Top Markets 1Q17: Asia Outshines!

The first quarter of 2017 has been pretty decent to investors all around the world, with both equity and bond markets on aggregate posting positive returns year-to-date. Global equity markets, as represented by the MSCI AC World Index, posted a 4.9 per cent return, while in the global fixed income markets, the JPMorgan Global Aggregate Bond Index delivered returns of 0.1 per cent over the first quarter (1.5 per cent in US dollar terms as of March 2017).

Breaking down the equity markets regionally, we saw that the developed markets, while posting positive gains year-to-date, have generally lagged behind emerging markets.

The MSCI Emerging Markets Index posted a 9.6 per cent gain, while the MSCI Asia ex Japan Index rose close to 11.6 per cent, driven by a broad-based rally across Asian equity markets like China, India, South Korea and Taiwan. The highlight of the quarter was in the US, where the Federal Reserve has once more raised benchmark policy rates in the US, this time to a range of 0.75 to one per cent in its March FOMC meeting, making it the third rate hike in its current monetary tightening cycle.

The Fed retained its forecasts for the Fed Funds rate for 2017, implying that it is staying with its stance of three hikes for the year (two more on the cards).

Additionally, the Fed also reaffirmed its outlook on the US economy, stating that “household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat”, and added that inflation has risen in recent months, revising its core PCE target higher to a 1.8 per cent – 1.9 per cent range for this year. The Fed also reiterated that they would wait for further clarity on potential policies coming out of Washington before readjusting its forecasts and stance.

Across the Atlantic in Europe, data indicates that growth on the continent is improving, and despite the heavily-loaded political calendar and development, equity markets there have taken in their stride and continued to climb higher over the quarter.

The Dutch elections are now over, with the Eurosceptic factions getting less support than expected. Across the English Channel, UK Prime Minister Theresa May has triggered Article 50, officially signalling that Britain will leave the European Union (EU) by end-March 2019. The ball is now in the EU council’s court, with negotiations now on the agenda over the next few months as European politicians prepare for an EU without the UK in it.

Financial markets remained concerned over the upcoming elections in France in late-April, as polls indicate that Euro-sceptic candidate Marine Le Pen has a possible shot at the Presidency.

Meanwhile in Germany, federal elections are scheduled to take place in September.

In Asia, economic data from many countries indicate broad-based improving economic momentum. This trend is seen across markets like China, South Korea, Japan, India as well as in Southeast Asia, and has buoyed investment sentiment lately, leading to relatively strong equity market performance over the quarter. Exports data across the various markets in the region also suggests a pickup in demand, and corporate earnings estimates have also continued to see broad-based improvements in many markets under our coverage. As we have pointed out and emphasised last year, with economic stabilisation in China, we expect Asian economies and markets to continue their gradual recovery this year, benefiting asset markets across the region.

As we head into the second quarter of 2017, we take a closer look at some of the top-performing markets for the first quarter of this year (India, South Korea, Singapore) as well as those on the bottom of the performance table (China-A, Japan, Russia), identifying some of the key reasons for their performances and providing our outlook for each market.

Nevertheless, towards the 3Q of 2016, we have seen an improvement in the demand for fixed deposits (FD), implied by the positive growth in total deposits and FD deposits towards the end of 2016 after two-year of contractions. The comeback of appetite for fixed deposit is likely to ameliorate banks’ asset base, leading to a better loan-to-deposit ratio, which will allow banks to lend out more funds going forward.