Emerging Markets: Monday update
Monday, December 1st, 2008As goes China…so goes the World? Looks like a bumpier ride than expected, for emerging markets. The United Nations is also riding the wave of pessimism, going even lower than the International Monetary Fund in its forecast of global growth.
Ukrainian steel exports could increase as prices in local currency are now very competitive. Profit margins will remain constrained however.
From www.bloomberg.com:
China’s November Manufacturing Contracts by Record
By Nipa Piboontanasawat
Dec. 1 (Bloomberg) — China’s manufacturing shrank by the most on record and export orders plunged, adding to evidence that recessions in the U.S., Europe and Japan are dragging down the world’s fastest-growing major economy.
The Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today in an e- mailed statement. A second PMI, released by CLSA Asia-Pacific Markets, also showed a record contraction.
Export orders, output and new orders all shrank by the most since the surveys began as the global financial crisis sapped demand for the nation’s toys, textiles and computers. The CSI 300 Index of stocks has fallen 69 percent from a record in October last year and President Hu Jintao describes the economic situation as a test of the Communist Party’s ability to govern.
“Another grim month for China manufacturing,” said Eric Fishwick, head of economic research at CLSA in Singapore. “Export orders will weaken further and we expect further cuts in production and employment.”
The yuan fell 0.3 percent to 6.8549 against the dollar as of 11:15 a.m. in Shanghai, the biggest decline since Oct. 10, as the government sought to help exporters.
The government-backed PMI started in 2005, the CLSA study in 2004.
Deepening Slowdown
China’s economy, the world’s fourth largest, expanded 9 percent in the third quarter from a year earlier, the slowest pace since 2003. This quarter, growth may cool to 4 percent, according to JPMorgan Chase & Co.
China is very exposed to the global crisis, President Hu said Nov. 29.
An export order index dropped to 29 in November from 41.4 in October, the government-backed survey showed. A reading above 50 reflects an expansion, below 50 a contraction.
The output index fell to 35.5 from 44.3, while the index of new orders dropped to 32.3 from 41.7.
The government last month announced a $586 billion stimulus package and the biggest interest-rate cut in 11 years to revive the economy and counter the risk of spiraling unemployment and social unrest.
Toy Company Riot
Fired workers seeking more compensation from a toy factory in Guangdong province clashed violently with police on Nov. 25.
“It’s a very challenging time for policy makers — they definitely need to do more in terms of fiscal and monetary stimulus,” said Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong. “There will be more aggressive interest-rate cuts.”
A slump in property sales and building work is also undermining growth. Construction of homes, offices and factories contracted at least 16.6 percent in October after a 32.5 percent expansion a year earlier, according to Macquarie Securities Ltd.
Baosteel Group Corp., China’s biggest steelmaker, is facing its “most difficult” period since the company was founded 30 years ago as output, sales and profit plunge, an executive said last month.
“The slowdown of the Chinese economy is getting worse,” Zhang Liqun, a senior research fellow at the State Council’s Development Research Center, said in a statement today. Government efforts to revive growth “still need some time to show their full effect, which will be after spring 2009,” Zhang said.
The World Bank slashed last week its growth forecast for China to 7.5 percent in 2009 from a 9.2 percent estimate in June. That would be the weakest pace since 1990.
The government-backed Purchasing Managers’ Index is based on a survey of more than 700 companies in 20 industries, including energy, metallurgy, textile, automobile and electronics.
The survey tracks changes in output, new orders, employment, inventories and prices.
Anton Olff
