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by Elvin Thean AS OF JULY 2010 European Indices (UK, France, Germany, Switzerland)
During the May to July period markets were volatile, moving broadly sideways. In May-June, peripheral Europe's sovereign concerns weighed on investor's minds and contributed to the volatility. However, the support package announced by EU/ECB/IMF had a positive impact on the sovereign bond markets and bond yields stabilized in peripheral European economies, notably in Italy & Spain. The easing in the bond supply also helped to stabilize the senti-ment, as H2 2010 issuance calendar is much lighter than the H1 2010. July was a strong month for equities as positive trends remained in place. The Capital Goods sector continued to do well this year and over the past 3 months, outperforming the market by 15% and 6% respectively. It is the most crowded sectoral trade atpresent. Capital Goods price relative is at 15 year high. European data held up rather well compared to the poor US data flow. The FX boost still remains in place for European exporters with Euro remaining at depressed levels with respect to historicals. In termsof valuations, European equities trade at 10.0x, a 23% discount to their long term average. The dividend yield remains above government bond yields, indicating strong support for equities. Australia, Hong Kong, Singapore
Australia ASX200 index in July claimed back its losses of June and a bit more with a gain of 4.5% for the month. A stronger Australian dollar boosted the local market’s currency-adjusted returns. Both of the largest sectors outperformed, particularly Banks (+8.8%) which were supported by easing credit markets as stress tests conducted by European bank regulators failed to bring up significant issues. Resources (+4.6%) were given a boost by the government’s decision to jettison its proposed Resources Super Profits Tax in favour of a Minerals Resource Rent Tax which will be less onerous. Hong Kong equity market continued its upward trend in July, led by the property counters. Hang Seng Index closed the month at 21,030, rose 4.5% m/m. MSCI Hong Kong has outperformed the region and MSCI China by 1.2% m/m and 1.5% m/m respectively. Small and mid-cap players performed well. Singapore gave back relative performance with risk appetites returning. The Straits Times Index gained 5.4% m/m but underperformed the MSCI Asia-Pac ex-Japan index by 2.0% m/m as global risk appetite returned. Higher beta stocks in the market recovered after a poor second quarter 2010. Defensives lagged in contrast, declining 2.6-2.7% m/m. Singapore’s economy is outperforming within the region with economic growth forecasts being revised upwards sharply from the start of the year. Korean (KOSPI)
Japan (Nikkei 225)
Japan’s economic slowdown was confirmed in the June data, with a number of
indicators turning down and manufacturers’ activity moderating. Real exports
fell for the first time since Feb 2009. Meanwhile, small firms’ sentiment
surprised on the upside, showing a further rise in July despite Yen appreciation
and a fall in equity prices. The performance of non-manufacturers was
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