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By Simon Senior
simon.senior@jpmorgan.com
AS OF JULY 2011
European Indices (U.K., France, Germany, Switzerland)
All quotes in Euros
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Commentary
MSCI Europe was down 6% from April to July. Sector wise, there were no clear winners between Cyclical and Defensive sectors. Health Care, Autos &
Personal Goods were the best performers while Banks, Technology & Construction Materials suffered the most. Markets were impacted by the slowdown
in macroeconomic activity. The other major source of concern was the Sovereign Crisis in Europe. Policy makers put together a new package for Greece,
offering relaxed terms for existing loans and fresh commitment of capital. However, the Greek deal did not stop contagion from spreading to Italy and Spain
as investors are losing confidence in the ability of these countries to deal with fiscal austerity and keeping access to funding markets. Since Q2 to date Value
style has hugely underperformed Growth Style This behaviour of value stocks was consistent even on a sector neutral basis. On the earnings front, European
companies have reported lackluster results in Q2, adding to fears of a sharp activity slowdown underway in the region.
Asian Indices
All quotes in Euros
Commentary
- The Australian economy was affected by a faltering U.S. economy and
the European sovereign debt crisis. For the fourth consecutive month the
ASX200 was down in local currency terms. Local factors were also negative
as patchy data raised concerns over earnings prospects while strong CPI
data cooled hopes of a reversal by the Reserve Bank. The Resources sector
continues to perform badly.
- China’s stock markets have been dragged down from May to July, on
the back of rising concerns about inflation, as well as the resultant
monetary tightening measures and concerns of economic slowdown in
developed countries. From end April to July, MSCI China declined 5.6%,
underperforming MSCI EM by 0.2%. Sectorwise, Telecoms was the best
performer (up 7.1%), followed by Consumer Disc (+5.8%), and Consumer
Staples (+4.0%). Industrials sector was the worst performer, declining by
17.4% for the period.
- The Hang Seng Index has fallen since April both in local and EUR terms.
Inflation remains a driving force; Hong Kong has the fastest acceleration in
core inflation among developed Asian and emerging markets.
- In EUR terms the Straits Times index gained 5.0% since the end of April, all
of which came in July. Nervousness in the markets stems from the European
fiscal problems and the U.S. debt discussions. Of the local factors, inflation
remains a concern.
- Economic data released throughout the period confirms that Japan’s
economy is rapidly recovering from the tremendous shock caused by
the March 11 disaster. Business sentiment continues to improve and
normalisation of delivery times shows a rapid repairing of the supply chain
disruptions. Since end April, the Nikkei 225 has risen 8.5% in EUR terms.
- South Korean KOSPI has risen 1.6% in EUR terms since April, although in
local terms, the markets dropped over 2%. Fiscal problems across Europe,
plus the more recent U.S. debt issues have impacted the local economy.
Source: J.P. Morgan's Investment Analytics & Consulting Group, J.P. Morgan Equity Research, Morgan Markets, Bloomberg, Rimes
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