Mumbai: Indian and Chinese equity markets defied the trend in US markets when they opened on Monday, the weekend after US stocks dipped on fears of a potential recession in its economy, the world’s largest, fuelled by latest employment data.
Sensex, the benchmark index of the Bombay Stock Exchange (BSE) ended flat at 15,596.8 points, recouping over 232 points from early morning losses, while the Shanghai index was up 78 points to 5,355.2.
The Dow Jones Industrial Average shed about 250 points on Friday after the job market in the US reported a contraction for the first time in 47 months. In early Monday trades, the index continued its slide and was down 0.28% at 13,076.07. The gains in China and India added more meat to what in markets circles is being called the ‘decoupling’ debate. The decoupling theory suggests that key Asian markets will remain insulated from any major downfall in the US and also that the money now parked in US equities, will flow to high-growth markets such as Asia, in the event of such a slow-down.
The decoupling debate had earlier picked steam as major Asian indices gained opposite a sharp fall in US markets on 29 August.
The ‘decoupling’ has already happened, said Ravi Kapoor, managing director and head of equity capital markets at Citigroup Global Markets India Private Ltd.
“The fundamentals will take over fears. Even if there is a recession in the US economy, it will not affect India and the Asian markets at large, as markets function on fundamentals,” Kapoor said.
Japan’s Nikkei index was the biggest loser among Asian indices on Monday, shedding 357 points while South Korean Kospi lost over 2.6% from its Friday’s close. The Taiwanese index lost about 80.5 points. The Hang Seng index of Hong Kong made small gains as the Chinese stocks went up.
Any slow-down in the US economy, is unlikely to have a major impact on growth markets such as China, said Hong Kong-based Mandy S.M. Chan, who manages over $1billion worth assets in Chinese equities for ABN Amro Asset Management (Asia) Ltd.
Another decoupling trend is in the credit and equity markets, said Joshua Felman, senior resident representative of the International Monetary Fund (IMF) in India.
“While global stock markets recovered back from the initial losses over the sub-prime crisis, the credit markets have not seen any recovery. It is too early to conclude anything. There is lot going beneath the surface. We need to wait and see the real impact,” Felman said.
A senior executive at Mumbai-based ICICI Securities Ltd, who did not wish to be identified, also supports the argument that fundamentals will drive key markets in Asia and also insulate them from a global meltdown.
“The consumption demand within in India and China will drive the equity markets in the region,” he added.