Asia Pacific equities

January 2012 (covering December 2011)

December was a mixed month for Asian equity markets, with the MSCI Asia Pac ex-Japan index ending the period largely unchanged in dollar terms. Technology and financials proved the strongest sectors, while healthcare and energy stocks were weakest. Chinese equities responded positively to lower inflation and the potential for further policy easing after last month’s cut to banks’ reserve requirements. ASEAN equity markets also outperformed over the period, as they have done for most of the year. Meanwhile, India continued to lag in the face of deteriorating newsflow, with concerns over slowing economic growth compounded by an apparent lack of political leadership.

Manufacturing in China improved slightly in December with the purchasing manager’s index (PMI) at 50.3, up from 49 in November. Retail sales growth remained robust around the 17% level. Prices continued to ease with CPI inflation for November at 4.2% year-on-year, down from 5.5% the previous month. Elsewhere, Taiwan PMI contracted, although an improvement in the m-o-m figures suggests the actual rate of contraction is slowing. India PMI rebounded to 54.2 from 51 in November, but inflation remains elevated at around 9.1%. In Korea, equity markets made small declines on the announcement of the death of North Korean leader Kim Jong-il, raising concerns over the succession of his son Kim Jong-un. In economic news, exports and industrial production showed signs of a slowdown as global macro conditions remain uncertain.

On the corporate front, Keppel Corporation’s Fernvale unit was awarded a contract to build a semi-submersible drilling rig for Urca Drilling, valued at US$809m. Apple lost a bid to block sales of Samsung Electronics’ Galaxy phones and tablets in the US. Elsewhere, Chunghwa Telecom announced plans to invest approximately TWD6bn to boost its mobile network in 2012.

Japanese equity markets were largely unchanged over the month. Recent industrial production figures started to reflect the negative impact of the flooding in Thailand on supply chains, as production declined by 2.6% month-on-month. Meanwhile, the Bank of Japan’s quarterly Tankan survey of large manufacturers, an index of sentiment, fell to minus 4 from 2 in September. Concerns over the eurozone crisis, global economic uncertainty and continued yen strength also saw greater caution in capital spending plans from large manufacturers, with moderation also seen in retail sales figures.

In company news, Toyota forecast record sales for 2012; this in spite of two natural disasters disrupting its supply chain and production capacity, as well as continuing yen strength.

Where Invesco has expressed views and opinions, these may change.