The following summaries are part of the weekly Advisor Alert produced by US Global Funds for the week ending ...
Emerging Markets
Strengths
- China’s November HSBC Manufacturing Purchasing Managers’ Index (PMI) rose to 55.7 from 55.4 in October, driven by stronger new orders, especially those for exports. The official PMI released by the government stayed unchanged at 55.2, an 18 month high, with only 3 out of 20 sectors still showing contraction.
- India’s third quarter GDP increased by 7.9 percent year-over-year, higher than market expectation and accelerating from second quarter’s 6.1 percent, reflecting robust manufacturing activity, a resilient domestic economy, and limited impact from weak monsoons.
- Hong Kong’s retail sales grew 9.9 percent in October, thanks to abating unemployment, rising stock and property prices, and a 23 percent surge in mainland tourist arrivals.
- Credit rating agency Fitch upgraded Turkey’s sovereign rating by two notches to BB+ and moved select industrial companies to investment grade. In the past, we highlighted in our Investor Alert the fact that Turkey’s CDS had traded at levels below those for better rated emerging market peers and that the country did deserve a higher credit rating.
Weaknesses
- Although South Korea’s exports registered a 18.8 percent rise in November from a year earlier, the first positive year-over-year reading since November 2008, the month-over-month increase was only 0.8 percent, lower than 6 percent on average in the third quarter and 10 percent in the second quarter, a reflection of moderating China demand and weakening U.S. demand.
- Malaysia is reviewing proposals to reduce subsidies (effectively raise taxes) on sugar, rice, and fuel to rein in budget deficit. Price caps on sugar, for example, also encouraged “profiteering” as some locals “smuggled” sugar across the border into Thailand to get prices twice as high. The country’s 2009 budget deficit is forecast to reach a 22-year high of 7.4 percent of GDP due to stimulus spending.
- According to Czech Energy Regulatory Office data, Czech electricity demand is down 6.5 percent year to date. Demand declined by 2.7 percent year-on-year in October, while consumption by the large industrial companies declined by 7.1 percent year-on-year.
Opportunities
- China aims to grow its tourism revenue by 11 percent a year through 2015 with a target for tourism spending to account for 10 percent of total household spending and 4.5 percent of GDP. Hainan, Hong Kong, and Macau are promoted as main destinations. This policy initiative should benefit domestic Chinese airlines.
- RusAl has announced that is has completed restructuring of its debt, clearing a path to an IPO in Hong Kong. The global aluminum surplus will narrow by 54 percent in 2010 to 1.19 million tons, said Japanese trading company Marubeni.
Threats
- Despite government infrastructure spending boom in China this year, Chinese companies have not aggressively deployed cash so far and corporate bank deposits kept soaring and reached around $3 trillion as of October. There exists a remote risk of “herd spending” down the road when domestic demand picks up strongly and profit cycle restarts, eventually resulting in economic overheating.
- The headline seasonally adjusted Russian Manufacturing PMI recorded a second monthly reading below 50 in November, after an expansionary reading in September, indicating an overall decline in business conditions, according to the latest survey from VTB Capital.
