Emerging Markets Highlights (week ending 2/15/2010)
Strengths
- China’s passenger car sales continued to surge by 113 percent in January from a year earlier to 1.32 million units. While year-over-year growth may be affected by the low base one year earlier, January’s print represented a solid 20 percent increase from December.
- Indonesia’s GDP expanded by a higher than expected 5.4 percent year-over-year in the fourth quarter, as lower interest rates and government stimulus continued to encourage consumer spending.
- Taiwan’s exports grew 75.8 percent in January from a year earlier, the highest year-over-year increase in more than thirty years and ahead of expectations, thanks to better electronics demand driven by holiday spending before the Chinese New Year.
- The 4Q 09 results of Itau Unibanco and Vivo in Brazil slightly surpassed market expectations reinforcing the view that Latin American largest economy is on the way to recovery. The results of the home builder, Gafisa, were also ahead of expectations.
- Brazilian industry capacity utilization in December rose to 81.7 percent from 81.3 percent in November, above the consensus expectation of 81.4 percent.
- Brazilian air traffic in January rose 31.6 percent year-over-year with the load factor rising by 6 percent to 78 percent as a result of stronger economic activity.
- At 25.2 percent growth over last year, December industrial production in Turkey came in considerably stronger than expected. It is also worth highlighting that the increase was broad based (see chart below, courtesy of Citi research), with capital and durable consumer goods leading the advance.
Weaknesses
- Although attributable largely to a jump in labor force participation in response to government’s job creation programs, South Korea’s unemployment rate climbed to a ten year high at 4.8 percent in January from 3.6 percent in December.
- Despite government intervention, average property prices in 70 cities in China continued to rise 1.3 percent month-over-month in January, an eleventh consecutive monthly increase.
- Chile CPI in January came in at 0.5 percent month-over-month (vs. 0.1 percent expectation) while CPI in Colombia reached 0.69 percent month-over-month (vs. 0.6 percent expectation).
- All the three airport groups in Mexico (ASUR, GAP, OMA) posted declines in traffic in January.
- January sales of new vehicles fell by 37 percent year-over-year in Russia. There was a strong base effect from January of last year when buyers rushed in to convert collapsing currency into hard assets. Also, the start of its "cash for clunkers" program was postponed from January 1 March 8, so customers are holding out for the state subsidy.
Opportunities
- Weaker than expected inflation in consumer prices, moderating bank lending, and narrowing trade surplus in China in January may provide some relief to lingering fears of early monetary tightening from Chinese policymakers in the near term.
- Grupo Televisa in Mexico, the largest media group in the Spanish speaking world, received a permission from authorities to bid for a stake in the mobile operator, Nextel Mexico (NIHD) that will permit it to offer triple play services for clients. Televisa and NIHD are expected to bid jointly for a new 3G spectrum.
- Earnings release by a bellwether bank in Turkey provides a positive glimpse into outlook for 2010, according to Morgan Stanley banking analyst Magdalena Stoklosa. Margin contraction is less than expected as rebalancing out of government securities had already begun, and improvement in asset quality is coming sooner than expected.
Threats
- If the higher than expected rise in China’s Producer Price Index (PPI) in January, primarily driven by energy and raw materials, proves more than transient, Chinese manufactuers’ profit margin may face challenges as their costs inflate whereas competition severely limits their pricing power.
- A potential deceleration in the economic activity in China would negatively impact resource rich countries in Latin America.
- Continued monetary tightening in China would have a cooling effect on commodity exports, despite current strong demand for steel and raw materials.
- Risk aversion over public finance in crisis Greece is likely to spill over to the periphery countries of European Union, such as Poland, Czech Republic, and Hungary.
