Emerging Markets Monitor | ピクテ投信投資顧問株式会社

Emerging Markets Monitor

2017/05/23GVA Letter

Emerging Markets Monitor


Pictet Asset Management’s monthly selection of the key charts and data trends to watch in the emerging market space.

What caught our eye

“EM car sales bode well for future growth”

The rebound in EM car sales growth since Q4 2015 appears to bode well for future GDP prospects in emerging markets. We believe that car sales are one of the most reliable indicators of wider consumer spending and confidence.
Growth in EM car sales is also some way ahead of developed markets, despite a recent roll-over (which we expect to be short-lived).

EM VS. DM CAR SALES GROWTH
Volume, % y/y, 3-month moving average

Source: Pictet Asset Management, CEIC, Datastream, data as at 01.01.2017.

“Plenty in the EM ‘tank’ implies strong prospects for EM growth and currencies”

EM growth set to outperform DM
The positive picture in car sales and in our broader leading indicator of activity (see EM leading indicator & GDP chart in next section) are mirrored in our current forecasts for EM growth relative to DM (green line in the below chart).

EM currencies likely to appreciate
If our optimism on EM growth proves correct, EM currencies (grey line in the below chart) look set to appreciate versus the US dollar as this tends to follow with a lag.

EM VS. DM GDP GROWTH & USD VS. EM CURRENCIES

Source: Pictet Asset Management, CEIC, Datastream, USD vs. EM currencies data as at 01.04.2017.
* Unweighted 31 EM GDP growth / **Unweighted 31 EM exchange rates.

EM health check

Both the demand and the supply sides appear in good health
Our proprietary Pictet Emerging Markets leading indicator* is showing strong momentum.
On the corporate/supply side, both EM PMI and industrial production readings further reinforce the positive signs observed on the demand side.

*The Pictet Emerging Markets leading indicator is assembled using some 240 underlying indicators across 24 emerging markets that focus on rate-sensitive consumption (car sales, housing, etc.)

EM LEADING INDICATOR & GDP (LEFT) / EM PMI & INDUSTRIAL PRODUCTION (RIGHT)

Source: Pictet Asset Management, CEIC, Datastream.
Left-hand chart: EM leading indicator data as at 01.02.2017; EM GDP data as at 01.11.2016.
*GDP-weighted average of 24 countries leading indicators. **GDP-weighted average of 30 countries real GDP.
Right-hand chart: EM PMI data as at 01.03.2017; industrial production data as at 01.01.2017.
*GDP-weighted average of 16 manufacturing PMI surveys. **GDP-weighted average of 32 countries industrial production.

“We expect the gap between EM manufacturers and commodity exporters to at least converge to the long-term average”

Commodity exporters should see their GDP recover
We think a key lens to differentiate between emerging markets is that of manufacturers vs. commodity exporters. 

Given that the long-term average growth gap between commodity exporters and manufacturers is 400 bps – and assuming manufacturers retain their current stable growth trend – this implies further upside for growth for EM commodity exporters.

EMERGING GDP GROWTH: MANUFACTURERS VS. COMMODITY EXPORTERS

Source: Pictet Asset Management, CEIC, Datastream, data as at 01.10.2016. 

“Emerging markets’ exports appear to be on the mend”

Nominal exports above long-term average for the first time since 2011
Rounding off a range of positive EM indicators this month are nominal global emerging markets’ exports, which ended 2016 above their long-term average for the first time since 2011. 

Furthermore, as the right hand chart shows, this rebound could be accelerating in February if early reporting EMs are matched by the wider market.

EMERGING NOMINAL EXPORTS
Long-term trend (left) and since 2010 with early February 2017 data (right) – In USD

Source: Pictet Asset Management, CEIC, Datastream.
Left-hand chart: data as at 01.01.2017.
Right-hand chart: global EM countries data as at 01.01.2017; selected emerging countries data as at 01.02.2017.
* EM countries with most recent data: Korea, Taiwan, Brazil, Chile.

In focus: India

“Indian activity seems to be rebounding from the impact of demonetisation”

After Prime Minister Modi’s surprise announcement of demonetisation on 8 November 2016, India went through a period of economic disruption. This seems to be over now with PMI and industrial production picking up again.
This is also reflected in the consumer sentiment as illustrated through our favoured indicator of car sales, which have risen back into positive territory towards long-term average levels.

INDIAN MANUFACTURING PMI AND INDUSTRIAL PRODUCTION GROWTH (LEFT) / INDIAN CAR SALES (RIGHT)

Source: Pictet Asset Management, CEIC, Datastream.
Left-hand chart: PMI data as at 01.03.2017; industrial production growth data as at 01.01.2017.
Right-hand chart: Car sales data as at 01.02.2017

Market watch

KEY MARKET DATA
As at 30.04.2017

Source: Datastream, Bloomberg, data as at 30.04.2017 and in USD. Equity indices are quoted on a net dividend reinvested basis; bond and commodity indices are quoted on a total return basis. The currency rates evolution is treated as a performance calculation based on FX rates.

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