Emerging Markets Radar (October 22, 2012)
Strengths
- China reported September and third quarter economic data that was better than market expectations and showed upside strength for the economy. Third quarter GDP grew 7.4 percent, in line with the market consensus, and believed to be the bottom for the year. September industrial production grew 9.2 percent versus the estimate of 9 percent. September retail sales were up 14.2 percent versus the estimate of 13.2 percent. September year-to-date fixed asset investment grew 20.2 percent, slightly better than 20.1 percent for the first half of the year. Money supply (M2) was up 14.8 percent, better than the 13.5 percent in August due to increasing corporate bond issuance and trust loan lending.
- China’s September CPI moderated slightly to 1.9 percent year-over-year from 2.2 percent in August.
- China September exports went up 9.9 percent versus the estimate of 5.5 percent, while imports expanded 2.4 percent after contracting 2.6 percent in August.
- Bank of Thailand, the central bank, cut the benchmark lending rate by 25 basis points to 2.75 percent, which is said to be a precautionary action to hedge potential slower economic growth due to weak external markets.
Weaknesses
- China’s foreign direct investment dropped 6.8 percent in September, 3.5 percent worse than the estimate.
- China’s September power consumption growth was at 2.9 percent on a year-over-year basis, down from 3.6 percent in August due to slower industrial consumption growth. The September Producer Price Index (PPI) continued a downtrend by decreasing 3.6 percent, indicating the de-stocking processing has yet to end.
- The Hungarian government has announced new austerity measures for 2013, increasing the tax burden for Hungarian banks in terms of both the financial transactions tax and the bank levy. In the Frank Talk blog, we recently discussed the effect that the taxes had on the Hungarian economy.
Opportunities
- The graph above shows Philippines’ monthly overseas remittance. In August, it was another record monthly high, rising 7.6 percent year-over-year. As more overseas remittance comes in, it helps domestic consumption and keeps Philippines’ current account in surplus.
- Greg Weldon of Weldon Financial points out that the Polish Central Bank has ample room to ease while maintaining positive real interest rates. He illustrates that by juxtaposing falling inflation with the previous rate increases.
Threats
- China’s September PPI was down 3.6 percent, which shows weak demand for industrial products. Further evidence of weak industrial activities is the producer purchase index in September which was down 4.1 percent, showing weak industrial demand for raw materials and commodities. However, the recent cement and coal price firmness from their lows in the summer may indicate an improving demand for commodities.
- This evidence of weak demand for industrial products has major negative implications for iron ore and coking coal companies and for vertically integrated steel companies in Brazil, Russia and elsewhere.
- In local elections last weekend, Communists together with Social Democrats won 44 percent of the vote and could control 10 out of 13 regions in Czech Republic. The ruling parties received only 12.3 percent ahead of a key parliament vote on a tax/pension reform package and a no-confidence vote in late October.
