In This Week’s Issue…
by Alexander Kalis Managing Partner & Head of Investments at Milltrust International

Most major Asian markets rose back in the last few days following sharp losses earlier in the week but traders are struggling to get a firm footing in a volatile February, spooked by heavy selling and warnings of more upheaval to come. After a run of almost uninterrupted gains across the globe fuelled by cheap money and optimism about the economy, traders are having to navigate turbulent waters as central banks – led by the Federal Reserve – look to lift borrowing costs. Last Friday’s strong US jobs and wage growth data, coupled with rising yields on key US Treasury bills, brought an end to the record-setting global rally, sending Wall Street spiralling down before slamming world markets this week. Asia took the biggest hit on Tuesday, with Hong Kong and Tokyo among the worst affected but others also felt the pinch.

In China, the trade machine kicked up a gear in January after stumbling the previous month, with exports and imports both growing much more than expected, pointing to a strong start to the year for global demand.

Of course, China is the largest consumer of commodities worldwide, and the second largest economy behind the United States. Macquarie Bank decided to look at the commodities most exposed to the performance of the Chinese economy and found base and bulk commodities to be the most impacted by a slowdown in the Chinese economy.

In India, one important perception in recent months has been that the market was perhaps overvalued. The last 10 years of data show that the “trailing” price-to-earnings ratio of a broad measure of companies was historically high. Quartz reports that the only thing now that can make the Indian markets hot again is an organic improvement in corporate earnings. Indian brokerage firm Motilal Oswal believes it is likely in the second half of financial year 2019.

In Southeast Asia, Singapore and Malaysian regulators said on Tuesday that they would work together to set up a stock market trading linkbetween Singapore Exchange (SGX) and Bursa Malaysia (BM). Such a link would enable investors on both sides of the Causeway to trade and settle shares listed on each other’s stock market more conveniently and cost-efficiently.

In Latin AmericaBrazil has the potential to be one of the best-performing markets in 2018. The reasoning behind this is based on the probable continuation in rebounding commodity prices, stronger political stability, and a relatively inexpensive valuation on a relative basis to other indices around the world.

 

Moreover, Brazil’s central bank on Wednesday lowered the country’s benchmark Selic rate by another quarter of a percentage point to a historic low of 6.75 per cent, following 10 consecutive cuts.

Economists believe Brazil needs further fiscal reforms to stimulate the economy. These include changes to Brazil’s over-generous pensions system. The government has been attempting to whip votes in Congress. But with general elections in October, legislators want to avoid such a deeply unpopular reform.

In South Africathe rand is seen holding on to more than half the gains it has made since Deputy President Cyril Ramaphosa became the ruling African National Congress leader in December, provided he succeeds President Jacob Zuma in governing the country soon. News on Tuesday that the ANC had postponed President Jacob Zuma’s state of the nation address scheduled for Thursday triggered bets that his resignation was imminent.

Finally, Russia, was described by Morningstar to be 40% cheaper than other Emerging Markets with the potential to significantly outperform other stock markets.

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