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19 May 2014
Asia EM Express: Indian stocks and the rupee boosted by Narendra Modi's election victory
FXStreet (Łódź) - The decisive victory of Narendra Modi's Hindu nationalist Bharatiya Janata Party, which won 61% of seats in parliament, boosted Indian stocks on Monday, while the rupee strengthened by 0.5% to a 11-month high of 58.47.
The BSE Sensex climbed 0.6% to 24,266.55 at midday in Mumbai, while the NSE Nifty Index also grew by 0.6% to a record high of 7,243.70. In the MSCI Emerging Markets nine of the top ten best performing stocks were Indian.
Greg Gibbs from RBS believes that despite a considerable degree of uncertainty still surrounding the outlook for India “there is enormous potential and considerable optimism” that the new Modi-led BJP-coalition, “could herald the awakening of a sleeping giant.”
“The market sees Modi as an economic reformer encouraged by his relatively strong performance as governor of the state of Gujarat since 2001. It is looking for him to simplify rules and unleash much-needed infrastructure investment, which could propel growth well above the levels of recent years. At a time when Chinese growth is now facing headwinds and other larger emerging (BRIC) economies are struggling, India is likely to be a focal point of global investors for the coming years.”
Economic data
On Friday Hongkong and Malaysia released GDP growth data. On a quarterly basis Hong Kong's GDP rose 0.2% in Q1, down from the 0.9% increase in Q4 and below expectations of +0.5%. Year-on-year GDP climbed 2.5%, following 2.9% growth.
Malaysia's annual GDP surprised to the upside, rising 6.2% in Q1, following a 5.1% increase the previous quarter and beating expectations of +5.5%.
According to Nomura's analysts Euben Paracuelles and Lavanya Venkateswaran, "this solid Q1 GDP print confirms the more positive growth assessment made by BNM at its 8 May meeting, in which the official policy statement noted that growth momentum for this year is likely to be 'sustained', while headline inflation should stay above its 'long-run average'.” Therefore, Euben Paracuelles and Lavanya Venkateswaran forecast "BNM to hike by a total 50bp in H2 2014, with the first rate hike expected at the next policy meeting on 10 July.”
Year-on-year Thai GDP, published on Sunday, showed a 0.6% drop in Q1, compared to the 0.6% growth recorded the previous quarter and above consensus of a 2.2% fall.
Euben Paracuelles and Lavanya Venkateswaran point out that "given this weak Q1 GDP print, the National Economic and Social Development Board (NESDB) has lowered its 2014 GDP growth forecast to 1.5-2.5% from 3-4%. This follows the Ministry of Finance‟s March reduction of 2014 GDP to 2.6% from 3.1%.”
China's annual House Price Index increased 6.7% in April, a notch less than the 7.7% rise seen in March. New home prices grew in only 44 of the 70 cities surveyed, while the sales volume dropped by 18% on a monthly basis.
Prakash Sakpal from ING comments: “We think the softness in new house prices is squeezing the market’s speculative elements. We also think strong fundamental demand will prevent widespread property price collapses and, if required, the authorities will resort to macroprudential easing at the local levels.”
Technicals
The Indian currency hit a fresh 11-month high on Monday against the greenback, climbing 32 paise to 58.47. On Friday the rupee grew 50 paise to 58.79 at the Friday close.
On Friday the USD/INR daily FXStreet Trend Index was slightly bearish, with the OB/OS Index oversold. RSI was at 22 at the last close, and has risen to 43 so far today. Daily 2-StDev Volatility Bandwidth was expanding at 5951 pips, with ATR (14) expanding at 4832 pips. The 1D 200 SMA was at 61.9335, while the 1D 20 EMA was at 59.9254.
Greg Gibbs from RBS suggests that “capital will continue to flow towards India and further strengthening is likely even in the short term, potentially driving the USD/INR towards 57.50.”
The BSE Sensex climbed 0.6% to 24,266.55 at midday in Mumbai, while the NSE Nifty Index also grew by 0.6% to a record high of 7,243.70. In the MSCI Emerging Markets nine of the top ten best performing stocks were Indian.
Greg Gibbs from RBS believes that despite a considerable degree of uncertainty still surrounding the outlook for India “there is enormous potential and considerable optimism” that the new Modi-led BJP-coalition, “could herald the awakening of a sleeping giant.”
“The market sees Modi as an economic reformer encouraged by his relatively strong performance as governor of the state of Gujarat since 2001. It is looking for him to simplify rules and unleash much-needed infrastructure investment, which could propel growth well above the levels of recent years. At a time when Chinese growth is now facing headwinds and other larger emerging (BRIC) economies are struggling, India is likely to be a focal point of global investors for the coming years.”
Economic data
On Friday Hongkong and Malaysia released GDP growth data. On a quarterly basis Hong Kong's GDP rose 0.2% in Q1, down from the 0.9% increase in Q4 and below expectations of +0.5%. Year-on-year GDP climbed 2.5%, following 2.9% growth.
Malaysia's annual GDP surprised to the upside, rising 6.2% in Q1, following a 5.1% increase the previous quarter and beating expectations of +5.5%.
According to Nomura's analysts Euben Paracuelles and Lavanya Venkateswaran, "this solid Q1 GDP print confirms the more positive growth assessment made by BNM at its 8 May meeting, in which the official policy statement noted that growth momentum for this year is likely to be 'sustained', while headline inflation should stay above its 'long-run average'.” Therefore, Euben Paracuelles and Lavanya Venkateswaran forecast "BNM to hike by a total 50bp in H2 2014, with the first rate hike expected at the next policy meeting on 10 July.”
Year-on-year Thai GDP, published on Sunday, showed a 0.6% drop in Q1, compared to the 0.6% growth recorded the previous quarter and above consensus of a 2.2% fall.
Euben Paracuelles and Lavanya Venkateswaran point out that "given this weak Q1 GDP print, the National Economic and Social Development Board (NESDB) has lowered its 2014 GDP growth forecast to 1.5-2.5% from 3-4%. This follows the Ministry of Finance‟s March reduction of 2014 GDP to 2.6% from 3.1%.”
China's annual House Price Index increased 6.7% in April, a notch less than the 7.7% rise seen in March. New home prices grew in only 44 of the 70 cities surveyed, while the sales volume dropped by 18% on a monthly basis.
Prakash Sakpal from ING comments: “We think the softness in new house prices is squeezing the market’s speculative elements. We also think strong fundamental demand will prevent widespread property price collapses and, if required, the authorities will resort to macroprudential easing at the local levels.”
Technicals
The Indian currency hit a fresh 11-month high on Monday against the greenback, climbing 32 paise to 58.47. On Friday the rupee grew 50 paise to 58.79 at the Friday close.
On Friday the USD/INR daily FXStreet Trend Index was slightly bearish, with the OB/OS Index oversold. RSI was at 22 at the last close, and has risen to 43 so far today. Daily 2-StDev Volatility Bandwidth was expanding at 5951 pips, with ATR (14) expanding at 4832 pips. The 1D 200 SMA was at 61.9335, while the 1D 20 EMA was at 59.9254.
Greg Gibbs from RBS suggests that “capital will continue to flow towards India and further strengthening is likely even in the short term, potentially driving the USD/INR towards 57.50.”