Asia ETF Roundup (Market) – March 2015

The Fed’s March FOMC statement, which included a reduction to its projected rate levels, and the increased tension in the Middle East have had varying impacts on global stock and bond markets, currencies and precious metal prices. The S&P 500 and the FTSE 100 were down 2%. On the other hand, the onshore Chinese equity markets (CSI 300 and Shanghai Composite) had a very strong run, surging 13%. Emerging/Frontier markets generally dropped, declining anywhere from 2% to 12%. Pakistan and Brazil both languished, as each country’s stock market dropped 12-13% (as measured by the MSCI indices covering these markets, expressed in USD terms).

The U.S. dollar continued to strengthen (ICE USD Spot +3%), though it lost some momentum after the U.S. Fed’s March FOMC statement. Many Asian currencies depreciated against the U.S. dollar – Japanese Yen -0.3%; Singapore dollars -0.8%; Korea Won -1.1%; Indian Rupee -1.2% and Malaysian Ringgit -2.7%. The Renminbi was, nevertheless, an outlier, rising 1.1%, leaving it roughly flat against the greenback on a YTD basis.

Precious metals’ performance in March was mixed, with gold and platinum prices dropping 2-4% while silver rose 0.4%.  

Economic and Market News

Fed Drops the Word “Patient”; India, Thailand, Korea and Russia Cut Rates; Brazil Hikes Rates

• US Fed Statement (March 2015) – In the statement of the FOMC meeting in March, the Fed dropped the word “patient”, however, at the press conference, Chairwoman Yellen commented that “just because we removed the word “patient” from the statement doesn’t mean we are going to be impatient”. In addition, the FOMC lowered its projected rate levels. Meanwhile, the market continues to speculate as to when the Fed will start raising rates.
• India Cuts Rates by 25bps – On 4 March 2015, the Reserve Bank of India (RBI) cut its policy repo rate by 25bps to 7.5%, citing low capacity utilisation and still-weak indicators of production and credit off-take. The RBI last cut rates in January 2015.
• Thailand Cuts Rates by 25bps – On 11 March 2015, the Bank of Thailand cut policy its rate by 25bps to 1.75%, stating that “monetary policy should be eased to further accommodate economic growth”. The Bank also lowered its GDP growth forecast for 2015 to 3.8% from 4.0%.
• Korea Cuts Rates by 25bps – On 12 March 2015, the Bank of Korea cut its base rate by 25bps to a record low of 1.75%. The BOK last cut rates in October 2014.
• Russia Cuts Rates by 100bps – On 13 March 2015, the Central Bank of Russia cut key rates by 100bps to 14%. It had previously lowered key rates by 200bps in January 2015.
• Brazil Hikes Rates by 50bps – On 4 March 2015, the Central Bank of Brazil hiked base rates by 50bps to 12.75%, putting them at their highest level since 2009. It had previously hiked rates in January 2015 and December 2014 (by 50bps each time). The Bank expects inflation to remain high and signaled it will continue to hike interest rates in response.

China Sets Growth Target to “Around 7%”

At the National People’s Congress, Premier Li Keqiang set a new growth target for China at “Around 7%” for 2015, lowered from the goal of “Around 7.5%” for 2014. Premier Li cited that the new target “takes into consideration what is needed and what is possible.”

Chinese Economic Data: Inflation Rebounds to 1.4% in February; HSBC/Market PMI at 49.6 in March

• China’s inflation rebounded to 1.4% in February from a five-year low in January of 0.8%.
• Official March PMI registered at 50.1, higher than February’s 49.9, leaped above the 50-point level. Meanwhile, the HSBC/Markit Purchasing Managers' Index retreated below the 50-point level in March, landing at 49.6, marking a 3-month low, and down from February’s 50.7.

Jackie Choy, CFA, is an ETF Strategist with Morningstar