Asian equities still lag US

As the S&P500 hovers near its all-time high, the bullish sentiment for US stocks is back.

Tapering, which caused volatility and shook investor’s confidence, has now been cast aside as investors are assured  that fundamentals are sound.  The market has been in a state where bad news has been ignored and the rally continues.

This leaves investors sitting on the side-lines without much of a choice except to participate. This is evident in the fresh inflow of funds entering into ETFs for US stocks. On the bright side of the equation the market  is focused on the M&A activities and the majority of the companies that have reported beat earnings forecast. 

The Asian equity markets have generally lagged behind the US, with the exception of the Philippines index with a return of 6.9% and the Indonesian composite index with 8.17%, year-to-date. The inflows of foreign funds into Indonesia are notable this month, with US$608.7m. While there is outflows in the rest of the countries such as Japan with -$3.5b, South Korea with -$1.16b and Thailand with -$566m.  

Indonesia has survived the volatility with resilience. The renewed confidence can be seen in the rupiah, the best Asian currency performer against the US dollar with a 5.78% return year-to-date. This is a turnaround from last year, where the country’s currency was punished during the sell-off and analysts coined it one of the ‘fragile five’. 

The market was unforgiving given the size of the current account deficit, high inflation and the dependence on foreign capital. It was only in the final quarter that exports rose by 10% and the current account deficit narrowed from $3.1b to $2.3b.

The economy grew at its slowest pace last year with GDP at 5.78%, as the demand of commodities slumped. In the past, Indonesia enjoyed an above 6% growth. This year, the prognosis is a continuous economic slowdown with signs for optimism on improving trade.

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