Research & Insight

There had been concerns that the Democratic People’s Republic of Korea (DPRK) may embark on some form of reckless military provocation, or at least offer a belligerent welcoming gesture in coincidence with Seoul’s show-piece G20 summit that was held in South Korea from 11-12th November. An explosive cocktail celebration of the G20? Or a perverse chapter in the second generational dynastic transition of power from the ever-frailer Kim Jong-Il to his youthfully rotund and grand paternal look-a-like third son Kim Jung-Un… with a cherry twist of possible power shifts in the Military and the Communist Party?

Bihar and caste-based politics were two sides of the same coin until perhaps yesterday. Bihar, among the poorest and most backward of states in India, has just re-elected the ruling Government back to power in what must be labelled as a landslide and epochal win in the history of state elections.

Absolute returns remained very strong for the asset class in October with the benchmark returning 1.28% in US dollars. Less than 1 percentage point of return can be attributed to currency appreciation relative to the dollar; this is a little lower than the recent average. Emerging market currencies continue to attract strong flows as a result of improved fundamentals and high yields, but the threat of capital controls becoming more widespread is causing investors to be a little more selective in their allocations.

MSCI Asia ex Japan rose 2.63% in USD in October. Markets continued their upward move from September as momentum accelerated in the first half of the month with QE2 speculation. But the 25bps increase in Chinese interest rates on October 19th surprised markets somewhat, despite domestic demand being very strong in China and inflation above the central bank target. China and Singapore were the best performing markets and Korea, India and Thailand the worst.

Maybe it is better to travel than to arrive? Markets reacted enthusiastically to the promise of a second round of quantitative easing but seemed to run out of steam a little in the run-up to the actual announcement. Emerging markets managed a further 2.9% rise, led by Peru which rose by 16% (there are only three stocks in the MSCI Peru benchmark – one a gold stock that rose 18% and another a copper stock up 22%). Most other markets rose very modestly with Eastern European markets generally leading the way.