The usual broad-base buying of Asian equities listed in the US was missing overnight. Instead notable selling was evident in India, Japan and Indonesia’s ETFs.
US economic data from retail sales to jobless claims failed to provide any bullish news and yet the equity markets rallied. Retail sales for January fell by 0.4% and jobless claims increased by 8k, pushing it up to 339k for the week ending 8 February. The markets have accepted that US data will be weak and the weather gets the blame.
Investors are struggling to come up with a reason why the stock market has defied logic. The Fed’s reduction in stimulus for the rest of the year to exit QE in its entirety, should add to the reasons of not betting on risky assets. The other factors that keep the markets going are the low interest rate environment, the forecast for better economic data going forward and the stability in EM markets.
Asian markets are unlikely to feel that same exuberance from the US as record fund outflows underpin the markets. Foreign institutional investors have been shying away from investments in Asia, instead capital flows are selective.
This is unsurprising, given the Fed’s paring back will unveil the structural issues of Asian economies that have been masked by QE. However, there are pockets of light such as Malaysia’s economy in the 4Q of 2013, it jumped 5.1% year-on-year, bringing GDP for the year to 4.7%, compared to 5.6% in 2012.
The current account surplus grew to US$5.3b in the 4Q, putting investors at ease that the country will be able to stand against the Fed’s exit. The improvement in exports, that boosted GDP in 2013, will become the key driver this year with the dependence on demand from advance economies.