Emerging Markets Radar (September 9, 2013)

Emerging Markets Radar (September 9, 2013)


  • China‚Äôs August PMI was 51.0 versus market expectation of 50.6, showing expansionary industrial activities in China. By adding daily power output CLSA forecasted power generation growth of 15.3 percent in August. Goldman Sachs raised its forecast for China‚Äôs economic growth this year to 7.6 percent from 7.4 percent, saying forward indicators picked up in the last few months amid improving global demand.
  • China‚Äôs passenger vehicles sales rose 13 percent year-over-year to 1.25 million units in August, in line with July's 13.1 percent, despite 1 less working day versus August 2012. Year-to-date 2013 sales totaled 10.1 million units, up 16.3 percent year-over-year. The market expected this double-digit growth to extend into September.
  • After Bank of America sold its remaining 2 billion shares in China Construction Bank, most foreign strategic shareholders have sold their stakes in Chinese banks, except HSBC, which still holds shares of Bank of Communications.
  • The investigation of the former chairman and CEO of PetroChina and its parent company CNPC showed China‚Äôs determination to clean up corruption in state-owned enterprises, though those cases can temporarily have a negative effect on stock prices.
  • Macau‚Äôs August gaming gross revenue rose 17.6 percent year-over-year to 30.7 billion Macanese pataca (MOP).
  • Indonesia‚Äôs FX reserve came in at $93 billion, better than the $90 billion most economists had predicted. Foreign currency reserve is watched closely by investors due to the fact that a decrease of FX reserve can add downside pressure to the falling local currency.
  • The Baltic Dry Index (BDI) jumped to a 21-month high at 1,279 supported by a rising capsize freight rate due to steady Chinese iron ore demand and falling fleet growth.
  • Thailand‚Äôs inflation was 1.59 percent in August, lower than the market expectation of 1.8 percent in spite of its currency weakness.
  • Malaysia kept its benchmark rate unchanged at 3 percent, in line with the market expectation.
  • The Philippines‚Äô August inflation was 2.1 percent lower than the market consensus of 2.4 percent.


  • Indonesia‚Äôs July trade deficit was $2.3 billion, wider than the expected $393 million. The trade deficit was $877 million in June. In July, Indonesian exports declined 6.1 percent, while imports went up 6.5 percent. Indonesia‚Äôs headline inflation increased further to 8.7 percent in August, though lower than the consensus estimate of 8.95 percent.
  • Goldman Sachs cut its growth forecast for Indonesia, Thailand and Malaysia between 40-70 basis points each in 2013 and 2014, based on external pressures and high inflation. The Ministry of Housing and Urban-Rural Development called meetings with seven cities including Nanjing and Zhengzhou because home prices in the regions increased ‚Äútoo fast,‚ÄĚ Economic Information Daily reports.
  • Czech GDP growth was revised downward to 0.6 percent in the second quarter from the flash estimate at 0.7 percent. GDP data are unlikely to take off the table the idea of FX interventions to weaken the koruna.


China's Industrial Activity at 16-Month high helps inprove market sentiment
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  • As shown in the graph above, China‚Äôs August official PMI surprised on the upside by rising to 51 versus the market expectation of 50.6, which also confirmed a better-than-expected HSBC China Flash PMI released earlier. Many forward indicators have pointed to growth momentum for China‚Äôs economy as China supports short-term growth stability while working on long-term economic reform.
  • Russian Novatek and China National Petroleum Corporation (CNPC) concluded an agreement on the purchase of a 20 percent equity share in the Yamal LNG project by CNPC. The move validates Novatek‚Äôs push to break Gazprom‚Äôs long-held monopoly over gas exports.


  • After credit growth since the 1997 Asia crisis, the loan-to-deposit ratio (LTD) of Indonesia‚Äôs banking system has reached above 90 percent, the highest among Association of Southeast Asian Nation (ASEAN) countries. With falling local currency and slower economic growth, a nonperforming loan up cycle may begin if corporations run at losses. Such a scenario may happen in Thailand and Malaysia since these countries are under the same pressures of weak currency and slower growth prospects.
  • A strong U.S. dollar and rising rates expose emerging markets to a variety of risks, among which are weak currencies feeding higher inflation through imports. Hedgeye sees further downside for emerging markets relative to the U.S.

The strong dollar asset allocation shift is underway
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