Asian markets see fresh inflows

The impact on equity markets of the Fed’s monetary policy has been compared to giving a drunk another drink.

Market participants are now urging the central bank to look at ways to incentivise corporates into creating jobs. The call for action is necessary as we have seen corporate earnings largely driven by cost cutting, and the third quarter is no different. Projections for the fourth quarter have been lowered by companies to prepare shareholders, citing the shutdown as the main reason for slowing revenue growth.

The intended trickledown effect of creating jobs has been dismal, with the participation rate showing an estimated 100 million Americans out of the workforce. Instead, the QE program has created unintended consequences. Questions have arisen as to whether the impact of the unwinding will make the August selloff look like a knee-jerk reaction.

Data so far from the US showed the state of the economy prior to the shutdown and the impact the DC political drama had on Americans. Therefore, it will not be surprising if tonight’s US retail sales show households are cautious about the economic outlook, and are tightening their purse strings. The overnight data were disappointing, with softer figures in factory production of 0.1%, while home sales dropped 5.6% in September, indicating Americans are putting off buying houses.

While we discuss the issues of cheap credit and excess liquidity in the market, it doesn’t change investors’ preference for the ‘risk-on’ theme. Emerging Asian markets have particularly enjoyed the lifeline they have been given when the Fed decided not to taper in September. Flows back into the equity, bond and currency markets are evident.

The past one- and three-month equity indices’ performances show certain emerging Asian markets - such as South Korea and Shanghai - holding on to their leads against the US, while the smaller nations – such as Philippines, Jakarta, Thailand and Malaysia – continue to lag. In the Asian currencies’ rankings, the weak US US dollar in the past month saw gains in the New Taiwan dollar to the ringgit between ranges of 0.5-2.9%. The ringgit, rupiah and rupee were the top three performers in the past month; however, the rupiah and rupee are still below their three-year averages.

Bond yields on the 10-year have fallen on average with the most significant in Indonesia where rate hikes undertaken by Bank Indonesia and the trade balance moving back into surplus stabilised the economy.

Indonesia saw $2b inflows into their bond market, though this pales in comparison to Malaysia’s $38bn, Philippines $28bn and Thailand’s $14bn this month.

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