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Although nothing much is expected from the Fed’s FOMC meeting, their tone on the state of the economy should drive markets further if it appears dovish. The markets have accepted the mediocre level of corporate earnings, taking into account the difficult economic environment, so any good news will further drive the equity markets.
Singapore, Hong Kong & India
A similar situation is reflected in the Asian corporate earnings. In Singapore’s STI, five companies have reported earnings so far. Their overall sales failed to beat expectations, especially in the oil and gas sector, while REIT continues to be the bright spot. Hong Kong’s HSI corporate earnings also show a skew towards the financials as the bright spot, with banks surprised with better sales than anticipated. That said, the overall index - where 12 companies have reported so far this quarter - shows a lag in sales and earnings growth. The Nifty is showing a slightly different picture, with financial services the laggard in sales growth, missing analysts’ estimates by 42%, while the auto sector beat analysts’ sales estimates by 152%.
Asian fund flows
India’s equity market is likely to continue to advance after RBI Chief Rajan cut the marginal standing facility rate by 25bps to 8.75% for emergency liquidity, and hiked key rates by 25bps to 7.75% to fight inflation. In yesterday’s press conference, he made clear his priorities; tackling inflation and creating a financial framework in the banking and financial sector to absorb volatility. Since taking the helm he has stabilised the decline of the rupee, which hit 68.8 in August.
The return of foreign inflows betting on Asia will buoy the markets here. The largest foreign inflows in the equity space are seen in South Korea with $4.3bn, followed by Taiwan with $2.3bn and India at $2bn, indicating investors’ bullish short-term views in these countries. Southeast Asian countries such as Malaysia, Indonesia, the Philippines and Thailand see large positive inflows in the bond market, with marginal to negative inflows in the equity markets. Clearly the longer-term prospects of these countries remain attractive.
The investors’ bias towards equities will weigh on gold's recent bounce. A failure to break the $1360 resistance level and the waning momentum would mean further consolidation in this region this week. The data on gold ETF holdings show a marginal decrease which is mostly unchanged this week, which means this consolidation in gold prices is technical and further upside is possible.