Emerging Markets Diary (March 20, 2010)
Strengths
- Standard & Poor upgraded Indonesia’s sovereign debt rating to BB, only two notches below investment grade, from BB-, citing steadily improving debt metrics and growing foreign currency reserves for the country.
- Singapore’s unemployment rate declined to 2.1 percent in the fourth quarter from 3.4 percent in the third quarter, as jobs were added in services, construction, and manufacturing industries.
- Hong Kong’s unemployment rate decreased to 4.6 percent in February from 4.9 percent in January, as the total job count increased by 7,900 which far outpaced 700 additions to the labor force.
- Wage growth in Hungary surged from zero to 6.5 percent in January. Net wages were further boosted by lower tax rates on average wages, increasing take home pay by 12.9 percent year-on-year, according to Citi research.
- Customer loans at Turkish banks grew by 3.3 percent year-to-date in 2010. The non performing loan (NPL) ratio at 5.2 percent indicated a 20 basis point improvement over the end of 2009, when NPL ratio stood at 5.4 percent.
Weaknesses
- India’s central bank surprisingly raised its benchmark interest rate for the first time since July 2008 by 25 basis points to 5 percent from 4.75 percent, as February’s wholesale price inflation reached a 16 month high of 9.89 percent year-over-year.
- Philippines’ Finance Secretary said the country may cut its full year GDP growth target and raise the budget deficit ceiling due to the El Nino dry spell and power outages.
- Gazprom used to price its long-term contracts in Europe based on a crude-linked formula, which makes its gas less competitive in an environment where spot prices are determined by LNG (liquefied natural gas) imports.
Opportunities
- Apart from continued urbanization, expanded government subsidies, as well as a natural product replacement cycle, one major underlying source of demand for home appliances in China is the rising number of marriages of the younger generation born in the baby booming 1980s. Whether they decide to rent or buy homes for their wedded lives, their demand remains uncompromised for such household appliances as TVs, washers, refrigerators, air conditioners, etc. Opportunities exist for domestic appliance makers in China.
- Sovereign debt crisis in Greece has not discouraged the Central European countries from euro adoption plans. The key incentives remain in place and are related to the elimination of foreign exchange risks and reduction of borrowing costs. If anything, the financial market turmoil in 2008 and 2009 may even increase the determination to adopt the euro in countries with particularly volatile exchange rates and a large share of foreign currency loans.
Threats
- China will ban 78 large companies owned by the central government from conducting business in the property sector unless their core operations are property development. In addition, the government will not allow banks to provide loans to real estate developers hoarding and speculating on land. Policy risks remain high for property developers with idle land and aggressive land bidding history.
- Central Bank of Turkey (CBT) kept it policy unchanged at 6.5 percent, but rising headline inflation has begun to pose a challenge to the CBT’s intentions to maintain its dovish stance.
