The last month of 2012 was fairly stable for capital markets compared with the volatile year with many indices posting double-digit returns globally. The month started on an optimistic note given the additional steps for extending liquidity to Greece and the hope that US lawmakers will be able to draw up a plan to deal with the fiscal crisis (which did happen on 31 December). Preliminary data and reports suggesting recovery in China’s industrial activity added to the optimism. Data released by EPFR Global, a global funds flow and asset allocation data provider, shows that EPFR Global-tracked China equity funds at the end of first week of December recorded their second biggest weekly inflow year-to-date. This enthusiasm meant that overall emerging market equity funds gained inflows.
EPFR-tracked bond funds (both developed and emerging market funds) saw inflows increase in 2012. Europe bond funds, in fact, saw best inflows since 2009. Commodities saw less interest in 2012; in this segment, focus was more on gold and other precious metals. International gold prices though have risen around 7% in 2012. Crude remained stable and range-bound through the year. December was another stable month for Brent crude with price per barrel remaining around $110.
Back home, equity markets remained pretty much in a tight range as a constantly disrupted Parliament session meant limited policy action. Nevertheless, some steps were taken towards the end with the passing of the much anticipated Banking Amendment Bill. Bond markets rallied even though there was no monetary easing, mainly on the hopes of a rate cut in January. Economic data was also supportive with Wholesale Price Index inflation for November coming in lower at 7.24% and Index of Industrial Production (IIP) growth for October at 8.2%. The spurt in IIP was mainly due to low base effect. Current account deficit, however, is at a worrying 5.4% of the gross domestic product (GDP).