Emerging Markets
Strengths
- China’s passenger car sales rose to 1.04 million units in November, a 98 percent surge from a year earlier and a fifth consecutive month with more than 50 percent growth. Thanks to sales tax cuts and 10 billion yuan of government subsidies, total vehicle sales in China reached 12.2 million units so far this year.
- Taiwan’s exports grew 19.4 percent in November from a year earlier, thanks to a 56 percent jump in shipments to China. While the year over year data could be distorted by last year’s low base, the month over month growth rate showed a robust 8.4 percent, well ahead of South Korea’s 0.8 percent for the same month.
- Industrial production in Turkey was up 6.5 percent year on year in October, or 16 percent month on month, the largest monthly increase on record. The exports were up 19 percent month on month, reaching their highest level in 13 months.
Weaknesses
- While extending subsidies for auto and home appliance purchases in rural areas, China will raise sales tax on small cars to 7.5 percent from 5 percent after halving it from 10 percent in January to encourage buying. China will also reinstate a property sales tax to homes sold within five years of purchase after reducing the period to two years in January to curb speculators.
- China’s retail sales growth slowed to 15.8 percent year-over-year in November from 16.2 percent in October. Exports continued to contract by 1.2 percent year over year, versus consensus for a positive reversal. Headline consumer prices rose more than expected to 0.6 percent year over year, the first increase in 10 months.
- Polish currency zloty lost 4 percent during the week, as S&P downgraded credit rating of Spain and Greece. Citi estimates that Western European imports may grow only by 3 to 4 percent in 2010, compared to 6 to 8 percent pre-crisis growth.
Opportunities
- In response to low inventories, high-end user demand, and government’s urge for more supply to rein in rising property prices, China’s housing starts soared 194 percent year over year in November after growing more than 50 percent in both September and October. The month over month rise was 52 percent, adjusted for seasonal factors. This trend may be sustainable, given China’s plan to boost consumption by expanding urbanization and promoting development of small and medium-sized cities. Implications are therefore favorable for construction materials and durable goods demand going forward.
- Consumer inflation in Russia slowed further, leaving the door open for more rate cuts. In November, the CPI rose only 0.3 percent month on month. The seasonally adjusted indicator of inflation (estimated by J.P. Morgan) is now tracking around 6 percent for both the headline and core CPI, the lowest level on record.
Threats
- Should a countertrend rally in the U.S. dollar materialize, risk aversion might return in Asia in view of the longstanding negative correlation between the U.S. dollar and Asian equities. Global liquidity rotation could happen in the short term under this scenario.
- Turkish constitutional court banned Kurdish DTP party for its links to the PKK terrorist organization. There are 21 MPs in the parliament from DTP, and they have threatened to resign.
