The Hindu Business Line : Asia may look at fundamentals; earnings mostly over

Asian markets will take cues from the Federal Reserve policy meeting, the quarterly US Treasury refunding and a set of data pertaining to inflation and labour costs of the country that imports the maximum of goods. The week was a forgettable one for Asia as only seven out of 28 major indices ended with gains.

Annual revisions showed that the US economy contracted in the fourth quarter of 2007, falling 0.2 per cent for the first drop in real gross domestic product since the recession of 2001.

As the new week unfolds, the behaviour of crude oil prices and the US stock market is also prone to remain in the spotlight, influencing the degree of demand or aversion for Asian equities. Crude oil has stayed around $120-130 a barrel but is expected to fall further as US demand is expected to slow down.

With earnings season in the last leg at US and also in major Asian countries, US-centric fundamentals such as oil, GDP, employment data have grabbed more investor focus.

Stocks weakening

Non-farm payrolls fell by 51,000 in July, the seventh straight month in July, while the unemployment rate jumped to 5.7 per cent, a four-year high. The US Commerce Department also reported on Friday that building activity declined in June, while the Institute for Supply Management said manufacturing activity was flat.

However, like always US stocks pulled back after reports came out, while Asia went down and stayed put generally.

“Every market in world has weakened more than US, including China,” Goldman Sachs Chief Global Economist, Mr Jim O’Neill, wrote in a report indicating that the severity of the economic downturn has been felt more sharply in other countries.

He added that while some of big emerging markets were very expensive relative to rest of world last year, this is not the case any more.

That argument is reflected in weekly funds flow data gathered by EPFR Global.

Asia focus

While the overall emerging markets equity funds posted outflows for the seventh time in eight weeks, Asia is been given a fresh look even as Europe, West Asia, Africa (EMEA) and Latin America funds witnessed outflows. “Appetite for exposure to the bigger individual markets was again the main driver of flows into Asia ex-Japan Equity Funds, with China Equity Funds absorbing a net $476 million for the week ending July 30 and India Equity Funds accounting for another $117 million,” Mr Cameron Brandt, global markets analyst, EPFR said.

His data shows that the outflow streaks from Latin America and EMEA Equity Funds now stand at eight and five weeks respectively as investors worry about the impact of slowing global growth on the demand for the commodities these regions export. Investors will sift through weekly raft of economic data from the United States and around the world, and what it meant for the currency, debt and equity markets.

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