Emerging Markets Radar (July 15, 2013)

Emerging Markets Radar (July 15, 2013)

Napkin 13-06-10 12.27

Emerging Markets Radar (July 15, 2013)

Strengths

  • Sentiment in China is improving as the People’s Bank of China (PBOC) and government officials have softened their stance on monetary policy. After Premier Li Keqiang pledged policy support to stabilize growth during an economic meeting in Guanxi province with several local governors, the market also believes there is a “Li Keqing Put” on the downside. With that optimism, the market should be reminded that reforms are equally important to restructure the economy for long-term sustainable growth.
  • China’s new bank loans were Rmb 860.5 billion in June, exceeding the market consensus of Rmb 800 billion. However, total social financing (TSF) was Rmb 1.04 trillion, lower than the market expectation of Rmb 1.275 trillion, showing the tightening policy effect on off-balance sheet financing. The market speculated that China will be easing on mortgage loans for first-time homebuyers, so property and construction stocks rebounded this week.
  • China’s June inflation was 2.7 percent, higher than the market expectation of 2.5 percent, but down 0.6 percent month-over-month. The higher number was due to a low base effect. The Producer Price Index (PPI) was down 2.7 percent. This is lower than the market estimate of a 2.5 percent drop, but better than the drop of 2.9 percent in May. The down trend in PPI indicates a continuing de-stocking process and is a negative indication of profitability for up- and mid-stream companies.
  • China’s June auto sales were in line with expectations, up 12.3 percent year-over-year.
  • After adding Shanghai as a free trade zone, Tianjing city submitted its plan to become one itself. Shenzhen Qianhai is already a free trade zone where the economic and legal system will fashion a common law system.
  • The Bank of Korea, the central bank, kept the policy rate unchanged at 2.5 percent in its July Monetary Policy Committee (MPC) meeting. The rate is in line with the market expectation, while it revised up its 2013 and 2014 GDP growth forecasts by 20 basis points to 2.8 percent and 4.0 percent, respectively. Korea’s jobless rate remained at 3.2 percent, but steady job growth is expected for the second half of this year.
  • Taiwan exports went up 8 percent in June on robust growth in the export of electronics, mineral and optical equipment products. ASEAN was Taiwan’s fastest growing export market, up 7.1 percent year-to-date at the end of June. Trades with Japan and China were up 5.5 and 3.8 percent, respectively in the same period.
  • Manufacturing production in the Philippines soared by 20.4 percent in May after an 8.7 percent gain in April.
  • Moody’s Investors Service is opening a new office in Warsaw that reflects Poland’s increasing role as Central Europe’s largest financial market. The credit agency cited Poland’s significant expansion of its corporate bond market to around $37 billion, as Polish investors are increasingly looking toward capital markets to meet their growing financing. Similarly, it was reported earlier this year that Warsaw’s stock exchange consolidated as Central Europe’s dominant trading hub attracted 41 initial public offerings, lured by Poland’s cash-rich pension and mutual funds, while Vienna and Prague had one public offering each.
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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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