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Chinese Market: An Ace Up Its Sleeve

| 2/21/2013 9:00 PM Thursday


Vikas Gattani
CEO,
Progress Capital

For the better part of the past fortnight (February 9 to 13), China was on a New Year holiday. On account of this week-long festival, the country witnessed a slowdown. This also affects most of the other countries in the Asia-Pacific region to some extent.

South Korea, on the other hand, saw a rise in its exports due to the holidays in China. Shipments gained 11.8 per cent (against an estimated gain of 8.9 per cent), compared to a decline of 5.7 per cent in December. Imports rose by 3.9 per cent compared to an estimated increase of 1.4 per cent, and the trade surplus stood at USD 874 million. The biggest hurdle for Korea is Japanese Prime Minister Shinzo Abe’s campaign to drive down the yen to boost Japan’s automobiles and electronics exports, which directly compete with those of Korea.

Apart from the holiday season holdback, China’s exports gained 25 per cent against an estimated 17.5 per cent from a year earlier in January and imports rose by 28.8 per cent against an estimated 23.5 per cent. This leaves the country with a trade surplus of USD 29.15 billion, which is above the USD 24.7 median projection. The country’s inflation was tame at two per cent against 2.5 per cent as reported earlier.

Financial Markets Summary
IndexFeb-01Feb-152-wk
Chg (%)
YTD (%)USD vs Currency (YTD %)Foreign Flows (Equity) (USD Mn)
Shanghai1 2,419 2,432 0.5 7.17 -0.13 NA
Hong Kong 23,722 23,445 -1.2 3.16 -0.06 NA
Singapore 3,291 3,283 -0.2 3.75 -1.47 NA
Korea 1,958 1,981 1.2 -0.97 -1.77 -1,201
Thailand 1,499 1,522 1.5 9.31 2.34 60
Indonesia 4,482 4,610 2.9 7.18 1.17 1,153
Philippines 6,319 6,522 3.2 13.2 0.88 834
NIFTY 5,999 5,887 -1.9 -0.3 1.42 7,851
Vietnam1 483 494 2.3 19.6 0 115
Source: Bloomberg   * NA – Not available, 1 Feb 8 close

During the last quarter, Indonesia’s economy grew at its slowest pace in more than two years. This was despite an export slump on account of a weakness in commodities being countered by gains in domestic consumption. This has led to an increased pressure on policy makers to add stimulus in a bid to bolster growth. The GDP grew at a rate of 6.11 per cent against an estimated 6.2 per cent for Q4CY12.

A weakening rupiah, declining exports and a widening current account deficit may pose challenges to the Indonesian economy. President Yudhoyono faces pressure to raise fuel prices and curb oil imports as elections are due in 2014. Growth in Indonesia has been led by its robust investments and consumer spending, which contributed 33.16 per cent and 63.45 per cent respectively to growth in 2012.

Thailand’s inflation slowed down in January as a stronger baht made imports cheaper and state subsidies countered higher costs of food and fuel, giving the central bank some scope to cut interest rates further. The CPI for January rose by 3.39 per cent YoY against the estimated 3.5 per cent. PM Shinawatra has extended a diesel tax cut until February end.

As regards the markets, Philippines, Thailand and Vietnam continue to be strong performers in the region along with the Chinese market (both A and H-shares). The first three markets look set for a multi-year bull run given the macro backdrop, political stability and a rise in domestic consumption.

 

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