Equities weekly: Gold losing its lustre?

Equity markets were mostly higher over the week ended February 15, 2013, led by South Korea and Indonesia, which gained 2.43 per cent and 2.25 per cent respectively, helping Asia ex-Japan equities to post a 0.93 per cent return for the week.

Despite the shorter trading week, Hong Kong shares also managed a decent 0.74 per cent gain, while Hong Kong-listed Chinese equities were higher by 1.28 per cent over the week.

Partially stealing the spotlight from equity markets was the huge decline in gold prices over the week, which saw the shiny yellow metal post a 3.4 per cent weekly decline, the sharpest weekly drop since May 2012. On a year-to-date basis (as of February 15, 2013), gold prices have declined 3.9 per cent (in US dollar terms), underperforming the majority of equity markets under our coverage thus far in 2013.

As we have pointed out previously, a combination of rising interest rates (resulting in higher opportunity costs of holding gold), lowered economic uncertainty, a lack of cash-flows as well as a higher correlation with other risk assets have made gold a less attractive asset to own, while recent data also shows that several notable hedge fund managers have reduced their gold holdings at the end of last year.

While gold’s inability to generate income or cash-flows hinders our ability to attribute a value to the precious metal, we reiterate our caution on an asset which has already posted 12 consecutive annual gains (for a 515.4 per cent return over the 12-year period, or a 16.3 per cent annual return, in US dollar terms).

Japan: Economy unexpectedly contracted in 4Q 12

Government data showed Japan’s economy remained mired in recession in the fourth quarter of last year. Real gross domestic product (GDP) declined 0.1 per cent quarter-on-quarter (the equivalent of an annualised rate of minus 0.4 per cent in fourth quarter of 2012 (4Q 12)), compared with the market consensus of a 0.1 per cent expansion.

This was the third consecutive quarterly contraction, indicating that the country is still struggling to escape from a mild recession. Private consumption, which makes up more than half of the economy, rose 0.4 per cent from a quarter earlier, slightly slower than the market forecast for a 0.5 per cent increase. Business investment (non-residential) declined 2.6 per cent quarter-on-quarter, the fourth straight quarterly decline. Net exports, or overseas exports minus imports, plunged 18.1 per cent from the previous quarter.

Australia: Home loan approvals fell in December 2012

Australian home-loan approvals fell in December 2012 for a third month and the proportion of firsthome buyers slumped to an eight-an-a-half year low as central bank interest rate cuts failed to lure buyers into the market.

The number of loans granted to build or buy houses and apartments declined 1.5 per cent from November, when they dropped by a revised 0.7 per cent. This surprised economists who estimated that the figures would remain unchanged.

While a half-century low three per cent overnight cash rate helped property prices rise last quarter, housing credit growth in December 2012 has since dropped to the weakest annual pace since records began in 1977, suggesting economic weakness on the domestic front.