Emerging Markets Radar (November 25, 2013)

November 25, 2013

3 minute read

The announcement of reform details from the third plenary session of the Communist Party 18th conference last Friday made investors believe that Chinese stocks will be re-rated after lagging behind the global market for the last three years. The reform statement clearly provided policy direction, an implementation road map and measurement specificities, which exceeded market expectations in its swiftness and comprehensiveness. In particular, the market was encouraged by reforms including a two-child policy, the Hukou system, land rights, market price mechanism on money and resources, and state owned enterprises.
China’s October power generation rose 10.4 percent versus 10.3 percent in September, while industrial power consumption growth came in at 9 percent versus 8 percent in September.
Malaysia October Consumer Price Index (CPI) inflation rose to 2.8 percent year-over-year, which remains within the target inflation. This was above the consensus of 2.7 percent.
Singapore’s third-quarter GDP was revised to sequential expansion of 1.3 percent quarter-over-quarter and 5.8 percent year-over-year.

HSBC China Flash November PMI was 50.4 in the expansionary territory, versus market consensus of 50.8 and 50.9 for September. The production index was slightly up at 51.3, but new orders were down at 51 versus September. New export orders were down at 49.4, while raw material inventories and finished goods inventories were both down at 49 and 49.8, respectively, showing weak export and inventory de-stocking in November.
Guangzhou city followed tier-one cities to raise down payments to 70 percent for second-home purchases. It was also reported that Premier Li Keqiang spoke about unification of property registration. Both news items added pressure on property stocks this week, but a re-rating for the sector may come sooner or later due to depressed valuations and high cash generation and sales growth.
Association of Southeast Asian Nation (ASEAN) markets were weak this week, while fundamentals are normalizing to a slower growth rate. Thailand’s third-quarter GDP grew 2.7 percent versus the market expectation of 2.9 percent, but up 1.3 percent versus the prior quarter.

As shown in the chart above, Morgan Stanley estimates annual newborn rates to increase 8 to 11 percent in 2015 to 2020, which would create huge demand for baby food and care products. Along with immediate reforms in the Hukou system and land rights for farmers, China should see increasing demand for household products and urban construction.
The Czech Republic’s incumbent mobile operators won frequencies that let them offer 4G services in an 8.5 billion koruna tender that did not bring new competition to market. This is a stunning about-face for the regulator which less than six months ago prevented Spanish Telefonica from participating in the auction.
The Czech Republic’s central bank’s goal of maintaining a weaker koruna for longer is to promote a stronger recovery in the economy and prices.

China’s 10-year bond yield went up 100 basis points to 4.6 percent since the beginning of July, while the Shanghai interbank offered rate also increased lately, indicating the People’s Bank of China, the central bank, is in a tightening bias.
Russian companies are at their most indebted since the 2008 financial crisis, risking credit downgrades and rising borrowing costs amid sluggish economic growth in the country, according to ING Groep NV.
Flat-to-declining power demand in Europe weakens the case for planned capacity expansion in Central Europe, driven more by political rather than economic reasons.