Asia ETF Roundup (Market) – March 2017

The ICE USD Spot Index appreciated slightly (0.2%) in March. The Euro and the Yen gained against the U.S. dollar, while many Asian currencies continued to appreciate against the greenback. The Indian Rupee, Korean Won, New Taiwan Dollar and the Thai Baht gained anywhere from 1% to 3% versus the U.S. dollar. The Renminbi, however, slipped 0.3% versus the U.S. dollar. for the month, putting its year-to-date appreciation at 0.8%.

Precious metals prices retreated in March. Platinum prices dropped 9%, while prices for silver and gold each dropped by 1%.

Economic and Market News

The U.S. Federal Reserve Raises Rates for the First Time This Year; HK Hikes Rates; Russia Cuts Rates

• U.S. Hikes Rates by 25bps – On 15 March 2017, the Fed’s FOMC decided to raise the federal funds rate by 25bps to a target range between 0.75% and 1% from a prior target of 0.50% and 0.75%, effective 16 March 2017. The Fed’s statement indicated that inflation has increased in recent quarters, moving close to the Committee’s 2% long-run target; excluding energy and food prices.
• Hong Kong Hikes Rates by 25bps – On 16 March 2017, the Hong Kong Monetary Authority announced it would raise its Base Rate by 25bps to 1.25% in response to the 25bps upward shift in the target range of the U.S. federal funds rate.
• Russia Cuts Rates by 25bps – On 24 March 2017, the central bank of Russia decided to reduce its key rate by 25bps to 9.75% from 10%. The press release stated that “the Board of Directors notes that inflation slowdown overshoots the forecast, inflation expectations continue to decline and economic activity recovers. Inflation risks have slightly dropped but remain elevated.”

South Korea President Park Geun-hye Ousted; Election to be held on 9 May
On 10 March 2017, the court upheld the parliament’s decision in December 2016 to impeach Ms. Park Geun-hye based on her involvement in a corruption scandal. Ms. Park became the first democratically elected leader to be forced from office in South Korea. The country will hold a presidential election on 9 May 2017.

China-Hong Kong Bond Connect Could Come This Year
According to the Financial Times, during China’s annual National People’s Congress, Premier Li Keqiang said “we are preparing to implement for the first time this year a bond market connect between the mainland and Hong Kong, which is to say, we are allowing for the first time overseas capital to buy mainland bonds overseas.” While there have been no further details announced by the regulators or exchanges on this “Bond Connect” programme, we view this as another step by China towards further opening up its capital markets.

Chinese Economic Data: China Targets 2017 GDP Growth of “Around 6.5%”; Inflation Fell Sharply in February to 0.8%; Caixin/Markit PMI at 51.2 in March; Official PMI rose to 51.8

• At the annual National People’s Congress, the Chinese government set a GDP growth target for 2017 of “around 6.5%”. This is at the low end of the “6.5%-7%” target that had been set for 2016 and lower than the 6.7% achieved in 2016.
• Inflation in China fell sharply in February 2017. The February reading of 0.8% compares to January’s reading of 2.5%. This sharp decline is believed to reflect seasonal distortions due to the Chinese New Year.
• China’s official PMI reading for March 2017 registered at 51.8. This compares to February’s reading of 51.6. Meanwhile, the Caixin/Markit Purchasing Managers' Index registered at 51.2 in March, slower than February’s level of 51.7.