Emerging Markets Radar (June 17, 2013)

Emerging Markets Radar (June 17, 2013)

Emerging Markets Radar (June 17, 2013)

Strengths

Higher-Savings-Rates
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  • The rise in U.S. government bond yields that has threatened to reverse fund inflows into emerging markets is likely to prove as a red herring, according to BCA Research. With emerging market economies now surpassing 50 percent of world GDP, their higher savings rate will eventually cap any further increase in safe-haven bond yields. Although the higher savings rate does not fully eliminate the risk of weakening global growth, it does provide a floor for emerging market fund outflows.
  • Both the Chilean and Peruvian central banks left their benchmark rates unchanged this week. As commodity, export-driven economies both nations continue to face challenging external conditions amid weaker global demand. However, their domestic consumption growth continues to be resilient, and continues to support their expected economic growth levels for this year; 4.5 percent for Chile and 6.3 percent for Peru.
  • Malaysia’s industrial production rose 4.7 percent year-over-year in April, more than three percentage points higher than expected and the first month-over-month increase since November, as demand from domestic infrastructure projects helped offset sluggish export growth.
  • China’s inflation-adjusted retail sales growth accelerated to 12.1 percent in May, the fastest pace year-to-date, as the impact from the leadership’s anticorruption efforts was limited beyond catering, tobacco and liquor. Sales of gold, silver and other jewelry gained 38.4 percent in May from a year ago.
  • Despite the past two weeks’ sell-off related to Federal Reserve tapering fears and a rebound in Japanese yen, the Philippines experienced the mildest foreign outflows within Southeast Asia and maintained a strong year-to-date inflow of $1.5 billion.

Weaknesses

Russias-Wages-GDP
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  • Russia and Brazil have seen the share of labor compensation as a percentage of GDP increase over the last decade, thus negatively impacting corporate earnings. It is worthwhile mentioning that most emerging markets have actually seen the share of labor income in GDP fall over the same period, giving way to higher corporate profits.
  • China’s new bank loans, aggregate financing, year-over-year growth rate of exports, imports, and industrial production in May, all came in lower than expected. Producer prices continue to deflate further, a clear reflection of anemic demand and an absence of government stimulus.
  • The unemployment rate in the Philippines during April rose to a three-year high of 7.5 percent from 7.1 percent in March, while exports declined by a larger-than-expected 12.8 percent year-over-year in April, versus a 0.1 percent gain in March. Its central bank refrained from cutting interest rates given the recent sell-off in both Philippine equities and the Philippine peso
  • Thailand, Indonesia and the Philippines recorded an aggregate $1.4 billion foreign outflow from equity funds last week. This is the highest weekly exodus since September 2011, or the height of the eurozone sovereign debt crisis.
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Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., and a Toronto, Canada native, which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure. The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories. Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.” He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies. Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.


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