For the latest ETF industry news, please refer to our “Asia ETF Roundup (Industry) – December 2018 and January 2019”.
Major Markets Performance
Last year was a disappointing one for equity investors as many major markets posted double-digit losses. The MSCI World Index declined 10.4% and the MSCI Emerging Markets Index fell 16.6%. China onshore markets fell around 25%, the S&P 500 declined 6.2%, and the FTSE 100 dropped 12.5%. Uncertainty from Brexit and U.S.-China trade war likely added to market volatility.
Emerging- and frontier-markets were mostly in the red in 2018, with stocks in Indonesia, Vietnam, the Philippines and Pakistan posting double-digit losses (proxied by the respective MSCI country indices in U.S. dollar terms). Pakistan’s stock market saw a huge decline of 38% in 2018 as the nation grappled with political uncertainties.
2018 was a year of rate hikes. Not only did the U.S. Fed raise interest rates four times, many emerging markets’ central banks also increased their rates during the year. The U.S dollar strengthened in 2018, rising 4.7% (as measured by the ICE Spot Index). Emerging-markets’ currencies generally depreciated against the greenback. The Indian Rupee and the Rupiah depreciated 8.6% and 5.7%, respectively, against the U.S. dollar. Meanwhile, the Chinese Yuan depreciated 5.2% against the U.S. dollar in 2018.
Precious metals’ performances were volatile during 2018. Gold prices hovered around USD 1,300 to 1,350/oz during most of the first half of 2018, before it tumbled below USD 1,180/oz briefly and then reverting to trend to close at around USD 1,280/oz by end-2018. This put its full year performance at -0.9%. Meanwhile prices of platinum and silver fell 14.8% and 8.3%, respectively, in 2018. On the other hand, oil prices continued their upward momentum from 2017 into the first nine months of 2018. The trend reversed in the fourth quarter and oil wound up registering a 25.3% decline for 2018.
After a weak 2018, global stock markets rebounded in the first month of 2019. Markets in Hong Kong (Hang Seng Index +8.1%), China (HSCEI +9.0%; CSI 300 +6.3%; Shanghai Composite +3.6%) and the U.S. (+7.9%) had strong showings in January. Emerging- and frontier-markets also ended January on a strong note. Stocks in Brazil and Pakistan performed particularly well, rising 16-18%; while markets in Indonesia and the Philippines rose around 9% (as measured by the respective MSCI indices in U.S. dollar terms).
In the currency market, after a strong 2018, the U.S. dollar declined 0.6% (as measured by the ICE Spot Index) in the first month of 2019. Emerging-markets currencies generally appreciated against the greenback, with the Thai Baht, Indonesia Rupiah and the Chinese Yuan rose 4.2%, 2.9% and 2.4%, respectively, against the U.S. dollar in January 2019.
Prices for precious metals rebounded in the month of January. Gold, silver and platinum prices registered gains of 3.5%, 4.2% and 3.9% in January, respectively.
Economic and Market News
U.S. Hiked Rates Four Times in 2018 but Kept Them on Hold in January; Hong Kong, Russia, Thailand, Pakistan Hike Rates; China Cut RRR by 100bps
• U.S. Hikes Rates by 25bps in December 2018 – The U.S. Fed decided on 19 December to hike the target range for its federal funds rate at 2.25% to 2.5%. The Fed has increased its key rate four times by 100 bps in total in 2018. In the minutes for the December FOMC meeting, it was stated that after December’s rate hike, the appropriate extent and timing of future policy firming is less clear than before. The committee also remarked that “the Committee could afford to be patient about further policy firming”.
• U.S. Keeps Rates on Hold in January 2019 - The U.S. Fed decided on 30 January to maintain the target range for its federal rates on hold. The Fed Chairman stated at a press conference that they will wait for further clarity about the issues, such as Brexit and trade disputes between China and U.S., before determining whether further rate adjustments are necessary. The next FOMC meeting will be held on 19-20 March.
• Hong Kong Hikes Rates by 25bps – The Hong Kong Monetary Authority decided on 20 December to hike the interest rate by 25bps to 2.75%, following the U.S. rate hike. Hong Kong Monetary Authority increased its key rate four times by 100bps in total in 2018.
• Russia Hikes Rates by 25bps – The Central Bank of Russia Federation raised its key rate by 25bps to 7.75% on 14 December. The bank’s key rates were unchanged overall in 2018.
• Thailand Hikes Rates by 25bps – The Central Bank of Thailand decided on 19 December to hike its benchmark interest rate by 25bps to 1.75%. It was the bank’s first rate hike since 2011.
• Pakistan Hikes Rates by 25bps – Pakistan’s central bank decided on 29 January 2019 to hike interest rates by 25bp to 10.25%. It was the fifth straight rate hike since March 2018.
• China Cuts RRR by 100bps – On 4 January 2019, People’s Bank of China announced it would cut the reserve requirement ratio (RRR) by a total of 100bps in two stages, which came effective on 15 and 25 January and reduced RRR by 50bps for each stage. It was the fifth RRR cut by PBoC since 2018. According to the PBoC, the RRR cut would release up to RMB 1.5 trillion of liquidity into the banking system, of which RMB 700 billion would be used to offset maturing medium-term lending facility (MLF) loans.
China Economic Data: 2018 GDP Growth Clocked in at 6.6%; Inflation at 1.9% in December; Caixin/Markit PMI at 49.7 in December and 48.3 in January, Official PMI Registers at 49.4 in December and 49.5 in January
• China’s 2018 GDP growth registered at 6.6% (and 6.4% YoY in Q4 2018). This figure was in-line with China’s 2018 GDP growth target of “around 6.5%”. Meanwhile, the National Bureau of Statistics revised down 2017’s GDP growth to 6.8% from 6.9%.
• China’s inflation rate eased from October’s reading of 2.5% to 2.2% for November and further to 1.9% for December.
• China’s official PMI readings for December 2018 and January 2019 dropped below the 50-point level, registering at 49.4 and 49.5, respectively. This compares to November’s reading of 50.0. The last time official PMI dipped below the 50-point level was in July 2016. Meanwhile, the Caixin/Markit Purchasing Managers' Index fell to 49.7 in December 2018 and fell further to 48.3 in January 2019, which was the weakest PMI reading since February 2016. November’s reading was 50.2.