Emerging Markets
Strengths
- China’s December headline Purchasing Managers Index rose 1.4 points to 56.6. This represents continued evidence that China’s growth momentum is still in place. The new orders index, an indicator of future growth, rose 1.6 points to 61. .
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Passenger car sales in Turkey were 121 percent higher last month than they were in December 2008, while light commercial vehicle sales were up 96 percent. Promotional campaigns attracted buyers to dealers’ lots even though the tax incentives expired in October.
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.
- According to Citi estimates, consumer price inflation in Hungary edged up in December, reaching 5.5 percent year-over-year versus 5.2 percent in November. Higher food and fuel prices were to blame.
Opportunities
- China’s Securities Regulatory Commission has given approval for the launch of stock index futures, margin trading and short selling at an unspecified date in the future. This is another step in the reform of its capital markets and can be taken as a sign of confidence that China is past the global financial crisis of 2008.
- Thermal coal prices have risen in Central and Eastern Europe, increasing the cost of producing electricity for utilities operating lignite plants. The Czech Republic’s largest utility plans to produce almost half of its electricity in 2010 at its nuclear plants.
Threats
- One of the areas of concern in China’s PMI report was the rise of input prices by 3.3 points to 66.7. This is an indicator of rising inflationary pressures. This, coupled with the rise in food prices, should be monitored closely in the coming months.
- Rising U.S. Treasury yields negatively impact equity valuations, but Morgan Stanley research shows only a weak historical relationship with emerging markets. Higher real interest rates resulting from stronger economic growth are likely to have a much more benign impact on equities than if rates rise during a period of weak economic growth.
