Research & Insight

After a positive start to the month which saw the MSCI Asia ex Japan index continuing the upward trend set in March, 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. The Asia ex Japan index ended the month up 2.06%, outperforming developed markets equities (MSCI AC World), which fell 0.2%.

The Argentine government is seeking to renegotiate $20 billion of defaulted debt that creditors kept out of a 2005 restructuring that paid 30 cents on the dollar. Nearly one fourth of bondholders did not participate in the original debt exchange. Since then, they have become a major obstacle for Argentina to regain access to international capital markets. A settlement with the “holdout” investors would give Argentina access to issue debt globally for the first time since the 2001, when it defaulted on $95 billion of bonds.

Global equities produced a decent return in the first quarter, but it was hard work. Good micro news (on profits) eventually managed to overcome bad macro news (on sovereign debt).

MSCI Asia ex Japan rose by 1.27% in Q1/2010 following one of the best ever years in 2009.

The mid-March decision by Brazil's central bank to keep the SELIC rate on hold came as a surprise to the market where expectations were for a hike of as much as 75bps. Consumer and wholesale prices have been ticking up and the economy has recovered quite quickly from what has proved to be a rather modest recession last year.