Asian Shares Slip, Though China Ekes Out Gain

Shares of China Eked Gains

Shares of China have eked out gains though most of the Asian markets have reviewed some of their latest rally, with traders assimilating weaker than expected trade data from the mainland. A market analyst at IG, Angus Nicholson had informed sources that plenty of the latest rally in stocks had been driven by major reversal or short covering in financials, materials as well as energy. However, he mentioned that momentum decreasing in the other sectors have now been falling in these sectors also.

The trade data of China that was released at about 10.30 a.m. SIN/HK time was also not positive for sentiments with the February exports dropping to 25.4% in terms of U.S. dollar, while imports fell by 13.8%, with the drops wider than anticipations. Since 2009, the decline in exports had been the largest on year drop according to Reuters.

 The Chinese markets ended higher with the Shanghai composite ending up 2.57, or 0.1% at 2,899.91 with the Shenzhen composite up 8.89 points or 0.51% at 1,750.56. Nicholson had noted that the foreign exchange reserves data of China, released overnight would probably have totally reassured markets around the prospect for further Yuan devaluation.

Official Data Released – Marked Fourth Straight Month of Decline

An official data released recently after the market close, portrayed foreign currency reserves on the mainland dropped to $3.2 trillion towards the end of February, declining from $3.23 trillion the earlier month, thus marking the fourth straight month of decline. However, the pace of outflows slackened substantially and the February figure was in line with analysts’ potentials portrayed in Reuter’s poll.Among other markets, benchmark of Japan, Nikkei 225 closed down 128.17 points or 0.76 percent at 16,783.15 extending Monday’s drop of 0.6%.

Reuters had reported revised government data, before the market opened, showing Japan’s economy had shrank at an annualized 1.1% in the final quarter of 2015 which was revised up from a initial reading of 1.4% contraction. Through the Korean Strait, the Kospi had closed down 11.75% or 0.60% at 1,946.12 while in Hong Kong; the Hang Seng index had closed down 148.14 points of 0.73% to 20,011.58.

Main Miners – Australia, Given up on Early Gains

The main miners in Australia had given up on early gains with Rio Tinto closing at 2.60% BHP Billiton less by 1.83% with iron ore producer Fortescue dropping 9.42% after surging almost 24% on Monday. Fortescue had announced before the market open that it had been in talks with Vale in order to work together to blend iron ore to meet up the demands of its consumers.

 According to the announcement there was a possibility of seeing the Brazilian miner take a 5-15% minority stake in Australian miner. On the other hand, Gold miners saw an uptick with the shares of Newscrest closing at 1.30% while Alacer Gold added 0.72%. HK/SIN time spot gold traded high at $1,269.57 for an ounce though below the Friday peak of $1,279.60, which was the highest since February 3, 2015 as of 3.13 p.m. U.S. gold for April delivery had gained overnight by 0.5% to $1,269.90 an ounce.

Suzuki Motor, Japanese automaker had closed at 3.76% after a report in the Nikkei stating that the company would issue 200 billion yen in zero-coupon convertible bonds, using most of the profits in spreading its setup in India.

What markets are really worried about

Dull Start for Global Stock Market

It has been a dull start for the global stock market this year and the first week has been described as the worst start ever, for Wall Street. During the first week of 2016, Frankfurt and Tokyo had dropped by double digit percentages while in New York the drop was 9% and in London 8%. However, China was the eye of the storm where the key index in Shanghai had lost 19% of its value during the same period.

The prices of commodity had also stumbled where crude oil prices for the first time in almost 12 years, had slipped to below $30 per barrel. Share prices, at times had followed oil downwards which is likely for shares of the companies in oil business. However, for the others it tends to reduce costs leaving consumers with more to spend on their products.

There seems to be a slowdown in emerging growth of the economies and China is an exceptional example though certainly not the only one. The instability had begun in the Chinese market, spreading all around the world.The Chinese stock market in itself does not seem to be the ultimate international issue.

Currency under Pressure

Though it is a serious issue for Chinese investors who had purchased shares while the prices were high, they have lost a good amount of money. However there are few of them to have a possible impact on consumer spending in China.

