Disappointing economic data in China

Emerging Markets

Emerging equity markets generally performed less well than their developed counterparts during May. In particular, performance was pulled down by a steep decline in share prices in Brazil, as the country’s Senate voted to impeach President Dilma Rousseff. The Bovespa Index fell by 10.1% over May as a whole; nevertheless, over the year to date, Brazil’s benchmark index registered gains of 11.8%.

Disappointing trade data provided an unwelcome knock for investor confidence in China during May. Exports registered an annualised decline of 1.8% in US dollar terms during April, and imports fell by 10.9%. Exports to the European Union (EU) fell by 4.4%; meanwhile, exports to the US declined by 8.9%. The Shanghai Composite Index dropped sharply following the news. A subsequent slew of weaker-than-expected economic data put an additional dampener on sentiment and fuelled fresh concerns over the possibility of an economic slowdown. Industrial production lost momentum in April, registering annualised growth of 6% during the month, compared with an increase of 6.8% in March. Investment in fixed assets rose at an annualised rate of 0.5% during the first four months of 2016, having risen by 10.7% during the same period of 2015. Elsewhere, retail sales rose at an annualised rate of 10.1% during April.

At the end of May, the Shanghai Composite Index rebounded to reach its highest level for over three weeks, propelled upward by speculation that index provider MSCI might start to include yuan-denominated Chinese stocks in its emerging market indices. Over May as a whole, the Shanghai Composite Index fell by 0.7%; meanwhile, over the first five months of the year, China’s benchmark index has dropped by 17.6%.

India’s economic growth gathered pace during the three months to April 2016. The country’s economy expanded by a better-than-expected annualised rate of 7.6%, compared with a rate of 7.2% during the same period in 2015. The financial, real estate & professional services sector grew by 10.3% during the period, while manufacturing expanded by 9% and mining & quarrying by 7.4%. India’s annualised rate of inflation accelerated from 4.83% to 5.39% during April, driven up by a sharp increase in food prices caused by a slowdown in supply. Food price inflation was 6.32% in April, compared with 5.21% in March. The CNX Nifty Index climbed by 4% during May, and rose by 2.7% over the year to date.