Emerging Markets Cheat Sheet (January 3, 2011)
Strengths
- China's total online population reached 450 million at the end of November, growing 20.3 percent year-over-year and up from 420 million at the end of June. Around 33.9 percent of the country's population has used the internet, higher than the world average of 30 percent.
- The Chinese yuan strengthened beyond 6.6 per U.S. dollar for the first time in 17 years, bringing total appreciation for 2010 to 3.6 percent, ahead of President Hu Jintao's state visit to Washington in January. Chinese authorities may have allowed this move to tame domestic inflation as well.
- Russian service industries accelerated growth this month at the fastest pace since May, according to HSBC. The Service Purchasing Managers' Index (PMI) rose from 54.1 in November to 56.4. The survey based index indicates a contraction when it is below 50 and growth with a figure above 50.
- The Republic of Georgia attracted more than two million visitors in 2010, the highest figure since 2003. The number of visitors has increased since Georgia's five day war with neighboring Russia, when tourism's share of GDP fell to 3.6 percent. Georgia's economy is projected to expand as much as 6.5 percent in 2010.
- Ten years ago, when the Economist Intelligence Unit calculated scores for countries' sovereign-debt risk, the riskiest countries by some distance were Russia, Brazil and China, three of the four emerging-market BRICs. Now, some European economies look riskier, according to the Economist.
Weaknesses
- China's central bank raised one-year benchmark lending and deposit rates by 25 basis points on Christmas day to better manage rising inflation expectations and preempt a usual surge in lending at the beginning of a new year. Short- term interbank liquidity has dropped significantly so far this month.
- The HSBC / Markit China Manufacturing Purchasing Managers' Index declined to 54.4 in December from 55.3 November, the first moderation in five months, as both new orders and production eased.
- Hungary sovereign ratings by all three agencies are at the lowest level of the past ten years and all three agencies maintain a negative outlook. Controversial decisions include the financing of permanent tax cuts with temporary revenue sources, reversal of pension reforms and changes to the independent Fiscal Council.
Opportunities
- China's real interest rate has become increasingly negative even after the most recent central bank hike and ranks among the lowest in G-20 countries. Adjusted for inflation, Chinese savers now would lose 2.4 percent on their one-year bank deposits. With the government's resolve not to relax policy restrictions toward physical residential properties, Chinese investors, still deprived of investable asset classes apart from bank deposits, real estate, and stocks, are likely to allocate more liquidity in domestic equities next year.
- Savings and debt service payments take a relatively small toll on the average household budget in Russia, opening it for discretionary spending on goods and services. Renaissance Capital expects retail spending to grow 13 percent in 2011, with spending on consumer electronics exceeding 20 percent.
Threats
- The overall tax burden for the oil sector will rise as Russia begins to equalize heavy and light oil products. From February 2011, heavy and light product export duty will be set at 46.7 percent and 67 percent of crude export duty vs. 38 percent and 73 percent currently, respectively. From 2012, heavy and light product export duty will be set at 52.9 percent and 64 percent of crude export duty, and from 2013 the duty will be equalized for heavy and light products at 60 percent of crude export duty.
