Asia ETF Roundup (Market) – June 2021

U.S. Fed raises inflation projection and pencils in rate hike in 2023

Jackie Choy, CFA 08 July, 2021 | 10:58
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For the latest ETF industry news, please refer to our “Asia ETF Roundup (Industry) – June 2021”.

 

Major Markets Performance

Inflation concerns set markets off on a wobbly start in June, but they found their footing. The Morningstar US Market Index ticked up 2.6% in June. The S&P 500 and Nasdaq notched new all-time highs towards the end of the month. Asian markets’ performance was mixed. Taiwanese and Korean equity markets saw gains of 2.0% and 1.4%, respectively, while equity markets in Indonesia, Malaysia, Pakistan and Thailand lost 3%-5%.

Concluding the first half of 2021, major developed markets generally reported gains. Stocks in the U.S. and Europe surged 14.9% and 12.3%, respectively (proxied by their respective Morningstar indexes in U.S.-dollar terms). The Morningstar Emerging Markets Index gained 8.5% in the first half of 2021. The performances of individual emerging markets was mixed. Russia, India and Brazil gained 22.0%, 16.0% and 10.9%, respectively. Meanwhile Chinese stocks had a smaller gain of 1.6% and the markets of Indonesia and Malaysia lost 10.9% and 7.5%, respectively (proxied by their respective Morningstar indexes in U.S.-dollar terms).

The U.S. dollar appreciated strongly in June (the ICE Spot Index gained 2.9%). The Euro and Asian currencies generally depreciated against the greenback. The Chinese Yuan weakened 1.6% against the U.S. dollar, narrowing its year-to-date gains at 1.2%. In the first half of 2021, the Japanese Yen and the Thai Baht were the weakest amongst the Asian currencies, depreciating 7.0% and 6.5%, respectively, against the greenback.

Precious metals’ performance was weak in June. Gold, platinum and silver prices fell 7%-9%. The first half of 2021 was a volatile period for precious metal prices. Year-to-date returns through end June registered at -6.6%, +5.0% and -2.7% for gold, platinum and silver prices respectively.

June 2021 Major Market Index

 

Economic and Market News

Rate Hikes in Russia and Brazil and more to come; U.S. Fed Raises Inflation Projection and Pencils in Rate Hike in 2023

  • Russia Hikes Rates by 50bps – On 11 June, the Bank of Russia raised its key interest rate by 50bps to 5.50%. This marked the third hike this year, following a 50bps increase in April and 25bps increase in March.The Bank stated that “This [Increased inflationary pressure] creates the necessity of further increases in the key rate at the upcoming meetings.”
  • Brazil Hikes Rates by 75bps – On 16 June, the central bank of Brazil raised the Selic rate by 75bps to 4.25%. This marked the third 75bps hike this year, following those in May and March.The Bank stated that “for the next meeting, the Committee foresees the continuation of the monetary normalization process with another adjustment of the same magnitude.”
  • Fed Raises Inflation Projection and Pencils in Rate Hike in 2013 – According to the FOMC’s Summary of Economic Projections published on 16 June, the median projection on Personal Consumption Expenditure inflation for 2021 was raised to 3.4% in June from March projection of 2.4%. The median projection of the federal funds rate for 2023 was raised to 0.6% from March’s projection of 0.1%.

 

China Economic Data: Inflation at 1.3%; Caixin/Markit PMI Fell Steeper than Official PMI

  • CPI inflation came in at 1.3% in May, up from 0.9% in April.
  • In June, both the Caixin/Markit PMI and official PMI fell. The Caixin/Markit PMI reading fell to 51.3 in June. This compares to the reading of 52.0 in May. The official PMI in June fell to 50.9, down slightly from May’s reading of 51.0.

 

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Jackie Choy, CFA  is the Director of ETF Research for Morningstar Investment Management Asia

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