Emerging Markets Diary (October 4, 2010)
Strengths
- Emerging markets equity funds saw an inflow of more than $47 billion this year, in a sharp contrast with a net outflow of more than $37 billion from developed markets equity funds. Investors are likely concerned about anemic growth in the U.S. and Western Europe and moving to emerging markets for higher growth and leverage to rising commodity prices. This trend continued in earnest this week with another inflow of $4.3 billion, the largest since last year.
- Developed countries companies’ earnings are still well below their pre-crisis peak, points out Dr. Marc Faber in his October commentary However, in emerging economies, corporate earnings are either close to their previous peak or, as in the case of Indonesia, they exceed them significantly.
Weaknesses
- Russia’s manufacturing expansion slowed in September to the lowest level since March as international demand for its exports weakened. The HSBC PMI index is still in expansion territory, but slid to 51.2 from 52.9 in August. The government left its official GDP forecast for this year unchanged at 4 percent.
Opportunities
- Polish PMI advanced to 54.7 in September from 53.8 the previous month, according to HSBC. The manufacturing industry grew last month at the fastest pace since November 2006 and inflation probably accelerated, strengthening arguments for a central bank rate increase that would push the zloty higher.
Threats
- RGE is skeptical that the Hungarian government will push for a new International Monetary Fund deal after the regional elections, scheduled for this weekend, are behind them. The ruling party’s concern that it will lose support to the far-right opposition party, Jobbik, which holds an influential 12 percent of parliamentary seats, is a key factor that makes the ruling party less likely to deviate from its current populist policy path.
