CFA Institute Financial NewsBrief: Asia Pacific Edition

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January 16, 2013

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Consumers underpin U.S. economy as retail sales rise in December
U.S. retail sales finished December with a 0.5% gain, boding well for the economy heading into a new year. The largest sales gain in three months came as wholesale prices moderated, both factors that could help counterbalance higher taxes. All in all, "it looks like households are saving us from a lot worse outcome for the economy," said Jonathan Basile, a U.S. economist at Credit Suisse in New York. Bloomberg (1/15)

U.S. Fed chief scolds Congress over debt-limit debate


Bernanke/Reuters

Drawing a distinction between increasing the U.S. debt cap and launching new spending, Federal Reserve Chairman Ben Bernanke declared it is "very, very important that Congress takes the necessary action to raise the debt ceiling to avoid a situation where our government doesn't pay its bills." In remarks at the University of Michigan, Bernanke compared congressional posturing over the debt limit to a family weighing whether to stop paying bills as a way to improve its credit rating. The Sydney Morning Herald (Australia)/Reuters (1/15)

German economy likely shrank in 4th quarter
Although the German economy probably contracted 0.5% in the fourth quarter, growth is expected to resume in the current period and thus avoid a recession, the Bundesbank predicts. Meanwhile, the Federal Statistics Office said full-year growth clocked in at 0.7%, down sharply from 3% in 2011. Bloomberg Businessweek (1/15)

Eurozone records surprising growth in trade surplus
The eurozone's trade surplus more than doubled in November from a year before at €13.7 billion. The surprisingly strong result came on a gain in exports and a decline in imports and suggested new vigor in a regional economy that nonetheless remains mired in recession. RTT News (1/15)

Fitch says eurozone looking up, U.S. looking uncertain


Reuters

While warning that much more remains to be done, Fitch now says the eurozone debt crisis has come through its worst patch. However, across the Atlantic, Fitch said the U.S. risks losing its AAA credit rating if Congress fails in yet another self-imposed crisis and refuses to raise the debt ceiling. The Economic Times (India)/The Associated Press (1/15) , Reuters (1/15)

Struggling Spain sees progress on inflation
In one bit of good news amid Spain's severe two-year austerity-driven contraction, inflation eased last month to 2.1% from 2.3% in November. Retail sales in November were down 7.8% after a 9.7% decline in October. Bloomberg Businessweek (1/15)

China: Unusually strong December export numbers are legitimate
Questions raised about China's unexpectedly strong 14.1% officially reported export growth in December are unjustified, authorities said. "Customs import and export statistics are based upon actual customs declarations. In our published export and import data, every dollar has a corresponding customs declaration document to back it," the General Administration of Customs said in response to queries by Bloomberg News. Bloomberg (1/15)

U.K. inflation remains stubbornly above target rate
U.K. inflation remained well above the Bank of England's 2% target last month, at 2.7% for the third consecutive month. Looking ahead, "inflation will rise above 3% over the coming months, which we expect to reduce the [central bank Monetary Policy Committee's] appetite for further [quantitative] easing," said Victoria Clarke, an economist at Investec. The Telegraph (London) (tiered subscription model) (1/15)

Royal Bank of Scotland may face Libor fine of $803 million
Royal Bank of Scotland is preparing to be tagged with a fine exceeding that for Barclays in connection with Libor manipulation, sources say, with the total still being determined by U.S. and U.K. authorities coming to as much as $803 million. That would, however, be short of the $1.5 billion assessed against UBS. Reuters (1/15)

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Market Activities

INTERNATIONAL MARKETS OVERVIEW
The debt-cap debate in the U.S. and concerns over European growth kept a lid on European shares Tuesday, with the Stoxx Europe 600 ending the day virtually unchanged at 285.97. In the U.S., more caution ahead of corporate earnings reports later in the week left stocks mixed on low trading volume. The S&P 500 inched up 0.11% to 1,472.34. Here is a continuously updated list of global stock indexes. The Wall Street Journal (1/16) , The Wall Street Journal (1/15) , CNNMoney (1/15)

