Emerging Markets Diary (4/18/2010)
Strengths
- China’s total imports rose to a record $119.4 billion in March, a 66 percent growth year over year and 37 percent rise month over month, a sign that its domestic economy remains robust. But due to a much faster increase of imports compared with exports, the country registered a $7.2 billion in trade deficit for the month, the first deficit since 2004.
- Moody’s Investors Service raised South Korea’s sovereign credit ratings to A1 from A2, citing the country’s economic resilience to global crisis and largely contained budget deficit. South Korea’s unemployment rate dropped by the most in 10 years in March to 3.8 percent from 4.4 percent in February.
- Singapore’s central bank unexpectedly revalued its currency by moving the mid-point of its trading band higher and indicated that it would pursue modest and gradual appreciation going forward. Singapore’s GDP expanded by a higher-than-expected 13.1 percent year over year in the first quarter, thanks to a strong recovery in manufacturing.
China’s GDP rose by a higher-than-expected 11.9 percent year over year in the first quarter, as a revitalized domestic economy contributed half of the incremental growth. Inflation climbed by a lower-than-expected 2.4 percent from a year earlier in March, thanks to a moderation in food price increases compared with February.- On the aggregate level, Russian banks have fully returned the emergency funds provided to them by the Central Bank of Russia and Ministry of Finance, as shown in the chart below from Renaissance Capital. Another source of strength is a significant inflow of deposits.
Weaknesses
- China’s new bank loans for March proved less than expected at 510.7 billion yuan, down from February’s 700 billion yuan and 70 percent lower than March 2009 level. The government continues to manage the pace of bank lending to address excess liquidity in the property sector. M2 money supply growth also slowed to 22.5 percent year over year in March from 25.5 percent in February and 29.6 percent in November.
- China raised the required down payment ratio to 50 percent from 40 percent for second-home buyers and 30 percent from 20 percent for first home buyers of more than 90 square meters. Mortgage rates on second homes are set at no less than 1.1 times the benchmark interest rate.
Thailand’s Finance Minister said the country’s GDP growth may be reduced by two percentage points because of the impact on investor confidence and tourism from the most violent political turmoil in two decades.- Hungary’s unemployment in February was at an all-time high of 11.4 percent. Wage data released on Friday highlights that the overall month-to-month wage dynamics show little sign of recovery. What has become visible is a degree of decoupling by wages in the manufacturing sector, which reflects the lopsided recovery led by the export industry.
Opportunities
- Forty percent of China’s exports are of the sort in which raw materials and components are imported and final products are shipped overseas, so surging imports are a good leading indicator of robust exports in the intermediate future. As long as exports stay strong going forward, Chinese policymakers should find more relief and justification to allow its currency to resume gradual appreciation.
- Ukraine’s real GDP dropped 15.1 percent year on year in 2009 to about $113 billion. Last year, the agriculture and financial segments were the only sectors posting growth. The main driver of GDP growth this year should be growth in industrial production, with metallurgy being the key industry.
Threats
The record 11.7 percent year-over-year surge in China’s property prices (70 major cities) in March should only exacerbate already sour sentiment towards Chinese property developers and construction-related industries, as fears may be intensified going forward on potentially harsher government policies to rein in real estate speculation.- After the first-quarter IPO of PGE SA, Poland’s largest power company, the Polish government is using improved conditions in equity markets to shore up its budget deficit. State-controlled insurer PZU is expected to raise up to $3.5 billion in its IPO, which stands to be followed by a steady pipeline of state and private offerings. This oversupply of equity may depress returns.
