Emerging Markets Diary (December 13, 2010)
Strengths
- Taiwan’s November exports surprised on the upside with a year-over-year growth of 21.8 percent, despite a 2.4 percent appreciation in the local currency over the last two months, as non-tech exports outperformed and Chinese demand recovered, after some weakening from June to September.
- China’s passenger car sales reached a new record 1.34 million units in November, representing 29 percent growth year-over-year, driven by year-end government purchase as well as anticipatory buying from consumers before the official announcement of stimulus expiration next year. Total vehicle sales have reached 16.4 million units this year through November, surpassing the 13.6 million in 2009.
- Thailand’s credit outlook was raised by Standard & Poor’s Ratings Services to Stable from Negative, thanks to the country’s relatively light net government indebtedness and prudent fiscal management, despite political uncertainties earlier this year.
- Results for the 2009 OECD Program for International Student Assessment, a triennial academic achievement test administered in 65 countries, shows that 15-year-old students in Shanghai, Singapore, Hong Kong, and South Korea outscored their U.S. counterparts in math, reading, and science.
- China’s exports growth in November came in at a better than expected 34.9 percent year-over-year, attributable to lower base effect, higher demand from emerging markets, and rising export prices. Trade surplus expanded to $22.9 billion dollars for the month.
- Industrial production in Turkey for October, at 9.8 percent year-on-year, was much stronger than the 6.4 percent consensus. With this reading, industrial production growth reaches about 13.1 percent year-on-year for the first 10 months of the year when compared with the same period of 2009. Developments to date suggest that GDP growth for 2010 is likely to reach 7.6 percent or even higher, according to Citi.
Weaknesses
- China raised the required reserve ratio by another 50 basis points for all banks effective December 20, the sixth hike so far this year. This is a move to drain excess liquidity in the system, created by trade surplus and foreign hot money, ahead of year end government expenditure and the expiration of October’s temporary reserve hike for selected banks domestically.
- The BRSA, the Turkish banking regulator, announced the banking sector's profit in October was down 4 percent, compared to September. Possible reasons are softer trading gains and slower non-performing loan recoveries. Still, for the first 10 month period of 2010 profits were up 7.6 percent year-over-year.
Opportunities
- With home and auto purchases growing at an average, 34 percent and 22 percent annually in the last decade, Chinese households have already unleashed significant potential in acquiring physical properties. In the next five years, in line with the government’s plan, tourism-oriented travel might undergo tremendous expansion, as Chinese consumers opt for more services-related expenditures upon owning real estate and durable goods. Indeed, growth in domestic tourists in China has lagged auto sales by a cumulative 500 percentage points in the past ten years, giving plenty of room to catch up. Acceleration in tourism growth should benefit hotels, gaming resorts in Macau, travel agencies, airlines and retailers.
- The Russian government may begin to sign production-sharing agreements (PSAs) again as the country seeks to attract investment in costly and challenging new frontier oil and gas projects such as the Yamal Peninsula and the offshore Arctic region.
Threats
- China’s sequential rise in housing prices in November and the imminent release of a greater than 5 percent reading in year-over-year consumer price inflation may sustain the overhang of a second interest rate hike in the near term.
- Sergei Ignatiev, Chairman of the Central Bank of Russia said that he does not rule out an interest hike in the first quarter of 2011, as inflation has become a concern. Inflation has been rising and will likely reach 8.5 percent year-over-year in 2010. Since August, the ruble real effective exchange rate has lost some 5.4 percent.
