Emerging Markets
Strengths
- South Korean manufacturers’ confidence increased from 85 for December to 90 for January, the first gain in three months, with outlook for exports rising to 104 from 98 and domestic sales to 100 from 98.
The Russian trade balance widened marginally to $11.6 billon in November on the back of higher energy prices. According to preliminary estimates of the Ministry of Economy, Russian exports grew by 3.9 percent, compared to the previous month.
Weaknesses
- Moody’s Investors Service said the outlook for Hong Kong’s banking industry will remain negative because Hong Kong banks may still be vulnerable to volatility in the global economy.
- The flash estimate of November industrial production in Czech Republic was up a tepid 0.2 percent, the first positive annual increase in 13 months. Following Citi’s working day adjustments, output actually decreased by 2.2 percent.
Opportunities
- Thanks to immense mobilization of labor and manual irrigation of around 10 million hectares, China is set to deliver record 114.5 million tons in wheat harvest this year, 15 to 20 percent higher than analyst forecast, despite the worst drought in more than 50 years. This should help keep China’s inflation in check going forward, as food items carry the most weight in the consumer price basket.
- Central Bank of Turkey ended the easing cycle in December and removed the easing bias; however, it recently stated that in case the currency were to face appreciation pressures due to FX inflows as part of a carry trade, it would be ready to resume interest rate cuts in 2010.
Threats
- The negative effect from a strong U.S. dollar on Russian equity index comes through two channels: 1) it is inversely correlated with oil prices, with the weaker crude being negative for Russia’s energy stocks; and 2) ruble depreciation relative to the dollar is negative for the telecoms, banking and consumer stocks.
