Emerging Markets Radar (September 9, 2013)

Emerging Markets Radar (September 9, 2013)




Emerging Markets Radar (September 9, 2013)

Strengths

  • China’s August PMI was 51.0 versus market expectation of 50.6, showing expansionary industrial activities in China. By adding daily power output CLSA forecasted power generation growth of 15.3 percent in August. Goldman Sachs raised its forecast for China’s economic growth this year to 7.6 percent from 7.4 percent, saying forward indicators picked up in the last few months amid improving global demand.
  • China’s passenger vehicles sales rose 13 percent year-over-year to 1.25 million units in August, in line with July's 13.1 percent, despite 1 less working day versus August 2012. Year-to-date 2013 sales totaled 10.1 million units, up 16.3 percent year-over-year. The market expected this double-digit growth to extend into September.
  • After Bank of America sold its remaining 2 billion shares in China Construction Bank, most foreign strategic shareholders have sold their stakes in Chinese banks, except HSBC, which still holds shares of Bank of Communications.
  • The investigation of the former chairman and CEO of PetroChina and its parent company CNPC showed China’s determination to clean up corruption in state-owned enterprises, though those cases can temporarily have a negative effect on stock prices.
  • Macau’s August gaming gross revenue rose 17.6 percent year-over-year to 30.7 billion Macanese pataca (MOP).
  • Indonesia’s FX reserve came in at $93 billion, better than the $90 billion most economists had predicted. Foreign currency reserve is watched closely by investors due to the fact that a decrease of FX reserve can add downside pressure to the falling local currency.
  • The Baltic Dry Index (BDI) jumped to a 21-month high at 1,279 supported by a rising capsize freight rate due to steady Chinese iron ore demand and falling fleet growth.
  • Thailand’s inflation was 1.59 percent in August, lower than the market expectation of 1.8 percent in spite of its currency weakness.
  • Malaysia kept its benchmark rate unchanged at 3 percent, in line with the market expectation.
  • The Philippines’ August inflation was 2.1 percent lower than the market consensus of 2.4 percent.

Weaknesses

  • Indonesia’s July trade deficit was $2.3 billion, wider than the expected $393 million. The trade deficit was $877 million in June. In July, Indonesian exports declined 6.1 percent, while imports went up 6.5 percent. Indonesia’s headline inflation increased further to 8.7 percent in August, though lower than the consensus estimate of 8.95 percent.
  • Goldman Sachs cut its growth forecast for Indonesia, Thailand and Malaysia between 40-70 basis points each in 2013 and 2014, based on external pressures and high inflation. The Ministry of Housing and Urban-Rural Development called meetings with seven cities including Nanjing and Zhengzhou because home prices in the regions increased “too fast,” Economic Information Daily reports.
  • Czech GDP growth was revised downward to 0.6 percent in the second quarter from the flash estimate at 0.7 percent. GDP data are unlikely to take off the table the idea of FX interventions to weaken the koruna.

Opportunities

China's Industrial Activity at 16-Month high helps inprove market sentiment
click to enlarge

  • As shown in the graph above, China’s August official PMI surprised on the upside by rising to 51 versus the market expectation of 50.6, which also confirmed a better-than-expected HSBC China Flash PMI released earlier. Many forward indicators have pointed to growth momentum for China’s economy as China supports short-term growth stability while working on long-term economic reform.
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About the author

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.

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