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Trade and Financial Spillover on Hong Kong SAR from a Downturn in Europe and Mainland China
March 20, 2012--Summary: Hong Kong SAR was hit hard by the global financial crisis, which started out in the U.S. and spilled over to the rest of the world. Three years later, vulnerabilities in the euro area's financial system and concerns over a hard landing in Mainland China have started to weigh on Hong Kong’s growth prospects.
Against this backdrop, this paper aims to quantify the trade and financial spillovers on Hong Kong SAR’s economy from a downturn in the euro area and Mainland China. Based on simulations using a version of the Global Integrated Monetary and Fiscal (GIMF) model and a Global VAR (GVAR) that includes both balance sheet and standard macroeconomic indicators, Hong Kong SAR’s output growth could fall by as much as 1½ times the decline in euro area output growth given its high dependence on external trade and many links with the global financial system. A worsening of the crisis in the euro area could reduce Hong Kong SAR’s output by as much as 4-4½ percent below baseline during the first two years after the shock, pushing Hong Kong SAR back into recession and possible deflation. In the event of a hard landing in China, the model simulations suggest that Hong Kong SAR would be on a sustained downturn with output growth falling by about 3 percentage points below baseline in the first two years. Should these events materialize, countercyclical fiscal response could help cushion, but not fully offset, the impact of slower growth in the euro area or China.
DB-Equity Research-Asia-Pac ETF Market Weekly Review: ETP assets stand at 10% YTD growth
March 19, 2012-Market Review
Last week, all the major Asia-Pacific markets, except China, remained in positive territory. From north to south, Japan (Nikkei 225) gained 2.02%, Korea (KOSPI2) advanced by 1%, China (CSI 300) was down by 1.53%, Hong Kong (HSI) climbed 1.10%, Singapore (FSSTI) increased by 1.60%, and Australia (S&P/ASX 200) surged by 1.52% over the previous week.
New Launch Review
Last week, six new ETFs were launched in the Asia-Pacific region. Russell Investments listed three Fixed Income ETFs on Australian Securities Exchange tracking DBIQ 0-3 year Investment Grade Australian Corporate Bond Index, DBIQ 0-5 year Australian Semi-Government Bond Index and DBIQ 5-10 year Australian Government Bond Index respectively. BlackRock also listed three Fixed Income ETFs on the Australian Securities Exchange tracking UBS Treasury Index, UBS Government Inflation Index and UBS Composite Bond Index.
Turnover Review
Asia-Pacific ETP turnover totaled $6bn for the last week, 2.6% down from the previous week’s total. South Korea continues to be on top of the turnover ranking with $2bn, followed by China ($1.7bn), Hong Kong ($1.1bn), Japan ($0.7bn), and Taiwan ($0.2bn). Among Equity ETFs, Emerging Country, Asia Pac Developed Country, Leveraged Strategy, and Short Strategy ETFs had total turnover of $3bn, $1bn, $0.8bn and $0.6bn respectively. Under the Commodity asset class, turnover in Gold ETPs totaled $215m for the last week.
Assets Under Management Review
Last week, Asia-Pacific ETP AUM added $0.3bn and ended at $100.6bn. On a year to date basis, Asia-Pacific ETP market is up by $9.1bn or 10% above last year’s closing.
IMF Working paper-The Global Welfare Impact of China: Trade Integration and Technological Change
March 19, 2012--Summary: This paper evaluates the global welfare impact of China's trade integration and technological change in a quantitative Ricardian-Heckscher-Ohlin model implemented on 75 countries.
We simulate two alternative productivity growth scenarios: a "balanced" one in which China's productivity grows at the same rate in each sector, and an "unbalanced" one in which China’s comparative disadvantage sectors catch up disproportionately faster to the world productivity frontier. Contrary to a well-known conjecture (Samuelson, 2004), the large majority of countries in the sample, including the developed ones, experience an order of magnitude larger welfare gains when China’s productivity growth is biased towards its comparative disadvantage sectors.
We demonstrate both analytically and quantitatively that this finding is driven by the inherently multilateral nature of world trade. As a separate but related exercise we quantify the worldwide welfare gains from China’s trade integration.
ETF providers look to Asia for growth
March 18, 2012--Last month, when Hong Kong-based fund manager Enhanced Investment Products introduced its new range of exchange-traded funds on its local stock exchange, it hired a George W Bush impersonator to help with the launch. The message: "ETF investment is a no-brainer".
However, predicting the fortunes of the exchange-traded fund market in Asia and particularly synthetic products, which use swaps and other derivatives to replicate the index they track rather than buying the underlying shares, is far from straightforward.
BetaShares Australian High-Interest Cash ETF
March 17, 2012--THE BetaShares Australian High-Interest Cash ETF is an exchange-traded fund that gives investors exposure to a cash account.
