Emerging Markets Radar (July 23, 2012)
Strengths
- China’s big four banks made about Rmb50 billion of new loans in the first half of July, double the amount in June, Shanghai Securities News reported. Additionally, China’s outstanding real estate loans were up 10 percent year-over-year in the first half of the year.
- China is boosting this year’s railway investment plan by 9 percent to Rmb 448.3 billion ($70.3 billion).
- Turkish white goods manufacturers continue to gain market share, with sales increasing by 5 percent year-over-year in June. Domestic sales were up 3 percent to 634 thousand units, while exports were up 15 percent to 1.43 million units.
Weaknesses
- On July 19 the Ministry of Land Resources and Ministry of Housing and Urban-Rural Development jointly held an urgent video conference with local governments on how to prevent a rebound of home prices, and asked them to increase land supply for ordinary residential units. Although it had prompted negative sentiment toward the property sector, the government didn’t issue new policies to slow housing transactions, which are vital to investment activities.
- China’s Premier Wen Jiabao warned that the economic rebound isn’t yet stable and hardship may continue for a period of time.
Opportunities
- Borrowing costs in the Czech Republic are to remain low after Moody’s reaffirmed the country’s A1 rating this week with a stable outlook, four notches above Italy and five above Spain.
- With the trade deficit on a downward path and inflationary pressures diminishing, BMI expects that the Reserve Bank of India has sufficient space to resume monetary easing.
- In its July 17 report, Citi Research says China’s economic rebalancing is positive to the economy and the market in the long term, but should introduce uncertainties in corporate earnings amid slower growth and reforms in the near term. It points out that slow investment and the de-capacity process will likely bring gains for telecommunications, staples, health care, utilities, transportation, discretionary and property.
Threats
- Although China is adding investments to help stabilize economic growth, the country still intends to reduce the weight of investment in the GDP. Sectors that are related to or relying on investments may see sales and earning growth being revised downwards going forward.
- Trade figures published by the Bank of Thailand in July indicate that exports are falling short of consensus expectations for a robust recovery in 2012.
- BMI revised its forecast for Mexico’s average inflation from 3.6 percent to 3.8, as a recent outbreak of bird flu has driven up egg and poultry prices in the country, while a growing concern over the drought in the U.S. has caused grain prices to spike.
