Research & Insight

MSCI Asia ex Japan rose 1.15% during July, but this was the calm before the storm in August. Our markets continued to take their cue from developed markets, namely Congress’ impasse over the extension of the US debt ceiling and the debacle in Europe spreading to Italy and Spain. It is not surprising therefore that the outperformers were once again the smaller, more insulated Asean markets of Thailand (11.6% buoyed by a decisive election outcome), Indonesia (7.2%) and the Philippines (6.7%).

The diaspora of the Korea chapter of the wider publicly listed equity investment world, indexed and otherwise, may have been eagerly hanging on the June 21st announcement from MSCI Barra on global and regional country index component changes – involved and detached chapter observers have been treated to an annual, protracted and stylised will-they won’t-they promotion ritual for several yawning years now… A fully emerged groundhog, or one that is perceptibly emerging… but with a healthily reduced or even removed weighting to telcos in the index. Hark the Korea Herald! It is still emerging! Hold your index and the business page. Now that is news for you… isn’t it?

But the rest of Korea has other significant dates on their minds.

Against the odds, former Prime Minister, Thaksin Shinawatra’s party regained power over the Democrat Party at the July 3rd Thai general elections. The Pheu Thai Party (PTP) won by simple majority, taking 265 out of 500 seats. The PTP is likely to be led by Thaksin’s sister, Yingluck Shinawatra, with Mr Thaksin still living in exile from Thailand.

Emerging markets local currency debt had a strong start to the second quarter, rising nearly 5% in USD terms in April with all countries in our benchmark except for Peru posting positive returns. However, these gains could not be sustained with investors increasingly worried about the outlook for developed markets and what impact a negative credit event in the US or Europe would have on commodity prices, demand for emerging market exports and the availability of investment capital. JP Morgan’s GBI EM Global Diversified index finished the quarter up 4% after a volatile, but directionless May and June.

MSCI Asia ex Japan was flat at 0.01% during the quarter, but this belies a volatile period within where market directions were driven variously by moderating oil and commodity prices, continued concerns about potential China hard landing, European debt crises and increasing evidence of faltering recovery in the US economy while QE2 drew to an end.