 in November from 51.0 in October. 
About Author Jackie Choy

Jackie Choy  

is the director of ETF Research for Morningstar Investment Management Asia