Asia Pacific equities

July 2010 (covering the month of June 2010)

Equity markets across Asia were mixed in June as positive economic data suggested the recovery remains on track, but concerns about the Eurozone debt crisis and potentially slowing growth in China kept sentiment subdued. Exports from China increased by 48.5% year-on-year (y-o-y) in May, and news that the government had abandoned its currency peg with the US dollar was also well received. Greater exchange rate flexibility is likely to encourage a gradual re-balancing of the Chinese economy towards consumption and should also dampen some inflationary pressure. During the month, data continued to demonstrate the strength of China’s recovery as retail sales and industrial production saw healthy rates of expansion. Stocks in Indonesia were supported by news that ratings agency Moody’s had raised its credit rating outlook from ‘stable’ to ‘positive’ on expectations of further sustainable economic growth. In Australia, Prime Minister Kevin Rudd was replaced by Julia Gillard following a steep fall in public opinion polls. The new Prime Minister was quick to state her willingness to negotiate with mining groups over the controversial super tax planned on sector profits and also announced plans to call an election in the coming months. Prior to the change in political leadership, mining group Xstrata suspended projects in Australia valued at A$6.6bn due to the proposed resources tax. Among companies, Samsung Electronics announced plans to launch a tablet computer in the third quarter of the year and also detailed its intention to double its market share in smartphones. In China, Bank of Communications said that it will sell $4.8bn of stock in a rights issue, around 20% less than originally planned due to the currently challenging market conditions.

Japanese stocks were lower as investor sentiment remained cautious. News that export growth and industrial production had slowed in May was countered by rising consumer confidence, higher machinery orders and a 10th straight monthly decline in corporate bankruptcies. The improving data suggest the export-led recovery is broadening out into the domestic economy and Japan’s Cabinet Office increased its forecast for growth in the year to March 2011 from 1.4% to 2.6%. Political developments were also a factor, as Prime Minister Hatoyama resigned after less than 9 months following a severe decline in public opinion polls to be replaced by Naoto Kan. Towards the end of the month, the new Prime Minister set out his plans to tackle Japan’s public debts through measures including an overhaul of the tax system. At the corporate level, Fujitsu and Toshiba announced initial discussions aimed at combining their mobile phone operations to create Japan’s second largest handset maker.

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