Asia ETF Roundup (Market) – July 2022

U.S. hikes rates by another 75bps; ECB hikes rates by 50bps.

Jackie Choy, CFA 04 August, 2022 | 8:00
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For the latest ETF industry news, please refer to our “Asia ETF Roundup (Industry) – July 2022”.

Major Markets Performance

Interest rate hikes remain the key focus in the market in July. The European Central Bank hiked rates by 50 bps, lifting their deposit rate out of negative territory for the first time since 2014. The U.S. Fed also announced another 75-bps rate hike. After a tough first half of 2022, many developed markets finished in the positive in July. The Morningstar Developed Markets Index climbed up by 8.0%. Performance in the emerging equity markets was mixed. Equity markets in India and Brazil rose 9.2% and 5.7%, respectively, proxied by their respective Morningstar indices in U.S. dollar. On the other hand, the Morningstar Pakistan Index plummeted 17.2%, where the Pakistan’s Rupee fell 14% in July. The Morningstar China Index also dipped 9.0% in July.

The U.S. dollar appreciated 1.2% in July as measured by the ICE Spot Index. The Euro depreciated 2.5% against the U.S. dollar. Asian Currencies generally depreciated against the greenback. Thai Baht fell 4.0%. The Chinese Yuan weakened a further 0.6% against the U.S. dollar, putting its year-to-date depreciation to 5.4%.

Precious metals’ performance continued its weakness from the previous month. Gold, platinum and silver fell anywhere from 2% to 4%.

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Economic and Market News

Rate Hikes: U.S. Fed Hikes Rates by another 75bps, ECB Hikes Rates by 50bps

  • U.S. Fed Hikes Rates by 75bps – On 28 July, the U.S Fed announced to raise its federal funds rate by another 75bps, putting the target range at 2.25% - 2.50%. In total, the U.S. Fed has raised rates by 225bps since March 2022.  
  • ECB Hikes Rates by 50bps – On 21 July, the European Central Bank announced to raise its three key interest rates by 50bps, placing them at 0.00%-0.75%. The rate hikes seek to stabilize the medium-term inflation rate at 2 percent. The Governing Council stated that “At the Governing Council’s upcoming meetings, further normalisation of interest rates will be appropriate…… The Governing Council’s future policy rate path will continue to be data-dependent and will help to deliver on its 2% inflation target over the medium term.”
  • Other Rate Hikes Around the World – Several central banks around the world also raised interest rates in July. Examples include Australia (+50bps), Canada (+100bps), Malaysia (+25bps), New Zealand (+50bps), the Philippines (+75bps), and South Korea (+50bps).

Sri Lanka Prime Minister Declares Nation Now “Bankrupt”

On 5 July, Sri Lanka’s Prime Minister Ranil Wickremesinghe declared the country is “bankrupt.” According to various news reports, a report on debt restructuring and sustainability will be submitted to the International Monetary Fund by August. 

China Economic Data: Q2 GDP Growth Slowed to 0.4%; Inflation Climbed to 2.5% in June; Caixin/Markit PMI Fell in July and Official PMI Back in Contraction Territory

  • China posted second quarter GDP growth of 0.4% YoY, the weakest performance since Q1 2020. This is compared to the 4.8% GDP growth in Q1 2022. Cumulatively, GDP grew by 2.5% YoY in the first half of 2022, far below the 5.5% annual target set by the government.
  • Inflation climbed to 2.5% in June. This is compared to the reading of 2.1% in May and is the highest reading since July 2020.
  • China’s Caixin/Markit PMI narrowed to 50.4 in July from 51.7 in June. The official PMI also fell to 49.0 in July, from June’s reading of 50.2, back in the contraction territory.

 

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About Author

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

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