New Delhi: While Indian stock market provided second highest returns after China to investors in 2007, among emerging Asian markets, investment returns on stocks in year 2008 are not expected to remain as “fancy” as in the past, according to an Assocham Eco Pulse Study on ‘Performance of emerging markets’.
Although the boom period is expected to continue in the EMEs, the causes attributed to returns for not remaining as attractive are the expected slowdown in US economy, shrinking growth in corporate earnings and high base effect that would hold back the stock market momentum in these economies.
China gave a maximum return of 78.5% to investors in the market followed by India where market rose by 49.3% in 2007. The analysis was based on rise in indices of leading stock exchanges of EMEs including Shanghai Composite Index, S&P CNX Nifty and Hang Seng Index.
US economy grew at 2.8% in Q3-07 but it is anticipated that growth rate may decline to 1.9% as there are signs of weak consumer spending, diminished business investment, continued tight financial conditions. The index of US manufacturing activity dropped to 47.7 in December, a five year low, down from 50.8 in November. Job creation in US also dropped to 40,000 in December, after 173,000 in November.
Indian economy will have to face challenges of rupee appreciation, high interest rates and slow down in the manufacturing sector. In the previous year as the Indian economy also witnessed a declining growth rate of 4.5% in core infrastructure sectors like crude petroleum, petroleum refinery products, cement, coal and steel in October ‘07.
Exports would find it difficult to improve the performance in the year 2008. The growth in Rupee terms for the period April-October 2007 was mere 7%. The IT sector is finding difficult to shove off the rising rupee affect as growth in top line of four major IT companies in India, slowed down to 27% in first two months of this fiscal as compared to 45% last year.
The inflow of FIIs in the calendar year 2007 in China was around $61.67 billion and Indian market received $16 billion, which fuelled their stock markets to set new records. The prime reason for high returns in EMEs was massive shuffling of funds by FIIs from developed markets to EMEs particularly to India and China - the two fastest growing economies in the world.
The Hang Seng index of the Hong Kong Stock Exchange gave third highest return at 38.75% to its investors, on the back of the GDP growth at 6.2%. The growth was propelled with the rising labour income, better job prospects with private consumption expenditure registering a growth of 6.6%, 11.3% rise in exports and buoyant financial market
Driven by strong domestic demand, Malaysia’s GDP growth inched up to 6.7%; the engine of growth has been private consumption and government spending. In the calendar year 2007 Kuala Lumpur Composite Index measured by the 100 stocks provided return of 20.03% to its investors.
The minimum return was given by Singapore, where the Strait Times Index provided 13.73% return to its investors despite a healthy GDP growth rate of 8.6% propelled by growth in manufacturing sector grew by 7.3% while services sector registered a growth of 6%.