Global Markets Mixed Over Delay In US Tax Reform

Global financial markets ended the week on a mixed note, with Asian markets continuing their gains, while the US and European share markets snapped their winning streaks. In the US, the Dow Jones Industrial Average charted its first decline since September as market participant’s concerns over the delays in US tax reform weighed on the markets. US markets ended the week marginally lower by 0.4%.

European stocks edged lower during the week as subdued corporate earnings brought down investor sentiment. European stock markets faced volatility during the week as Brexit talks in Brussels concluded with the EU’s Brexit negotiator Michel Barnier urging the U.K. to move faster in its negotiations to leave the group. However, despite a tepid showing this week, the European Commission remained optimistic about the economic scenario in the Eurozone and revised its real GDP forecast at 2.2% growth, higher than the previous 1.7%. UK and French markets were down by 1.7% and 2.5% respectively this week, while German indices lost the most and were down by 2.6% over the week.

Asian markets were trading in green during the week. In China exports rose 6.9 %from one year ago whereas imports rose 17.2%. Meanwhile, Japan’s Nikkei 225 hit a 26-year high during the week amid positive earnings and economic data.

Japanese Indices ended the week up by 0.6%, while indices in China and Hong Kong were up by 1.8% over the week.

Key World Markets During the Week

Back home, benchmark indices in India declined from record high levels logged last week, amid mixed corporate earnings. Weak manufacturing growth measured by the index for industrial production (IIP) for the month added to the woes. The BSE Sensex ended the week lower by 1.1%.

BSE Indices During the Week

Now let us discuss some key economic and industry developments during the week gone by

In news from the economy, Moody’s Investors Service in its latest Global Macroeconomic Update (2018-19) has stated that India is the only G20 emerging market country where growth has slowed sharply for six consecutive quarters.

But it expects economic growth in 2017 to average 6.2% before accelerating to around 7.5% in 2018 and 2019. It said that the slowdown in economy was due to the temporary negative impact of last year’s demonetization, temporary disruption related to the rollout of the Goods and Service Tax (GST) and weak bank lending for investment-related activity due to a high proportion of delinquent loans on bank balance sheets. It added that the effects of demonetization and GST implementation will fade.

It also said that despite progress on economic reforms and monetary policy easing, the flow of bank credit for investment activities has been hampered by both the inability of the banking sector to lend and weak demand for credit.

Moody’s further noted that the reforms, including liberalization of foreign direct investment in key sectors and the GST, will increase efficiency, boosting trend growth.

Meanwhile, Fitch group company, BMI Research in its latest report has said that India will remain one of the fastest growing emerging markets, with real Gross Domestic Product (GDP) growth set to average 6.5% over the next five fiscal years, highlighting the ongoing economic reforms and improvements in the business environment to continue to support India’s economic growth.

As per the report, insolvency regulation is a positive step in cleaning up the financial system in the country and tax reforms will help strengthen India’s fiscal revenues. But it also said that significant bureaucratic inefficiencies are likely to cap the country’s growth potential further.

According to the report, India’s improvement in the ease of doing business ranking masks the fact that bureaucratic inefficiencies remain rife, as indicated by the stalling of the 2015 Land Acquisition Bill in Parliament and a massive backlog of unresolved cases in courts. BMI Research said that these issues are likely to continue to cap India’s growth potential below the 7% level over the coming years, and the country is likely to continue facing challenges in completing large-scale infrastructure projects and establishing a strong manufacturing base.

The report further stated that there has been a surge in foreign investment, which is likely to continue at a as global firm look to tap into India’s vast market potential and that pro-business and pro-investor policies are likely to encourage investment.

In the latest development, foreign institutional investors (FIIs) are returning after recent government announcements such as the Rs 2.11 trillion PSU bank recapitalisation plan. FIIs are mainly buying into new shares.

Over October and November so far, FIIs have invested a net of US$ 1.9 billion in Indian equities. For the year to date, they are buyers to the tune of US$ 7.4 billion.

While flows to Asia ex-Japan country funds were mixed in the week to 1 November, commitments to both Korea and India Equity Funds hit a 13-week high even as China Equity Funds recorded their second straight week of outflows in excess of US$600 million, the reports noted.