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- The negative impact of the high oil price on Asia's fuel hungry local markets started to reverse by mid-month as the price of crude eased by more than US$20 a barrel. However, China was already reporting improved inflation statistics. According to official figures, inflation fell from 7.7 % to 7.1% in June. Other government data that pointed to the slowing pace of GDP and export growth lent credence to the notion that China's inflation dragon might, for the time being, be slain.
- The news was quite different in the largest economy of the region. Japan's central bank revised its GDP forecast for the fiscal year to next March down from 1.5% to 1.2% while revising its core inflation forecast up from 1.1% to 1.8%. Japanese inflation had already put on 0.5% in June to end the month some 2% up on the year before.
- Asian markets performed broadly in line with world markets, with the FTSE AW Asia Pacific Index losing around 2.25% in local currency terms. Even so, the unwinding of the long energy/short financials trade helped to kick-start several markets of the region as many have large financial weightings.
- Asian markets performed broadly in line with world markets, with the FTSE AW Asia Pacific Index losing around 2.25% in local currency terms. Even so, the unwinding of the long energy/short financials trade helped to kick-start several markets of the region as many have large financial weightings.
- The Chinese market rose almost 4%, helped by the encouraging inflation news. By contrast, the Japanese market fell back 1.5% in local currency terms, despite its financial sector benefiting from investors’ increased inflation expectations. India was the top performing market of the region.
- It delivered over 6%, buoyed by the weakening oil price and by the Congress-led government's surviving a no confidence vote. Meanwhile New Zealand, another recent casualty of the region, also recovered in July to post a return of over 5%. The commodity-rich Australian market fell over 5% although the worst performing markets were Pakistan, which lost 13%, and Thailand which lost close to 14%.
- Japanese bond returns were positive for the month with the exception of very long-dated debt which posted modest negative returns. Elsewhere, returns from Australian bonds were positive across all maturities.
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