Emerg­ing Mar­kets Radar (Feb­ru­ary 6, 2012)

Strengths

• Emerg­ing mar­kets had a strong week as pos­i­tive global eco­nomic data is boost­ing expec­ta­tions on eco­nomic growth. Key out­per­form­ers included Tai­wan, Turkey and the Czech Republic.
• Cur­ren­cies played a big role this week with many emerg­ing mar­ket cur­ren­cies ral­ly­ing strongly. The South African Rand rose 2.9 per­cent, the Mex­i­can Peso rose 1.9 per­cent and the Turk­ish New Lira, Indian Rupee and Colom­bian Peso each rose more than 1.25 percent.
• China’s Jan­u­ary PMI was 50.5, improved from 50.3 in Decem­ber and higher than the mar­ket esti­mate of 49.6. PMI above 50 indi­cates eco­nomic activ­i­ties are expand­ing. The new order index was up 0.6 to 50.4 from Decem­ber, while the new export order index was down 1.7 to 46.9, indi­cat­ing China’s econ­omy is dri­ven by domes­tic demand. China’s Jan­u­ary HSBC flash PMI improved slightly to 48.8 from 48.7 in December.
• Ger­man luxury-car maker BMW AG said Thurs­day that sales in main­land China rose about 30 per­cent in Jan­u­ary to around 26,500 cars.
• Chi­nese banks may extend 9 tril­lion yuan ($1.43 tril­lion) of new loans this year as pol­i­cy­mak­ers allow expan­sion in for­mal lend­ing to replace shadow financ­ing and enable the nation’s pow­er­ful growth engine to keep hum­ming, Fitch Rat­ings Ltd. said.
• Korean CPI rose 3.4 per­cent in Jan­u­ary, the slow­est increase in 12 months.
• Thailand’s CPI rose 3.38 per­cent in Jan­u­ary as lower food prices off­set higher energy costs. The result was down from Decem­ber, but in line with estimates.
• Indonesia’s CPI rose 3.65 per­cent in Jan­u­ary, slow­ing for a fifth month and leav­ing the cen­tral bank room to resume inter­est rate cuts.

Weak­nesses

• Korean exports unex­pect­edly dropped 6.6 per­cent in Jan­u­ary, the first decline in more than two years. Weak­ness in Europe and the Lunar New Year hol­i­day were blamed.
• China’s offi­cial PMI for non-manufacturing sec­tors fell to 52.9 in Jan­u­ary from 56 in Decem­ber, the China Fed­er­a­tion of Logis­tics and Pur­chas­ing said in a state­ment today. The sub-index of new orders fell to 48.5 from 50.5 the pre­vi­ous month, slip­ping into con­trac­tionary ter­ri­tory and reflect­ing the effect of the government’s tight­en­ing mea­sures on the prop­erty mar­ket, the state­ment noted.
• Hong Kong’s forth quar­ter GDP growth decel­er­ated to 3 per­cent from 4.3 per­cent in the third quar­ter of 2011, but was bet­ter than the fore­cast of 2.5 percent.
• Tai­wan has reported the advance esti­mate for fourth quar­ter GDP to be 1.9 per­cent year-over-year, below mar­ket esti­mates of 2.8 per­cent and lower than the growth of 3.4 per­cent in the third quar­ter. The real GDP declined 1 per­cent quarter-over-quarter, tech­ni­cally enter­ing recession.

Oppor­tu­ni­ties

• The left chart below shows how the peo­ple in China spend their time on media devices, indi­cat­ing 47 per­cent of time is spent on the inter­net and 22 per­cent on mobile phones. The right chart com­pares online time as a per­cent­age of total time spent on media with online ads spent as a per­cent­age of total ads.  It is clear that there is more poten­tial to mon­e­tize the inter­net in China through ad sales.

Threats

• China’s food prices were up in Jan­u­ary due to hol­i­day and win­ter effects.

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., and a Toronto, Canada native, which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure. The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories. Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.” He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies. Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications. Read more from the author/contributor here.

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