Asian stocks drift lower
Profit-taking and jitters over the unresolved U.S. debt-ceiling debate helped drive Asian markets lower Tuesday with the exception of Japan, where the Nikkei extended recent strong gains with a rise of 0.72% to 10,879.08. Elsewhere, the Hang Seng was down 0.14% to 23,381.51, the Kospi lost 1.16% to 1,983.74 and the S&P/ASX edged down 0.07% to 4,716.60. MarketWatch (1/15)

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Economic Trends & Outlook

Chinese regulator pledges support for "reasonable" credit demand


Reuters

Amid rising concern over credit risk in China, particularly that relating to local government borrowing, the China Banking Regulatory Commission says it will back "reasonable" credit demands this year from local governments, including those for major ongoing construction projects. Analysts, however, say they worry about looser credit rules that stem from Beijing's efforts to lift the nation's economy. China Daily (Beijing) (1/15)

Report: Emerging markets to form backbone of global growth in 2013
A new report lends support to the thesis that the world economy this year will be led by emerging markets, in particular with signs that China's economy is rebounding. Vigor in domestic economies supported by a growing middle class is seen as a fundamental strength across these markets, while manufacturing cost advantages remain in Asia, notes the 2013 International Outlook report by Columbia Management and Threadneedle. Business World (Philippines)/Reuters (1/16)

South Korean households fall behind in national income share
South Korea's struggling households aren't keeping pace with overall growth in national income, the Bank of Korea reports. In fact, households' share of total income fell 8.9 percentage points between 1995 and 2011, twice the decline reported on average for members of the Organization for Economic Cooperation and Development. The Korea Herald (Seoul) (1/15)

Coordination of fiscal, monetary policies is urged for South Korea
In an echo of remarks by Bank of Korea Governor Kim Choong-soo earlier this week, a member of the central bank's rate-setting committee called for coordination between South Korea's fiscal and monetary policies. The panel's December meeting minutes revealed the comment, which paralleled Kim's observation Monday that monetary and fiscal policies that work together enhance each other. Yonhap News Agency (South Korea) (1/15)

Capital Markets & Financial Products

Bigger QFII, RQFII quotas in China may be aimed at ETFs
China Securities Regulatory Commission Chairman Guo Shuqing's observation that China's QFII and RQFII quotas could be expanded as much as tenfold might mark the country's bid to raise daily liquidity in its stock markets for eventual admission to the MSCI Emerging Markets Index. Such a boost could open the way for huge emerging-market exchange-traded funds to raise their exposure in the Chinese market, analysts say. AsianInvestor.net (1/15)

Overseas investment assets in South Korea jump 20% in 2012
The safety of corporate bonds was the big draw that raised the total assets of overseas investment funds in South Korea 20% last year, according to the Korea Financial Investment Association. The assets of overseas bond funds nearly tripled from a year before to 5.75 trillion won while overseas stock funds were only steady at 22.39 trillion won. MK.co.kr (South Korea) (1/15)

South Korea plans nearly 80 trillion won in Treasury issues
South Korean Treasury issues this year are expected to equal the 79.7 trillion won issued in 2012, the finance ministry said. "Demand will remain robust centering on local major institutional investors, while sovereign rating upgrades, favorable fiscal soundness and macro fundamentals will also lead to a steady flow of foreign investment," the ministry predicted. Yonhap News Agency (South Korea) (1/15)

Taiwan regulator might loosen rules for bank exposure in China
Taiwan's local banks may get a break on their investment exposure to China as Taiwan's Financial Supervisory Commission weighs whether to ease its current rules. The commission is acting after recently noting a review was in order given preparations by domestic banks to expand their business in China. The Taipei Times (Taiwan) (1/16)

Sudden rise in bond yields may catch equity markets unprepared
An unlikely but not impossible jump in global bond yields above 4% this year could severely affect equity and commodity markets, which are not currently factoring in the possibility, analysts say. The consensus is that U.S. Treasury bonds are likely to rise in yield by no more that half a percentage point in 2013, but a small minority holds out the possibility of resurgent inflation that could change things rapidly. The Business Times (Singapore) (1/15)

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