Commentary: Global bull market legs looking shaky

07 February 2014 10:15  [Source: ICB]

Triggering the rout in global equity markets was the HSBC China Manufacturing purchasing managers’ index (PMI) coming in below 50 for the first time in six months, indicating a contraction in activity (over 50 = expansion, under 50 = contraction). The January reading of 49.5 took out one leg underpinning the strong bull market witnessed throughout 2013. This is one of many factors to watch closely in 2014.

Another leg of the bull market is continuing growth in emerging market economies. This is looking increasingly shaky with currency instability leading to interest rate hikes in a number of countries. The much-touted BRICs (Brazil, Russia, India, China, South Africa) of the early 2000s have given way to the “Fragile Five” – Brazil, India, Indonesia, Turkey and South Africa.

These nations have hiked interest rates to stabilise their currencies and fight inflation. This will come at the expense of near-term economic growth.

And that is related to yet another leg – loose monetary policy. With the US Federal Reserve tapering its quantitative easing (QE) programme, emerging market economies hiking rates and China aiming to rein in its shadow banking system, the monetary tide is turning.

But on a positive note, the eurozone PMI of 52.9 in January was the highest in two and a half years.

By: Joseph Chang
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