- China’s fourth quarter GDP came in better than expected at 10.7 percent year-over-year versus expectations of 10.5 percent. For the full year of 2009, GDP grew 8.7 percent, well above the government’s target of 8 percent.
- China’s innovation in its capital markets continues as stock index futures, shorting, margin financing and REITs are expected to be introduced in the first half of 2010.
- Investor confidence in Eastern Europe rose to new highs in January based on improving economic conditions and expected increasing export demand.
- Fitch raised its credit rating outlook for Russia to stable from negative, citing greater economic and financial stability.
Weaknesses
- China’s Consumer Price Index (CPI) for December came in stronger than expected at 1.9 percent versus expectations of 1.4 percent. Much of this was driven by higher food prices. It is estimated that 92 percent of the increase of the CPI rise was due to food.
- The People’s Bank of China (China’s central bank) set an additional 0.5 percent reserve requirement for those banks that issued too much in loans in January.
- Hungarian credit default swap spreads rose to the highest levels since September on concerns that upcoming elections may prompt the new government to increase the budget deficit.
Opportunities
- China is looking to move up the value chain in manufacturing as the State Council approved a report by the National Development and Reform Commission on accelerating the development of new strategic industries. These industries would include aerospace, biotechnology and new energy initiatives.
- The South African public utility Eskom announced it will need to increase prices by 35 percent over the next three years. While this is a negative for South African economic growth it is positive for infrastructure providers as capacity needs to be expanded.
Threats
- Rising input prices are a threat due to the overcapacity and competition in almost all manufacturing sectors. This means price increases cannot be passed onto the buyer and is a negative for already thin margins.
- If investors are concerned about a potential slowing of global growth as the global stimulus removal process appears to have started, risk aversion will likely rise, negatively impacting emerging markets.
