Review of Emerging Markets - February 2013
Emerging equities fall by -1.4% in US dollar terms in February as investor sentiment hit by a lack of a decisive result in the Italian political elections. Indonesian central bank highlights strong consumption and investment and expects growth of around 6.5% in 2013.12.03.2013 | 11:38 Uhr
Investor sentiment was negatively affected by the outcome of political elections in Italy towards the end of February. A lack of a decisive result has the potential to derail recent progress made towards addressing the eurozone debt crisis and this caused the euro and European equities to fall. Meanwhile, the latest economic data suggests that activity remains subdued in much of the euro area, notwithstanding relatively resilient activity in Germany.
In the emerging world, investors also reacted cautiously to the Indian government’s budget for the March 2014 fiscal year. The budget includes a 30% increase in capital investment and major social programs, yet the government plans to cut the fiscal deficit from 5.2% of GDP in the current (March 2013) fiscal year to 4.8% of GDP. Although India’s Finance Minister Palaniappan Chidambaram spoke of the need to boost growth from 5% to the 8% that had been the norm prior to the onset of the global financial crisis, the budget was seen to be lacking in substantial measures.
Elsewhere in Asia, data releases and central bank comments continued to underline the strength of domestic demand in many economies. Bank Indonesia,
for example, noted that the Indonesian economy expanded by 6.23% in 2012. Consumption and investment in the final quarter of the year ‘remained
buoyant… On the other hand, exports began to improve in line with the economic recovery in some major trading partners such as China.’ Bank Indonesia is looking for growth of 6.3-6.8% over the course of 2013.
HSBC noted that its flash Purchasing Manager’s Index (PMI) for China’s manufacturing sector fell from 52.3 in January to 50.4 in February (a figure of more than 50 indicates an increase in activity). The latest reading suggests that activity in the sector continues to grow, but at a slower rate than in January. Hongbin Qu, HSBC’s Chief Economist for China, noted that the ‘economy is still on track for a gradual recovery. Despite the moderation of February’s flash PMI, the index recorded the fourth consecutive reading above the 50 critical line. The underlying strength of Chinese growth recovery remains intact.’
The latest economic data from Latin America has been mixed. HSBC’s PMI for Mexico’s manufacturing sector suggested that activity is still growing due to demand at home and from export markets, if more slowly in February than in January. There were various signs of slowing of activity in Brazil. Peru’s central bank noted towards the end of February that the Peruvian economy expanded by 6.3% in 2012 thanks to growth in construction, commerce and services. In contrast, Banco de la República, the central bank of Colombia, said that the economy is growing ‘below its potential’. With inflation also below the 3% target, the central bank opted to cut interest rates by 25 basis points to 3.75% in order to boost overall economic activity.