Emerging Markets Diary (August 23, 2010)
Strengths
- Hong Kong's unemployment rate fell to a lower-than-expected 4.3 percent in July, lowest in 19 months, from 4.6 percent in June.
- Malaysia's GDP expanded 8.9 percent in the second quarter from a year earlier, ahead of consensus, as resilient exports and strong private consumption drove inventory restocking and fixed-capital expenditure.
- India's headline inflation rate declined to a lower-than-expected 10 percent year over year in July from 10.6 percent in June and 11.1 percent in May, owing to abating food price inflation as a result of favorable monsoon.
- Taiwan's GDP growth surprised on the upside in the second quarter, rising 12.5 percent on a year-over-year basis, largely reflecting strong exports in addition to accelerating public investment and private consumption.
- Peru's GDP grew by 11.9 percent in June, higher than expected by market participants. Manufacturing, up 21.6 percent year over year, and construction, up 22.7 percent year over year, were the main drivers of the growth. Unemployment in July fell to 7 percent from 7.6 percent a prior month.
- Chile's GDP in 2Q grew by 6.5 percent year over year, higher than expected.
- Colombia is also recovering fast, with industrial production growing by 8.5 percent in June. The automobile and steel sectors were the main contributors.
- Banco do Brasil reported strong second-quarter results, with net income rising 35 percent year over year.
- PKO BP, the leading Polish bank, reported second-quarter results that surpassed the market expectations. Net income grew by 30 percent year over year.
Weaknesses
- Singapore's exports growth in July trailed expectations. Exports rose 18.2 percent year over year, but were down from June's 28.5 percent due to moderating shipments of pharmaceuticals and electronics.
- Thailand's exports rose 20.6 percent in July from a year earlier, a slower rate than expected. This led to a trade deficit of $940 million as external demand subsided for electronics and rice.
- Vietnam devalued its currency against the U.S. dollar for a third time since November. The central bank lowered the reference exchange rate by another 2 percent to shore up exporters.
- BIM, the Turkish retailer, disappointed with second-quarter results. Net income fell by 11 percent compared to the sequential quarter, well below consensus. While revenue fell only 1 percent, expenses increased by 8 percent.
Opportunities
- Upcoming mid-autumn festivals and the National Day holiday season, coupled with recent adverse weather, may intensify the demand-supply imbalance in China's market for food and agricultural products. Chinese fertilizer producers should continue to benefit from potentially higher food inflation in the country going forward.
- Turk Telekom emerged as one of the bidders for a 40 percent stake in Serbja Telekom, an integrated telecom provider. Other bidders include Deutsche Telekom, Telefonica and Orascom Telecom.
- According to the latest opinion poll in Brazil, support for presidential candidate Dilma Rousseff increased to 41 percent from 36 percent in the previous month. Support for her main rival, Jose Serra, slipped to 33 percent from 37 percent.
Threats
- Based on the past 43 months, a combination of lower housing prices and higher housing transaction volume would typically accompany an uptrend in Chinese property stocks, given the Chinese authorities' mandate to protect social stability. So far these constructive ingredients have been missing, as Chinese property developers remain reluctant to publicize price cuts, and it is uncertain whether transaction volume would respond to initial price declines since buyers may expect further declines. If this scenario persists, the Chinese property sector may continue to face uncertainties.
- The Polish banking system faces uncertainty as the Ministry of Finance considers a special bank tax that would be based on the assets in the system. The proceeds would be used to reduce the nation's budget deficit, as has been done in Hungary. The prospect of higher taxes had a negative impact on the shares of the Polish banks in the last two weeks.
