Emerging Markets Diary (4/5/2010)
Strengths
- South Korea’s exports rose by a higher-than-expected 35.1 percent year over year in March, thanks to a recovering global economy that supported demand for semiconductors, automobiles and petrochemicals.
- China’s official Purchasing Managers’ Index rebounded to 55.1 in March from 52 in February, a 13th month of expansion. The HSBC version also increased to 57 in March from 55.8 in February.
- Consumer prices in Indonesia climbed 3.4 percent in March from a year earlier, which was lower than market expectations and below February’s 3.8 percent. This reduced the inflationary pressure and the urgency for its central bank to raise interest rates.
- Fourth-quarter GDP growth of 6 percent year over year in Turkey was above consensus expectation of 4 percent, according to Barclays Capital. Robust banking and household sector balance sheets could not prevent an output contraction of nearly 5 percent in 2009, but these factors are likely to play a significant role in the recovery in 2010, as Turkey can hope for more domestic demand stimulus than other countries in the region.
Weaknesses
- The Philippines was blacklisted by the European Union because of aviation safety concerns and all airlines based in the country would be prohibited from flying into the EU. This new policy affects about 40 carriers.
- Russian manufacturing growth remained sluggish in March, according to research by VTB Capital. The research signaled only a marginal improvement in the business climate. A fall in new orders was offset by a slightly sharper rise in output, as well as a weaker decline in employment.
Opportunities
- China’s imports from other Asian countries increased 64 percent year over year in the first two months of this year to $108 billion. Among the biggest regional winners are commodity-producing countries in Southeast Asia – imports from Malaysia and Indonesia jumped 104 percent and 100 percent, respectively. The ongoing drought in southwest China should help accelerate coal imports from Indonesia because of insufficient hydropower generation. Going forward, rising export revenues for Indonesia may translate into job growth and higher consumption.
- Robust manufacturing numbers in the export-reliant Czech Republic and Hungary continue to reflect these countries’ integration into the industrial production process in core Europe. The weaker euro also helps the exports, points out Barclay’s Capital research.
Threats
- According to an Interfax report on March 30, the Russian Ministry of Economy and Development is preparing a proposal for implementing a new taxation regime on fertilizers and non-ferrous metals, with an eye to increasing the export duties in these sectors. Diversifying revenue sources and the need to offer some breathing space to the already heavily milked oil industry might be the reasons behind the move.
