Emerging Markets Diary (5/1/2010)
Strengths
- South Korea’s GDP expanded 7.8 percent on a year-over-year basis and 1.8 percent sequentially in the first quarter of 2010. This is faster than market expectations, thanks to a recovery in global trade, especially, surging import demand from China and government spending.
- Thailand’s industrial production grew by a stronger than expected 32.6 percent year-over-year in March. This is in line with the 41 percent rebound in exports the country saw the same month.
- Soriana, one of the largest retailers in Mexico, posted better than expected first quarter results. After several quarters of posting same-store-sales declines, sales picked up 2.4 percent in the first quarter.
- Lojas Renner, the apparel retailer in Brazil, also posted strong results for the first quarter.
- The Central Bank of Turkey (CBT) softened its exit strategy in the face of the ongoing Greek crisis. CBT injected 1.5 billion Turkish lira of liquidity via repo auctions on Wednesday, an equivalent of $1 billion.
Weaknesses
- Hong Kong’s imports grew much faster than exports pushing the country’s trade deficit to HK$38.9 billion in March, the largest since 1952.
- Chile industrial production collapsed by 17.4 percent in March on a year-over-year basis due to the earthquake. This was much worse than the 9 percent decline expected by the market.
- Even though European prices for spot gas edged up by 5 percent on perked up demand in April, the gap with oil-linked Russian exports has widened. Credit Suisse expects the discount to expand further during the summer period due to a strong seasonality effect.
Opportunities
Aside from favorable demographics, rich natural resources and a stable political environment, Indonesia also boasts one of the lowest manufacturing wages in Asia. It is reported that manufacturing activities have been transferring from China to Indonesia thanks to its labor cost advantage. Low wages should help Indonesia’s industrial recovery and rising employment, especially in the Greater Jakarta area, and is a key factor to sustain urbanization in the long term.- Mr. Guillermo Ortiz, former governor of Mexico’s Central Bank, was invited to join the board of the airport operator, ASUR. It is likely that ASUR will bid for a concession to operate a new airport in the Riviera Maya.
- While the potential fallout from the current Greek crisis may be a negative for risky assets in the short run, BCA research argues that the threat of the Greek debt fiasco will certainly keep European Central Bank policy easy. Healthier economies of Eastern Europe could boom on such prolonged monetary stimulation.
Threats
- Rapidly shrinking property transactions in major Chinese cities following recent introduction of harsh government policies to curb real estate speculation can have a domino effect on discretionary consumer spending. This will also likely affect demand for base metals and construction materials.
- Brazil’s Central Bank raised interest rates by 75 basis points to 9.50 percent this week. Higher rates are most likely intended to provide a headwind for leveraged companies, but the appreciation of the Brazilian currency will also help importers.
- Naspers, a leading media group in emerging markets headquartered in South Africa, will have a new competitor in the pay TV business. Digital Media will start a new DTH (Direct-to-Home) satellite service on May 1. Digital Media is trying to take advantage of the low penetration of pay TV in South Africa, which is currently around 25 percent.
- A number of Russian IPOs were postponed or saw price ranges lowered as investors balked at the amount of equity being rushed to market. This sentiment may be reflective of a near-term market top.
