Emerging Markets Radar (June 25, 2012)
Strengths
- At Morgan Stanleyâs third Annual China Industrial Summit this Monday and Tuesday, analysts learned that more than 85 percent of existing railway construction projects resumed construction by late May, confirming prior market talk that Chinaâs National Development and Reform Commission is accelerating approval of infrastructure projects and the Ministry of Railways had received financing. In its twelfth five-year plan, China intends to add 29,000 kilometers of railway from 2011 to 2015 to reach 120,000 kilometers in total by 2015.
- Taiwanâs industrial production fell 0.2 percent year-over-year in May, far surpassing expectations for a 2.5 percent drop.
- Turkeyâs credit rating was raised to a notch below investment grade by Moodyâs, which cited âsignificantâ improvement in public finances and policies to cut the current account deficit. The Istanbul stock exchange is up more than 12 percent in U.S. dollar terms since the end of May, when we wrote about âThe Golden Wealth of Turkeyâ in Frank Talk.
Weaknesses
- The HSBC China Flash PMI edged down to 48.1 in June from 48.4 in May, its lowest in the last seven months and remaining below 50 for an eight straight month. Particularly, the new exports order sub-index fell 1.9 to 45.88, the lowest reading during the past three years. A PMI below 50 indicates industrial activities are contracting.
- Colombiaâs central bank is likely to increase banksâ minimum reserve requirements as a cautionary measure, as loan quality shows signs of deterioration, according to Bloomberg.
Opportunities
- A number of companies in Emerging Europe will pay an annual dividend in excess of 10 percent in 2012, as earnings yield is the highest since the last crisis.
- According to WIND, total online shopping amounted to RMB766 billion, or 4.2 percent of Chinaâs total retail sales in 2011. Particularly, online apparel purchases reached RMB267 billion in 2011, representing growth of 93.5 percent year-over-year. According to JP Morganâs internet analyst Dick Wei, the share of Chinese internet users who shop online rose from 28 percent in 2009 to 36 percent in 2011, and is expected to reach 47 percent in 2015.
Threats
- The finished goods inventory sub-index of the HSBC China Flash PMI rose 1.8 to 52.2 in June, which suggests further de-stocking ahead. The market expects upstream resources suppliers to follow current de-stocking with downstream producers. Altogether, it may mean the near-term growth momentum will remain subdued.
- Fitch questioned Indiaâs investment grade rating on the back of stumbling economic growth and fragile public finances. BMI takes a contrarian view on India, citing a real GDP forecast for 2012/13 averaging 6 percent and no immediate funding pressures. BMI proprietary risk metrics show that India remains one of the strongest credits when measured in terms of capacity to pay.
