PRIVATE EQUITY | Staff Reporter, Singapore

Asian equity markets hold up against the US

Lousy start for 2014, says analyst.

According to IG Asia, Asian markets are fighting back and not lagging behind developed markets, like what was seen last year.

Here's more from IG Asia:

As we come into the middle of January, it has been a lousy start to the year. The big news overnight was the Fed President of Atlanta Dennis Lockhart, a non-voting member, said that he supports tapering at the current rate, despite the disappointing hiring report.

The market took it as a sign that the Fed will not be altering its tapering program and we saw the US equities starting to go south. Adding to this, the concern that valuations are stretched. The intraday VIX overnight moved up above 13, from below 12. This is the biggest intraday move since the start of the year.

There is still room for improvement before we enter a fear territory, a lot will depend on earnings this week.

The negative we have been getting from US retailers is that they are struggling to meet sales targets such as Lululemon. This sends a signal that retail sales might not be as robust going forward.

The heavy promotions towards the end of last-year, which resulted with positive retail sales data, were mainly due to white goods and auto sales. The reliance on big ticket items could come to an end if Americans are skimming on unnecessary items.

This fundamental issue is putting investors on caution of the US market and limiting the ‘buy on dip’ mentality. The question is how much of an upside potential is there at this point?

Depending on which country, there are the outperformers (Taiwan, Jakarta Composite, Sensex and Philippine index) and underperformers (Shanghai composite, Nikkei and Kospi) year-to-date compared to the US indices. European equities have held up the best in comparison to the rests, most markets are holding on to a slight positive in the year-to-date return.

In general, there is an acceptance that China will slow grow to below 8% and India’s economic growth will be close to 5% at best. Economic development in Asia is not a direct correlation into the stronger equity markets.

The views investors have taken into account are forward projections and risk appetite as they play a bigger role in determining price movements.  

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