September 2013, marked the five year anniversary of the recession which started in September of 2008. The developed markets made a significant progress starting 2013. Despite some volatility, US markets continued their good show during the third quarter as well. The quarter, however, the market movements were dominated by the speculation around Fed’s tapering of quantitative easing program. While statement that scaling back of QE will not be rushed helped the markets post gains, the US investors remained hawkish during the month of August. The expansion in US manufacturing industry during July sparked concerns about the continuation of QE. The markets were under the pressure in August with anticipations around QE roll back in the quarterly meet in September. The possibility of military strike on Syria also further increased pressure on US markets during August. During its meeting on 20th September 2013, Fed in its statement, announced its plans to delay the QE roll back. Fed plans to continue buying bonds at the pace of $85 billion every month. The fear of tapering of Fed Bond buying program may have reduced but the fact the interest rates will not always remain low is sinking in slowly on most market participants. The first official interest rate hike may start coming in late 2014 once the economic growth is fully factored in.
Globally equity markets were volatile in the last week of September as the concerns over lack of progress in negotiations over debt ceiling took the center stage. A possibility of US government shut down loomed large on equity markets investors’ sentiment towards the end of September. Notwithstanding the shutdown fears US markets ended the quarter by posting profits.
The better than expected macroeconomic data helped the European markets post positive returns during
the Quarter. The markets in UK also experienced positive returns. However, the potential for higher returns was dampened by the increased tension in Syria crisis, QE tapering by US, and a potential government shutdown in US.
On the Asian front, the developed markets posted strong returns over the third quarter of 2013. Japanese
markets posted positive returns on the back of increased investor sentiment. The investor sentiment was
boosted by the election results which provided comfortable majority for the ruling party in both the houses. Chinese markets stayed buoyant with continuous positive economic indicators.
Indian Markets faced highly volatile conditions during the quarter. The volatility faced by Indian Rupee was translated to the Indian Equity Markets as well. The concerns over slowdown in the economy expressed through low manufacturing growth, high fiscal deficit was mounted by the weakening rupee. In September, Indian equity markets witnessed positive trend with the onset of Dr. Raghuram Rajan taking over the mantle as the RBI’s new governor. Dr. Rajan’s assertive statements and decision to curb inflation by increasing repo rate by 25bps to 7.5% was greeted with benchmark indexes moving up. Indian Markets have largely remained range bound during the quarter and will continue to follow the same trend in the coming quarter as well.
Written By Arthayantra