Emerging Markets Diary (September 26, 2010)
Strengths
- According to EPFR Global, equity funds tracked by the firm took in $3.3 billion for the week as Asia (excluding Japan) funds posted their best week of inflows in 15 months.
- The new President of the Philippines, Benigno Aquino, vowed that he will seek to root out all corruption in tax evasion in order to reduce the budget deficit and to attract foreign investment.
Weaknesses
- Growth in Europe’s services and manufacturing industries weakened more than economists forecast in September, adding to evidence the recovery in the region is losing steam. A composite index based on a survey of euro-area purchasing managers in both industries declined to 53.8 from 56.2 in August.
- China’s dispute with Japan over a detained fishing captain continued with Premier Wen Jiabao threatening more retaliatory action against Japan if he was not immediately released.
Opportunities
- Retail growth is accelerating in Russia as disposable income grows. Renaissance Capital expects per capita nominal income to improve to $7,500 in 2010 from $6,300 in 2009.
Threats
- China Business News reported that a property tax may be introduced as soon as October in an effort to cool property prices. The government would like to crack down on speculation within the residential real estate market.
- With U.S. Congressional elections drawing near, complaints have recently resurfaced against China’s unfair trade advantage and its slow pace of currency revaluation. If the U.S. economic recovery remains sluggish and uncertain, protectionism may continue to be a tangible risk.
- As part of its exit strategy, the Central Bank of Turkey raised the required reserve ratio on deposits, nearly back to pre-crisis levels. As was underlined by the bank, the rise in reserve requirements would drain a total of $1.5 billion in foreign currency and Turkish lira 2.1 billion of liquidity from the market.
