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.