Emerging Markets Cheat Sheet (Febuary 7, 2011)
Strengths
- South Korea’s exports surged a higher-than-expected 46 percent from a year earlier in January to a record $44.9 billion. The rise was driven by a stronger year-over-year recovery in shipments to the European Union and Japan.
- Thanks to more tourist arrivals from mainland China and improving local consumer confidence with unemployment at a two-year low, Hong Kong’s retail sales grew a higher-than-expected 18.5 percent in December on a year-over-year basis.
Weaknesses
China’s official Purchasing Managers’ Index decelerated to a lower-than-expected 52.9 in January from 53.9 in December. The drop is attributable to a seasonal slowdown ahead of the Chinese New Year and escalated tightening during the month to combat inflation and property speculation.- South Korea’s headline consumer price index rose a higher-than-expected 4.1 percent in January on a year-over-year basis, breaching the central bank’s 4 percent target ceiling and accelerating from 3.5 percent in December. The change was due to rising global commodity prices, the worst outbreak of foot-and-mouth disease in at least half a century, and festive demand ahead of the Lunar New Year.
- Indonesia’s central bank unexpectedly raised its benchmark interest rate by 25 basis points to 6.75 percent, the first rate hike since 2008. The move is an effort to curb inflation, which is already at a 21-month high.
Opportunities
- The bright side of rising food inflation in China is a market-based transfer of wealth from urban to rural Chinese households, whose income has lagged their urban counterparts in the last several decades. Boosting rural income should help China transform itself into a more consumption-driven economy in the long run.
Threats
- One thematic challenge for Asian markets in the near term is a broad trend of rising inflationary pressure and generally low interest rates. Recent turmoil in North Africa and the Middle East only serves as a reminder of the dire social consequences of inflation. India, Korea, Thailand, and most recently, Indonesia have all raised interest rates since the beginning of the year. These and other Asian central banks may continue on a monetary tightening path, and therefore, contribute to equity market volatility.
