Recap 2013: How equities, commodities, currencies performed

Riken Mehta

Follow me on Twitter @mehtariken 

After nearly a six-year wait, Indian equity benchmarks, the BSE 30-share Sensex and the NSE 50-share Nifty broke their record highs this year.  But that’s not it; 2013 saw a number of fresh multi-year record lows/highs both on the macro and investment front.

Despite FIIs investing USD 20 billion in 2013, the index returns for FIIs in dollar terms is negative at 3.91 percent primarily due to rupee depreciation. The year 2013 has been more stock and sector specific with IT, pharma and FMCG leading the list of winners.

Let’s take a look at how various asset classes fared in the year 2013.

Developed markets versus Emerging markets

As seen from the table, benchmark indices of US, UK and Japan have given handsome double digit returns so far this year. The momentum in these markets may continue as major indices of US (barring Nasdaq) and UK (barring CAC) are trading at life-high. Nikkei is trading close to its 6 year high. Emerging markets have posted negative or single digit positive returns this year, underperforming developed markets.














Commodities

Gold has posted its biggest annual loss since 1981 as investors shifted their money from safe haven asset class to risky asset class like equities on the back of strong economic growth in developed countries. Brent Crude remained in a narrow band of USD 95-115 per barrel.



















Currencies

The domestic currencies of the emerging markets depreciated substantially this year on fears of tapering by the US Federal Reserve. The rupee depreciated to a record low of 69 levels making it one of the worst performing Asian currencies this year. Japanese yen on the other hand weakened to a five-year low on the back of loose monetary policy to spur growth in the economy.











Indian Indices

Long developed market indices (US, UK, Japan), short gold is trade of 2013 so far

Riken Mehta

Follow me on Twitter @mehtariken 

Loose monetary policies by the central governments of major developed markets have made a substantial impact on various asset classes (equities, debts, commodities and currencies) around the globe this year. The major bond buying programs were aimed to kick start the struggling economy but made its way into risky assets like equities. The successful trade of 2013 so far is “long developed market equities, short bullion.”

As seen from the table, benchmark indices of US, UK and Japan have given handsome double digit returns so far this year. The momentum in these markets may continue as major indices of US (barring Nasdaq) and UK (barring CAC) are trading at life-high. Nikkei is trading close to its 5 ½ year high. Emerging markets have posted negative or single digit positive returns this year, underperforming developed markets.

Gold which was considered to be safe haven has lost its sheen (down 26%). Investors have dumped gold as US economy rebounds and the yellow metal is now trading merely 5 percent above its three-year low price touched earlier this year. Silver - more volatile than gold has lost 35% so far this year.

Developed Markets	US			UK			Japan
Indices	Dow Jones	NASDAQ	S&P 500	DAX	CAC	FTSE	Nikkei
YTD Returns%	22.59%	32.20%	26.54%	18.52%	14.59%	10.73%	43.91%

Emerging Markets	Brazil	Russia	India	China	Indonesia
Indices	Bovespa	RTS	Nifty	Shanghai	Jakarta
YTD Returns%	-13.37%	-5.37%	1.53%	-3.21%	0.03%

Bullion	Gold	Silver
YTD Returns%	-26.17%	-35.11%

How major stock markets react to news of Fed's taper talk

Riken Mehta 
moneycontrol.com 

Follow me on Twitter @mehtariken 
 
The US Federal Reserve has been the biggest spoilsport for bulls this calendar, repeatedly catching them off-guard with its comments on reducing the size of its monthly USD 85 billion bond purchases, also known as quantitative easing (QE). In theory, the bond purchases were meant to revive growth in the US economy by encouraging consumption and investment through easy money. In practice, huge dollops of those funds found their way equities and bonds in other countries, boosting their valuations. With a prospect of less global liquidity looming, investors are worried if the valuations can sustain.

A look at the timeline of the taper remarks and how key markets reacted to those.

Dates	Dow	Hang Seng	Nikkei	Shanghai
22-May	15307 (dn 0.5%)	22669 (dn 2.5%)	14483 (dn 7.3%)	2275 (dn 1.1%)
19-Jun	15112 (dn 1.3%)	20382 (dn 2.87%)	13014 (dn 1.74%)	2084 (dn 2.7%)
18-Sep	15676 (up 0.94%)	23502 (up 1.66%)	14766 (up 1.8%)	2221 (up 1.36%)
20-Nov	15900 (dn 0.41%)	23580 (dn 0.5%)	15365 (up 1.92%)	2205.77 (dn 0.04%)

May 22, 2013: Bernanke tells Congress Fed may reduce size of month bond purchases (QE) June 19, 2013: Bernanke says Fed will begin QE taper late 2013 and end it by mid 2014 if economy revives September 18, 2013: Fed says economy not strong enough, will continue with QE November 20, 2013: FOMC minutes suggest that taper will begin shortly.

