International Equity Prices Unchanged as Gains in Europe Offset by Losses in Asia
International equity prices were mostly unchanged during the month of July as gains in Europe were offset by losses in Asia and select other markets such as Canada. Further improvement in economic trends from the Euro-zone and the tentative agreement to provide additional financial support to Greece brightened investor sentiment in the region. Emerging markets declined appreciably during the month on renewed fears about slower growth in China, while further declines in energy and commodity prices hurt equity prices in exporting countries such as Russia and Brazil. Despite active intervention by the government, investor concerns worsened about the sustainability of equity price gains in China over the last one year. Apprehensions about weaker Chinese growth also affected other Asian markets such as Singapore, Korea and Taiwan.
The pace of global manufacturing growth was unchanged from June, as the U.S. and most European countries saw gains during the month. France was the only major European country that saw a slowdown in factory output in July, as activity continued to expand in Germany, Spain and the Netherlands. In Asia, the manufacturing sectors in Japan and India saw further gains but output declined in several other countries including China, Korea and Indonesia. Brazil and Russia continued to see weakness as oil and commodity prices weakened again, after the moderate recovery during the second quarter. New order flows moderated during July, which suggests the possibility of subdued output growth in the coming months. In contrast, global services activity gained at an accelerated pace during July, helped by vigorous growth in the U.S., the U.K. and Spain. The services sector in China expanded faster, while Japan and India also saw growth. Brazil was the only major economy that saw a fall in services activity during the month.
Near-Term Outlook
The global economic growth outlook for the second half of this year appears brighter, despite the renewed slowdown fears in China and some of the resource exporting countries. Revised data showed that the U.S. economy did not decline during the first quarter as estimated earlier. U.S. labor markets continue to strengthen and, together with cheaper fuel prices, should support a rebound in consumer spending. Higher U.S. demand should help lift the outlook for global trade, which was weaker than expected during the first half of this year. While the healthier U.S. economic outlook makes a September rate hike by the Federal Reserve more likely, further interest rate increases are expected to be gradual and spread over a longer period. The Euro-zone economy continues to gather speed, and should get further support from the European Central Bank’s quantitative easing measures. The cheaper currency and aggressive monetary policy measures are also likely to aid Japanese economic growth. In the U.K., reduced inflation risks could allow the Bank of England to delay the anticipated rate increases.
Despite the heightened equity price volatility, the growth outlook for some of the emerging economies remains relatively stable. The Chinese economy expanded at a steady 7 percent annual pace during the first half. While the rate of growth could moderate further, China appears to be well on its way in transitioning to a consumption-driven economy. India and Indonesia could also see healthier growth during the second half of this year, as well as next year. Oil prices have declined closer to the lows seen at the beginning of this year, and all these economies that are large energy importers should benefit. However, the outlook for Russia, Brazil and the smaller commodity exporters remains weak.
This article is for informational purposes only. This article is not intended to provide tax, legal, insurance or other investment advice. Unless otherwise specified, you are solely responsible for determining whether any investment, security or other product or service is appropriate for you based on your personal investment objectives and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation. The information contained in this article does not, in any way, constitute investment advice and should not be considered a recommendation to buy or sell any security discussed herein. It should not be assumed that any investment will be profitable or will equal the performance of any security mentioned herein. Thomas White International, Ltd, may, from time to time, have a position or interest in, or may buy, sell or otherwise transact in, or with respect to, a particular security, issuer or market on our own behalf or on behalf of a client account.
FORWARD LOOKING STATEMENTS
Certain statements made in this article may be forward looking. Actual future results or occurrences may differ significantly from those anticipated in any forward looking statements due to numerous factors. Thomas White International, Ltd. undertakes no responsibility to update publicly or revise any forward looking statements.