 There are also few foreign investors in Chinese market withthe possibility of serious losses inflicted beyond the country as direct significance. Besides the stock market, the currency, Yuan has also been under pressure and has lost its ground this year though not on the stock market scale. In the first week, the onshore, official rate dropped down by almost 2%. Some had indicated that there could be a possibility of the decline in the Yuan revolving into a full blown loss of confidence.

The financial market pressures on China are in portion at least an indication of the extensive and much discussed economic slowdown. Since the Chinese economy seemed to lose some space there has been some uncertainty on how well the authorities would handle the process. China would certainly need to slow to an added sustainable pace, but would the path tend to be a rocky one with an abrupt slowdown?

Significant But Catastrophic Slowdown in Growth

The official figures so far indicate a significant though not catastrophic slowdown in growth. According to official figures published, after three decades of 10% average growth, China seemed to slow down to 6.9% last year.The new assessment of the economic outlook of IMF tends to predict a further easing of the pace to about 6.3% this year and in 2017 around 6.0%. It records that China has experienced a faster than presumed slowdown in exports and imports, partially reflecting weaker investments as well as manufacturing activity. The apprehensions regarding economic outlook are not only over China. The new forecast of IMF, downgrades the outlook for the emerging as well as the developing countries and the ones which tend to stand out are Brazil and Russia. This is partly regarding the low prices of oil together with the other commodities as well as the political issues, external for Russia and domestic for Brazil. Besides, this there is also a substantial downgrade in the forecast for South Africa.

Emerging Market Infrastructure

Infrastructure in Emerging Market

On-going rebalancing in global economic power has given rise to unprecedented involvement in investment plans in infrastructure in the emerging markets. Though there are common drivers on infrastructure increase in emerging markets like the requirement of added infrastructure together with goals of sustaining the economic growth and managing the fast growing urbanisation, there is a vast difference in the environment and the challenges faced. While engaging in these opportunities, engineering and construction operations, infrastructure management companies, private materials and financial firms need to consider on –

• Who could be the right local and global infrastructure partners?

• What would be the differences in infrastructure in funding structures?

• How would the bid occur for mega projects?

• Are there any demands for green infrastructure?


For instance, as per PwC and Oxford Economics’ Capital Project and Infrastructure spending outlook to 2025 report, the Asian Pacific market, due to China’s growth is expected to represent around sixty percent by 2025 of the global infrastructure spending while Western Europe’s share is expected to decrease to less than 10% twice as from the last few years back. Infrastructure is defined in various emerging markets with provision to insights on goals, risks and opportunities, challenges that are connected with infrastructure developments in those markets, in PwC’s Emerging Markets Infrastructure Series.

Urbanization – Trend in Emerging Market 

Urbanization is the only trend in the emerging market which means that infrastructure needs to keep up with the pace. As the income tends to rise in several countries, there is a need to indulge in the purchase of cars and roads would tend to be used with the need to have new ones built.

 According to Magee, `in developing markets, private sectors tend to play an important role financially in roads, telecom and power plants and water as well as waste water investment would be critical. Water related companies tend to have a small part of infrastructure universe though are expected to become much more significant going ahead while in Europe, they are in the early stage of transforming power generation from coal. Germany on the other hand needs to make some headway since their nuclear power plant are closing, while China will have to gradually move away from coal incorporating cleaner energy sources from power generation’.

Country Risk/Infrastructure Risk

Emerging markets are about country risk while infrastructure risk is about not taking risk though in the case of infrastructure asset sector, there are provisions of investment and growth and the emerging markets are avenues where there is a great demand for infrastructure capital. Emerging market infrastructure investment does not have to carry the full country risk of the host nation. Sovereign risk is often under the coverage of sovereign risk insurance which is purchased in the commercial market or provided by International Financial Institute – IFI, like the World Bank or any other related global institution.

The net return on sovereign risk after the insurance premiums will exhaust the yield on the credit of the surety provider and when combined with structured project risk, on properly evaded investment, the net return would not probably reach 30% though it could almost reach 20% which according to an asset-based uncorrelated investment could be quite good. Those on the lookout for yield, emerging market infrastructure investment could be part of the solution and for those with global diversification; real assets could be another option to the various listed securities.