The ETF (ASX code: AAA) is designed to generate a return that exceeds the 30-day bank-bill swap rate (after fees and expenses). The aim is to provide regular income distributions and high capital security, competing with term deposit rates. Based on present interest rates, the ETF's initial variable rate of return is 5.2 per cent. The BetaShares Australian High-Interest Cash ETF will invest in bank deposit accounts with one or more banks in Australia. Westpac is the initial primary holder of the money.
COSTS: The annual management fee is 0.18 per cent a year. Investors pay normal brokerage to buy or sell the ETF on the ASX.
Canara Robeco MF Introduces Canara Robeco Gold Exchange Traded Fund
March 16, 2012--Canara Robeco Mutual Fund has launched the New Fund Offer (NFO) Canara Robeco Gold Exchange Traded Fund, an open ended exchange traded fund.
The NFO opens and closes for subscription on March 16, 2012. No entry and exit load charges is applicable for the scheme.
The scheme will be benchmark against Domestic Price of Physical Gold. The minimum application amount is Rs 5000 and in multiples of Rs 1 thereafter.
The scheme will be managed by Akhil Mittal.
The investment objective of the scheme is to generate returns that are in line with the performance of gold, subject to tracking errors.
Hong Kong ETFs to Start Trading in China ‘Soon,’ Chan Says
March 15, 2012--China will allow exchange-traded funds of Hong Kong shares to trade on the mainland exchanges “soon,” Hong Kong’s Secretary for Financial Services and the Treasury K.C. Chan said.
The process of getting Hong Kong stocks to trade on the Shanghai and Shenzhen exchanges as ETFs is “almost near completion,” Chan said in an interview in New York yesterday. “The final step would be for the regulators in China” to review companies’ applications to start the funds.
Indian central bank keeps interest rate unchanged
March 15, 2012--India's central bank kept its key interest rate on hold Thursday, warning that inflation remains a risk despite slowing growth in Asia's third largest economy.
The Reserve Bank of India kept its short-term lending rate unchanged at 8.5 percent. The cash reserve ratio, which regulates the proportion of deposits banks must hold as reserves, was held at 4.75 percent. The bank slashed the reserve ratio by three quarters of a percentage point last week. The bank warned that high oil prices and India's growing budget deficit are adding to inflation pressures, even as a sluggish global economy, particularly in Europe, threatens growth. "Upside risks to inflation have increased from the recent surge in crude oil prices, fiscal slippage and rupee depreciation," the bank said in a statement. "Notwithstanding the deceleration in growth, inflation risks remain, which will influence both the timing and magnitude of future rate actions." The Reserve Bank hiked its key interest rate 13 times in a row before pausing in October, as the effects of monetary tightening began to be felt in the wider economy.
Mirae Asset Securities report- RMB: No longer attractive?
March 15, 2012--Prime Minister Wen Jiabao's comment that the RMB may be in its equilibrium triggered renewed market concern on a possible end of RMB appreciation. While it is true that the RMB has depreciated in nominal terms, it was only recently and it was only against the US dollar.
We believe that longer-term fundamentals still argue for RMB appreciation in real terms. Yet it depends on the pace of capital account liberalization in China. And appreciation in nominal terms could be contained as the Chinese government is more tolerant of higher inflation.
Chinese leaders seem to have been trying to anchor market expectation that RMB is no longer under appreciation pressures Prime Minister Wen Jiabao said yesterday that the RMB is possibly close to its equilibrium, renewing market speculation that RMB appreciation may have approached its end. Particularly, weakened exports, slowing FDI inflows, and recent hot money outflows have further raised market concerns that the recent RMB depreciation may persist.
But the depreciation was only recently and was only against the dollar Unlike 2009 when RMB appreciation totally paused against a sharp drop in exports, we still see an annualized appreciation of 5.7% in 4Q. For the past two weeks the RMB has depreciated, but it was mostly because of the stronger dollar, and the RMB still appreciated against other major currencies.
view RMB: No longer attractive? report
New Zealand-FMA to issue revised draft guidance note on effective disclosure in offer documents
March 14, 2012--The Financial Markets Authority will publish a revised draft of its guidance note by 2 April 2012 and invites further submissions from the market.
The first round of market consultation, completed 9 March, consisted of 30 stakeholder meetings. FMA also received over 60 written submissions and is now reviewing and carefully considering all feedback.
FMA CEO Sean Hughes said "We are impressed with the quality and depth of submissions received and considered to date. I think it's important to acknowledge the considerable care and time commitment undertaken by market participants and consumer groups involved in the consultation process.
"The revised guidance note will benefit from the feedback we've received and will be markedly different to the first draft.