Research & Insight

MSCI Asia ex Japan fell 8.39% in USD in May. The markets have continued their fall from the peak in mid April as a succession of negative issues continued to plague investors. The primary concern has obviously been the sovereign debt crisis in Europe and its effect on global growth and risk appetite, although other issues such as the oil spill in the Mexican Gulf and the Hon Hai iPhone suicides haven’t helped.

With European woes playing out, KOSPI has declined c.10% from its recent peak with massive foreign selling. As one of the liquid markets in emerging markets, the Korean market seems to have been a main target for the foreign money pulling out of the region.

There have been 10 suicides and 2 attempted suicides this year at Hon Hai’s Foxconn factory in Longhua near Shenzhen (about an hour north of Hong Kong by car) and this has put the company’s labour practice and factory working conditions into the spot light. It has been widely reported in the media with front page reports in the western press and items on CNN and BBC. Hon Hai’s major customers, like Apple, HPQ and Sony, are also under considerable pressure to investigate. This has also raised questions about China’s labour practices in general. For example, there have been media reports of all 4 of Honda’s China plants going on strike on a pay dispute.

Kim Jong-Il celebrates with the threat of war following publication of findings into the sinking of the RoK naval vessel, Cheonan.

After a positive start to the month which saw the MSCI Emerging Market index up as much as 4.50%, risk aversion returned on renewed concerns of China’s strategy to slow its economic growth and the re-emergence of sovereign debt risks after Greece's bonds were downgraded to junk status. Emerging markets equities ended the month up 1.21%, outperforming developed markets equities (MSCI AC World), which fell 0.2%.