Interest rates, commodities and currencies…

Global markets were generally weak during the month, and there was not much company-specific information to drive the stock markets. Instead, there were three macroeconomic factors influencing developments.

US interest rates: The Fed launched a normalisation of interest rates in the United States. This could have a major impact on the risk premium for equities, capital flows from Asia and the value of the dollar. The dollar fell almost 3 percent against the krona in December, which had a negative impact on fund performance.

Commodity prices: Growth of 3 percent in the US economy will not be enough for commodities and oil to rise in price. A big majority of US GDP is composed of services. Now that China wants to change its growth model in the same direction, this will have a greater effect at the margin on commodity demand. OPEC’s ambition to regain hegemony over oil also means that it will increase production, resulting in falling prices. Oil prices fell in December to below 40 dollars, for the first time since 2004. Most Asian countries benefit from lower oil and commodity prices, and India is the single biggest winner from low oil prices.

China’s currency: China’s currency has embarked on another period of weakness. The intention is to reduce the currency’s dependence on the dollar and instead value it against a more diversified basket of currencies.

This may have an impact on other Asian currencies.

During the month, Carnegie Asia decreased its exposure to Chinese banks through sales of China Construction Bank and ICBC. The holding in China Overseas Land was also reduced. In Taiwan, we sold the holding in Hon Hai. We invested instead in Cathay Financial Holding. New investments were made in Alibaba and JD.com, both active in social media and Internet commerce in China. The fund sold its holding in Indonesian Bank Rakyat and instead increased its investment in Airports of Thailand.