China/Hong Kong

Hong Kong stocks rose for the week fueled by the easing measures agreed in the euro area and the end-of-June EU summit, along with another round of rate cuts in China. The Chinese bourses also edged up but with volatility.

The People’s Bank of China announced a second rate cut shortly after the one in June. The policy rate cuts are asymmetric with the one-year lending and deposit rates down 31 and 25 basis points respectively. The discount banks can offer on loans was broadened to 30 percent. Investors expect a weaker growth in the second quarter given a rate cut prior to GDP announcement.

Guangzhou, effective this week, has limited the number of new passenger vehicles to ease congestion. Auto stocks fell on the news. On a positive note, the official purchasing managers index (PMI), an indicator for the economic health of the manufacturing sector, fell to 50.2 in June from 50.4 in May, compared with the market consensus of 49.9. A final HSBC PMI reading was better than the preliminary figures.

India

India’s stock market rose amid announced favorable measures announced by Prime Minister Manmohan Singh to spur investment. Market sentiment revived in the hope of a speed-up of government reform. Positive news in the euro area and EU summit also helped improve sentiment.

The Central Board of Direct Taxes proposed exempting foreign institutional investors who refrain from using tax shelters such as Mauritius to invest in India from the new rules, Bloomberg cited from an emailed statement. A strengthened rupee is helping corporate earnings, which were eroded by foreign exchange losses.

A stronger currency has also eased inflationary pressure as the country imports a significant percentage of oil. However this year’s monsoons, which have a strong correlation with agricultural growth, could add to uncertainty on growth as it had an unfavorable start with cumulative rainfall between June 1 and 20 being 26 percent below normal amounts.

Brazil

Key data points in the week ahead include the Chinese second quarter GDP release and Brazilian retail sales numbers. The monetary policy committee of Banco Central do Brasil will meet to set interest rates and Mirae Asset expects a further 50 basis points easing, taking the Selic base rate to 8 percent.

Whilst European politicians haven’t agreed on the potential for debt mutualization and/or monetization, the measures announced at the EU summit offer support to markets and temporary relief for key indebted sovereigns. U.S. economic data have been disappointing over the past two months, with the recently-released non-farm payrolls being below expectations. A sequence of weak data would raise the chances of increased quantitative easing within the third quarter.

Brazilian equities remain out of favor as the second-quarter earnings season begins. Consensus points towards weak or negative earnings growth for the energy, financials, materials and real estate sectors, though recent share price action has largely priced this in.

In the event of a stabilization of global markets, Brazil is expected to outperform, given Mirae Asset’s forecast of acceleration in GDP in the second half, controlled inflation, the recent currency sell-off and material monetary easing.

This report was provided by Mirae Asset Global Investments.