Emerging Markets Radar (July 15, 2013)

Emerging Markets Radar (July 15, 2013)

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Emerging Markets Radar (July 15, 2013)


  • Sentiment in China is improving as the People’s Bank of China (PBOC) and government officials have softened their stance on monetary policy. After Premier Li Keqiang pledged policy support to stabilize growth during an economic meeting in Guanxi province with several local governors, the market also believes there is a “Li Keqing Put” on the downside. With that optimism, the market should be reminded that reforms are equally important to restructure the economy for long-term sustainable growth.
  • China’s new bank loans were Rmb 860.5 billion in June, exceeding the market consensus of Rmb 800 billion. However, total social financing (TSF) was Rmb 1.04 trillion, lower than the market expectation of Rmb 1.275 trillion, showing the tightening policy effect on off-balance sheet financing. The market speculated that China will be easing on mortgage loans for first-time homebuyers, so property and construction stocks rebounded this week.
  • China’s June inflation was 2.7 percent, higher than the market expectation of 2.5 percent, but down 0.6 percent month-over-month. The higher number was due to a low base effect. The Producer Price Index (PPI) was down 2.7 percent. This is lower than the market estimate of a 2.5 percent drop, but better than the drop of 2.9 percent in May. The down trend in PPI indicates a continuing de-stocking process and is a negative indication of profitability for up- and mid-stream companies.
  • China’s June auto sales were in line with expectations, up 12.3 percent year-over-year.
  • After adding Shanghai as a free trade zone, Tianjing city submitted its plan to become one itself. Shenzhen Qianhai is already a free trade zone where the economic and legal system will fashion a common law system.
  • The Bank of Korea, the central bank, kept the policy rate unchanged at 2.5 percent in its July Monetary Policy Committee (MPC) meeting. The rate is in line with the market expectation, while it revised up its 2013 and 2014 GDP growth forecasts by 20 basis points to 2.8 percent and 4.0 percent, respectively. Korea’s jobless rate remained at 3.2 percent, but steady job growth is expected for the second half of this year.
  • Taiwan exports went up 8 percent in June on robust growth in the export of electronics, mineral and optical equipment products. ASEAN was Taiwan’s fastest growing export market, up 7.1 percent year-to-date at the end of June. Trades with Japan and China were up 5.5 and 3.8 percent, respectively in the same period.
  • Manufacturing production in the Philippines soared by 20.4 percent in May after an 8.7 percent gain in April.
  • Moody's Investors Service is opening a new office in Warsaw that reflects Poland's increasing role as Central Europe's largest financial market. The credit agency cited Poland’s significant expansion of its corporate bond market to around $37 billion, as Polish investors are increasingly looking toward capital markets to meet their growing financing. Similarly, it was reported earlier this year that Warsaw’s stock exchange consolidated as Central Europe’s dominant trading hub attracted 41 initial public offerings, lured by Poland’s cash-rich pension and mutual funds, while Vienna and Prague had one public offering each.
  • Colombia’s foreign debt rating outlook was raised to positive by Moody’s Investors on expectations that the Andean country’s shrinking budget deficits will drive down its debt levels. According to Moody’s, there is evidence of Colombia’s budget deficit trending lower in recent years, as expectations of continued improvements in the main debt metrics will support further upgrades. In addition, ongoing peace talks of the Revolutionary Armed Forces of Colombia (FARC) have shown positive developments, which could prove as a positive catalyst.


  • The last 30 days have been tough for equity markets in Latin America. Overall flows remain weak in Colombia with pension funds as main sellers, divesting $116 million from Colombian local equities. Individual investors kept very low levels of investments at $15 million. The positive note is pension funds have more than $2.8 billion to increase exposure to Latin American and Colombian equities, and they might start buying as valuations have corrected significantly. Despite flow weakness, Colombia took only half of the MSCI emerging market decline hit, posting a 6.3 percent drop during the period.
  • Despite an inflation deceleration to 6.6 percent from 6.9 percent in Russia, consumer-price growth would need to slow further before Bank Rossii will cut its main policy rates. Even after the economy ministry said today that price growth may slow to 6.5 percent this month, it would still hang significantly above the bank’s inflation target range of 5 percent to 6 percent. Consequently, Russia’s central bank left its main interest rates unchanged this week, which also marked Putin-favored Elvira Nabiullina’s first policy meeting as chairman. The refinancing rate will remain at 8.25 percent, despite global economic conditions undermining economic growth and fueling social unrest in parts of the world.
  • China’s exports were down 3.1 percent in June versus the expectation for a 3.7 percent gain. Imports dropped 0.7 percent versus the expectation for a 6 percent gain.
  • China’s money supply (M2) went up 14 percent in June versus the market consensus of 15.2 percent and 15.8 in May.
  • Bloomberg reported the Chinese Finance Minister Lou Jiwei signaled that China may tolerate a 6.5 percent GDP growth rate in the future.
  • Indonesia’s central bank, Bank Indonesia (BI), raised the policy benchmark rate by 50 basis points to 6.5 percent in expectation of rising inflation due to the recent increase of the subsidized fuel price. BI indicated that a 75 basis point rate increase should be enough to dampen the effect of the fuel price rise, which also means BI may keep this rate on hold in the next policy meeting.
  • Bank Indonesia’s reserve fell $7 billion to $98.1 billion in June. Since the beginning of the year, there were $47.7 billion net fund inflows to Indonesia. However, 90 percent of the money had left in the recent two months in global sell-offs after the Fed indicated its intention to reduce QE3 by the end of the year. The good news may be that all the hot money has drained out and the sell-off will stop soon.


  • HSBC has increased the weight of Colombia in its Latin America portfolio as the country reflects better domestic growth dynamics and lower exposure to China than its South American peers. Colombia’s economy has a higher correlation to the U.S. and its exports and equity markets are more related to oil, while its peers are more associated with China and metals. Economists estimate economic growth will reaccelerate to 4.5 percent in the second half of the year, given the government’s timely counter-cyclical policies and strong monetary stimulus. The next catalyst will come as the government makes efforts to increase the effectiveness of public spending, with policies that are supportive of the cement and construction sector.

Spending execution to accelerate in Colombia

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Improving asset quality in Philippines' banks should benefit financials and property sector
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Expected rate hikes causing correction in turkish stocks
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