Those that thought this Monday may be a relatively news-light day were awoken to the rumbling of an apparent North Korean nuclear test – so far, the reverberations have proven quite muted across the region’s markets and beyond. Apart from the latest political machinations of one of the last pariah states the US has seemed unable to relate to, it has felt very quiet out there, with the absence of any immediate financial catastrophes. Much of the investment management community is off today, with public holidays across the UK and US. The weekend press was focused on talk of “decoupling v.2” – as Asian economies continue to recover with great strength and the China story starts taking on a different, demand-driven chapter. However, there is also a lot of caution surrounding the emerging market strength we have seen with the turn of oil (still trading above $60) pushing Middle Eastern markets in particular higher. Asia and the Middle East, as well as Latin America, are clearly capable of moving away from the financial mess that the US has sneezed upon them, but are still very susceptible to the continued de-leveraging process that has taken hold of the western consumer. Furthermore, any significant changes in China must be tempered with the “dose-of-salt” manipulation of official GDP figures and other releases.
Asia fared well today despite a distinct lack of liquidity and international flow. Japan has shrugged off shock at its -4% GDP QoQ contraction announced last week as investors take heart from improved manufacturing numbers (first increase since September 2008) and put faith in the-worst-is-over theory. Hong Kong and China both only slightly up (+.4%, +0.3%) as North Korea concern is replaced with gains from commodity plays. An impressive performance from Vietnam has not gone unnoticed by some of the more adventurous investors out there (on good news surrounding inflation coming under control and a link with Japan on treasuries) – the market there now returning close to +34% YTD.
With no US markets today there is little direction for Europe to latch-onto, with those majors that are trading posting losses avg -1%.
Oil and Gold maintain their commodity resurgence, with Oil still above $60/brl and Gold doing well above $952/oz – the commodity story is behind much of the rally in the last few day across those emerging markets skewed to the supply side. Also some article this past weekend suggesting we are in the midst of another timely oil-price-spike, leaning on some quotations by Al-Naimi that after every significant fall in price investment and research and development fall to levels that leave suppliers unprepared for the inevitable return of demand.
One observation over the weekend – the criticism of the UAE’s u-turn over the GCC central bank and monetary policy debacle as scrutinised in the foreign press seemed to understand clearly the point that the UAE felt slightly undone by the show of force by Saudi – but it has been long known that the likes of Qatar and Dubai are hoping to become the region’s major financial centre. What some don’t understand is why the UAE is making such a fuss when clearly the region’s financial hub is not always where a region’s central bank is – the ECB is not Europe’s major financial hub now is it? London has continued to provide the most attractive location for international fund managers and the like, so why would it be assumed immediately that Riyadh would take the mantle? – smacks of an excuse to simply delay even further a monetary association that has never looked particularly likely anyway.
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