Download Asia Pacific market background May 2016

Asia Pacific Market Background
May 2016
Global Asset Allocation Team
Prepared by Aon Hewitt
Retirement and Investment
Economic Update & Equities


Global equities rose over the month. Although equities fell
initially due to weak Chinese manufacturing data and mixed
corporate earnings reports, they rallied towards the end of the

month on encouraging US economic data and a continuation of
the commodity rally. Expectations for an interest rate rise by the
US Federal Reserve (Fed) in the summer strengthened. The
MSCI AC World Index rose 1.5% in local currency terms.
higher, despite the central bank’s Financial Stability Report
indicating increasing risks in the housing and dairy sectors.
Asia Pacific economic update: Economic data had a mixed

tone in May. Chinese manufacturing and trade data was
disappointing. The Japanese economy grew by more than
expected in Q1, at an annualized quarterly rate of 1.7% (since
revised up to 1.9%), reversing a contraction in the previous
quarter and avoiding a technical recession. The Reserve Bank of
Australia (RBA) cut its cash rate by 25bps to 1.75%.

Chinese equities were put under pressure over the month due to
continuing concern over the country’s high debt levels and weak
economic data. However, the possible inclusion of mainland
shares in the MSCI Emerging Market Index helped in limiting
losses. Hong Kong equities fell as Q1 2016 GDP growth
contracted unexpectedly.
Equities: total returns (local currency) May 2016
New
Australia Zealand
2.8%
3.1%

Source: MSCI
China Hong
-0.6% Kong
Singapore
-0.7%
-2.1%
Taiwan
2.9%
India
3.3% Japan
2.6%
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Korean equity returns were fairly flat, with manufacturing
showing some improvement, while sluggish global demand
dragged down exports. Taiwanese equity performance was
strong as stocks of Apple suppliers rallied on expectations of
increased demand. However, economic data continued to
disappoint.

Indian equities were the best performing in the region, supported
by better earnings reports towards the end of the month and
state elections indicating increasing support for Prime Minister
Narendra Modi’s party.

Japanese equities performed well, driven by better than
expected Q1 2016 GDP data and a weaker yen, which boosted
exporters’ shares. Speculation over additional monetary policy
easing also picked up.
S Korea
-0.3%
Australian equities rose, supported by easing moves by the
RBA, rising commodity prices, and the announcement of an
expansionary budget. New Zealand equities performed well as
materials, healthcare and utilities sectors drove stocks
Singapore was the worst performing Asia Pacific market as
equities fell sharply early in the month, driven by the continuing
contraction in manufacturing. However, Q1 2016 GDP was
revised upwards and industrial production was better than
expected.
Government Bonds & Currencies






Global government bond yields fell initially over the month
before reversing later as encouraging economic data
strengthened the case for an earlier interest rate rise by the Fed,
fueling the broad trade-weighted US dollar higher. All Asia Pacific
currencies fell against the US dollar in May.
Australian bond yields fell and the Australian dollar depreciated
sharply as the RBA cut interest rates and slashed inflation
forecasts, which increased expectations for further rate cuts. New
Zealand bond yields and the New Zealand dollar fell following
regional trends.
The Chinese yuan fell in a month during which the People’s Bank
of China set its daily reference rate at the lowest level in 5 years,
triggering capital outflows. The Singapore dollar continued to fall
following easing by the Monetary Authority of Singapore last
month.
Government Bonds: total returns
(local currency) - May 2016
Australia
1.5%
New Zealand
0.8%
China
0.2%
Singapore
-0.7%
NZD
-3.2%
AUD
-5.1%
Source: Datastream
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Japan
0.4%
Taiwan
-0.1%
Currencies: returns (USD per local) May 2016
Indian bond yields rose marginally with higher than expected
inflation data while the Indian rupee fell due to broad US dollar
strength.
All currency comments are versus USD and all bond comments
refer to sovereign bonds.
S Korea
0.0%
India
0.5%
Sources: Citigroup, JPMorgan, Datastream
South Korean bond returns were flat while the won was driven
lower by expectations of an interest rate cut by the Bank of Korea
and increased chances of an interest rate hike by the Fed.
Japanese bond yields trended lower over expectations of further
monetary easing by the Bank of Japan and the yen weakened
over the month after strengthening over the past five months.
Hong
Kong
0.1%
CNY*
SGD* -1.5%
-2.4%
HKD*
-0.1% TWD*
-1.1%
INR*
-1.4%
KRW*
-4.4%
JPY
-3.5%
*Managed float currency regime
Historic Returns
Equity returns (local currency)
Australia
Quarter-to-date
Year-to-date
12-month
3-year (annualised)
New Zealand
6.6%
3.0%
-3.6%
7.2%
5.0%
15.9%
22.7%
14.7%
Singapore
-1.7%
-1.9%
-14.6%
-2.2%
China
-0.8%
-5.5%
-28.2%
0.8%
Hong Kong
0.2%
-0.3%
-13.8%
3.5%
Taiwan
S Korea
-2.4%
3.0%
-9.5%
5.5%
India
-1.1%
1.5%
-4.1%
-1.1%
Japan
4.0%
1.5%
-2.5%
10.5%
2.2%
-10.6%
-17.7%
7.8%
Government Bond returns (local currency)
Australia
Quarter-to-date
Year-to-date
12-month
3-year (annualised)
New Zealand
1.6%
4.1%
5.0%
5.5%
1.2%
5.1%
7.9%
5.3%
Singapore
-1.5%
3.1%
3.6%
1.9%
China
-0.3%
1.0%
6.1%
4.6%
Hong Kong
Taiwan
-0.1%
1.1%
1.9%
1.5%
S Korea
0.0%
2.8%
7.5%
3.2%
India
0.2%
2.7%
6.0%
6.0%
Japan
1.7%
4.7%
9.4%
8.0%
1.6%
6.3%
8.5%
4.7%
Currency returns (USD per local)
Australia
Quarter-to-date
Year-to-date
12-month
3-year (annualised)
-5.8%
-0.4%
-5.4%
-8.9%
New Zealand
-2.6%
-1.2%
-4.9%
-5.3%
Singapore
-2.2%
3.0%
-2.0%
-2.8%
China
-1.9%
-1.3%
-5.8%
-2.3%
Hong Kong
-0.1%
-0.2%
-0.2%
0.0%
Taiwan
-1.3%
0.7%
-5.9%
-2.8%
S Korea
-4.0%
-1.6%
-7.0%
-1.8%
India
Japan
-1.6%
-1.7%
-5.1%
-5.7%
1.3%
8.5%
11.9%
-3.1%
Source: Datastream
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15 June 2016
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Aon Hewitt | Retirement and Investment
15 June 2016
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.