PSEi, Jakarta and SET defy EM Asia laggards

Asian markets are getting a boost from the strong close by the Dow and S&P500 last Friday. The divergence of the Nikkei and US equities showed an exit and reallocation of funds in the global equity markets.

As at the end of January, foreign investors pulled out a total outflow of US$9.6 billion, from the Japanese stock market. 

Investors who thought the US equities would behave like the Nikkei are caught out as the S&P500 is shy of making a new high, while the Nikkei has lost 12% year-to-date. The strong US corporate earnings have become the focus after market participants discount the bad weather and bad data.

This week, the release of the Fed minutes will be dissected for forward guidance. In Asia, China’s FDI and flash PMI will provide clues on how the economy is faring after a contraction in January that shook the global markets.

With the US enjoying a three-day weekend, the lack of trading tonight will mean that Asian markets have to contend with regional data. Asian and the EM Asian stocks are lagging behind the US.  The MSCI US holds a -0.24% and in contrast, MSCI EM Asia -3.78% and MSCI ex-Japan -3.86% year-to-date. 

The past week’s rally, in the Asian markets, was not enough to recover the extent of the losses suffered since the start of the year.  It looks like 2014 is a mirror of 2013 where EM markets are lagging behind. However, the exception to this rule is the Philippines, Indonesia and Thailand.  These three markets are outperforming the developed markets.

In the Philippines, the destruction caused by typhoon Yolanda in Q4 kept investors sentiment low.  The low valuations and favourable economic data such as FDI and manufacturing meant that the country has the ability to weather the volatility.

The PSEi has a return of 3.8% year-to-date. The Jakarta composite index has been gathering a steady pace, with a return of 5.5% year-to-date, after touching a low in December.  The driving force has been the property sector and foreign institutional funds which have poured in $185.6 million, as of 14 February this month. 

Thailand’s political uncertainty has kept foreign investors at bay. The lack of increasing tension has spurred buying activity where the SET index is at 1% year-to-date.

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