Emerging Markets Cheat Sheet (September 19, 2011)
Strengths
- In China, both exports and imports posted positive results in August, rising 24.5 percent and 30.2 percent, respectively. Exports to Europe and Japan rebounded, in addition to accelerating shipments to the Middle East and Latin America. Imports were driven by demand for commodities and capital goods as industries ended a period of de-stocking.
- Thailand’s growth in total vehicle sales accelerated to 20.3 percent year-over-year in August from 11 percent in July, as Japanese car makers continued to increase production to meet pent up demand after the March earthquake. The government also introduced tax incentives this week for first-time car buyers.
- Singapore’s retail sales growth in July was revised up to 11.1 percent year-over-year from 10.7 percent, higher than expected, driven by watches and jewelry, telecom apparatus, and motor vehicles sales, thanks to rising tourist arrivals.
- It is no wonder that many Greek companies are moving operations to Bulgaria, where taxes are 10 percent instead of the 25 percent they have to pay at home (see chart). Who loves success more – the developed world that taxes away profits or the emerging world that leaves more of the profits in the hands of entrepreneurs?
Weaknesses
- China’s M2 money supply growth moderated to 13.5 percent year-over-year in August from July’s 14.7 percent, the slowest pace in six years and lower than market estimates. However, central bank officials said the slowdown was within expectations and the August data didn't fully reflect actual total money supply because of banks’ off-balance-sheet activity, nonbanks’ stealth lending, and private underground financing.
- China’s growth in electricity generation decelerated to 10 percent year-over-year in August from 13.2 percent in July and 16.2 percent in June, driven by weakening demand from cement, metals and equipment manufacturing industries.
- In July, India’s industrial production grew at a slower rate of 3.3 percent year-over-year, compared with June’s 8.8 percent, because of volatile capital goods output meanwhile, inflation increased to 9.8 percent year-over-year in August from 9.2 percent in July. India’s central bank raised the benchmark reverse repo rate by 25 basis points to 7.25 percent from 7 percent.
- Authoritarian rulers of Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan turned to Russia to set up a rapid-reaction force against potential uprisings. Russia strongly opposed military intervention in Libya and is against imposing sanctions on the Syrian regime.
Opportunities
- Indonesia should be among the least vulnerable to another potential European and U.S. recession. Relative to the rest of Asia, Indonesia is less dependent on external demand since exports as a percent of its GDP ranks among the lowest at 25 percent, thanks to a large domestic economy. In addition, 64 percent of Indonesian exports go to Asia including Japan, where growth prospects are brighter than the EU and the U.S.
Threats
- Should the U.S. dollar continue to rally, Asian equities might remain under selling pressure as global liquidity could continue to rotate back into the U.S. In fact, a negative 72 percent correlation still exists between Asian stocks and the U.S. dollar index in the last three years.
