As The Eurozone Stalls, China Starts To Cuts The Red Tape

• leading over her challenger, Aecio Neves. The Datafolha poll showed Rousseff holding 48 percent of the vote compared to Neves holding 42 percent. Given that prior polling data showed a closer race, the lead obtained by Rousseff is troubling to investors. The Ibovespa Brasil Sao Paulo Stock Exchange Index was down 6.79 percent this week.
• Russian stocks continue to underperform in an environment composed of high interest rates, a depreciating currency, and depressed oil prices. The MICEX Index declined 0.31 percent this week, while the ruble depreciated 2.72 percent against the dollar.

• Telecommunications was the worst-performing sector in Asia this week, as China Unicom reported lower than expected third-quarter revenue, losing mobile market share to China Mobile for the first time in the past five years, as the latter continued to accelerate additions of 4G subscribers.

Opportunities

• Turkey revealed that it is the benchmark repurchase rate unchanged at 8.25 percent, in line with expectations. The country seeks to maintain a tighter monetary policy to curb a depreciating currency and inflation pressures. Higher rates are also conducive for attracting capital flows, which Turkey is very sensitive to. Turkish stocks had been weakened in the prior weeks as investors predicted higher rates in the United States. However, the recent slowdown in global growth has caused many to predict a delay in rate increases in the United States, which should be positive for Turkey. The Borsa Istanbul 100 Index was up 5.14 percent this week.
• Although a headwind to oil-leveraged countries, current oil prices provide a boost to many emerging markets in the form of cheaper input costs. Four out of the top five oil-trade-deficit countries are Asian and can expect a significant boost from lower energy prices. However, Russia, Colombia and Mexico are likely to face headwinds as net exporters of oil.

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• Returning toxic smog in northern China and rising media attention to public health hazards such as Ebola should remind investors of structural investment merits of China’s health care sector.  Total health care expenditure in China has historically lagged its overall economic growth as well as international peers.  An aging population, urbanization-related lifestyle shift and environmental degradation have led to rapidly growing chronic disease occurrences.  Going forward, higher government spending to make health care more affordable should benefit the sector long term.

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Threats

• The Chinese government’s recent push to promote breastfeeding through education programs and such initiatives as adding more lactation rooms in public buildings could further dampen investor sentiment towards infant formula makers.
• It is worth noting that despite all of the volatility in Brazil surrounding the election, the country is still in a recession and dealing with a declining currency as well as high inflation. Investors should not forget that even if Aecio Neves wins in the runoff this Sunday, the country will most likely have to experience painful policies to uphold the currency and subdue inflation.

• The dollar, although no longer rising at unprecedented rates, is still strong. It would appear that without any formidable catalyst in sight the dollar will consolidate at current levels. While the current value of the dollar is factored in to many investors’ outlooks, it remains a negative sign of the global economy.

Leaders and Laggards

The tables show the weekly, monthly and quarterly performance statistics of major equity and commodity market benchmarks of our family of funds.