Barring Dow, all markets reacted to Bernanke comments on the next trading day. So values are of the next trading day.

Nifty

May 22 2013: Nifty closed at 5967, lost 127 pts in next trading session post Bernanke comments. Rupee was at 55.585, depreciated 0.2%.

Between May 22 and June 19, Nifty made a low of 5683 while Rupee depreciated 5.8% in the same period.

June 19 2013: Nifty closed at 5655, lost 167 pts or 2.86% in next trading session post Bernanke hinting at QE tapering in next meet. Rupee closed at 59.575, depreciated 1.46%. Between June 19 and Sep 18, Nifty made a low of 5118 (down 16% since Fed first mentioned tapering of QE on May 22), while rupee depreciated to 68.84 (rupee lost 24%) on account of heavy unwinding by FIIs.

Between May 22 and Sep 18, FIIs sold equities worth close to Rs 11500 crore.

September 18 2013: Nifty closed at 6115, gained 216 pts or 3.6% post Fed deciding not to taper QE. Rupee was at 61.775, appreciated 2.54%. Between September 18 and Nov 20, Nifty made a high of 6342, rupee appreciated to 61.01 on account of continuous buying by FIIs. FIIs bought equities worth close to Rs 28800 crore in the same period.

November 20, 2013: Nifty closed at 5999, lost 120 pts or 2% post fears of tapering.

Chart: Dow hits new 5-year high, will Nifty follow suit?

Riken Mehta
Moneycontrol.com

The Dow Jones Industrial Average hit a five-year high to close at 14,296 on Wednesday, topping its previous high of 14,164 made in October, 2007. The US market was hit severely by sub-prime crisis in the late 2007. This was followed by a financial melt down that started in 2008 leading to several people losing their jobs. 

So have things turned around? In recent past, ADP (Automatic Data Processing Inc) data has consistently beaten the estimates, which suggests a revival in the job market in the last six months. A string of upbeat economic data from US has been a cause for rally in equities with traders anticipating recovery in the market despite still relatively high unemployment rate, says Jamal Mecklai.

As per US government data, private companies added 198,000 jobs in February, beating analyst estimates, indicating that the labour market is continuing to thaw. Economists had predicted the count by ADP and Moody's Analytics to show 170,000 new positions, reports CNBC.

As the chart below suggests, the Nifty has been moving in tandem with the US market. The outlook has turned cautious after the rather bruising sell-off, but analysts valuations have become reasonable and so should cushion further downside.

Analysis: How Sensex & Dow Jones react to US presidential polls

Riken Mehta
Moneycontrol.com

Judging from the initial reaction of benchmark indices, President Barack Obama’s re-election appears to have struck the right chord among investors in India. But historical trends show that the Indian stock market has been largely indifferent to the outcome of Presidential polls in the US, except in 1996.

Interestingly, four out of five times in the past, the Sensex and the Dow Jones have moved in opposite directions after the Presidential elections threw up a winner. The Sensex surged 3.37% when Bill Clinton emerged victorious in 1992, but Dow Jones lost 0.90%. The US index gained 1.6% in 1996, when Clinton was re-elected as the the President. However, Sensex lost marginally after Clinton's re-election. Similarly in 2008, when Obama became the 44th US President, investors in India appeared more pleased, going by the upmove in the Sensex.

Refer to the table below to check out how Indian and the US markets reacted after US presidential polls.

Year	US Presidential	Political	Electoral	US Presidential	Political	Electoral	Dow Jones	Sensex
	Candidate Winner	Party	Votes Won	Candidate Loser	Party	Votes Won
04-Nov-08	Barack Obama (44th Pres)	Democratic	365	John McCain	Republican	173	-5.04%	2.84%
02-Nov-04	George W. Bush (43rd)	Republican	286	John Kerry	Democratic	251	1.01%	0.87%
07-Nov-00	George W. Bush (43rd)	Republican	271	Al Gore	Democratic	266	-0.41%	0.59%
05-Nov-96	Bill Clinton (42nd)	Democratic	379	Bob Dole	Republican	159	1.58%	-0.96%
03-Nov-92	Bill Clinton (42nd)	Democratic	370	George H.W. Bush	Republican	168	-0.90%	3.37%