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  • Emerging Markets Debt Daily

    China Factory Outlook Beats Expectations

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    September 30, 2019

    China’s factory outlook recovered in September, but reports about potential restrictions on U.S. portfolio flows to China soured the sentiment. 

    China’s latest official activity survey was a snoozer, compared to reports about potential restrictions on U.S. portfolio inflows to China. But it did show improvement despite escalating trade tensions, which is good news. The official manufacturing Purchasing Managers' Index (PMI) rebounded a bit more than expected in September (to 49.8). The pickup in the Caixin manufacturing PMI was even stronger (to 51.4). The official services PMI looked solid at 53.7. Downside growth risks still dominate, but today’s releases argue against the monetary policy “bazooka” and in favor of dispensing stimulus in “controlled” doses—the approach that seems to be bringing results.

    The “silver lining” narrative still applies to Turkey’s trade balance. The deficit narrowed to USD2.5B in August, reflecting subdued domestic demand. Year-to-date imports are down 16.4%, albeit the pro-growth fiscal push and the unwinding of the 2018 rate hikes may change this trend going forward. The government’s just-released economic program for 2020-2022 has a somewhat different take though. Even though it sees real gross domestic product (GDP) growth accelerating from 0.5% to 5% over this period, the current account is expected to go back to balanced (meaning 0% of GDP) after a minor deterioration next year.

    I am on a research trip to Asia this week. The Malaysian leg of the trip confirmed my prior thesis that while the country’s macro fundamentals would make many emerging markets governments green with envy (4+% real GDP growth, benefits from the supply chains shift out of China, non-existent inflation, 2+% current account surplus), politics remain messy. Prime Minister Mahathir Bin Mohamad continues to drag his feet on the succession issue, which strengthens the opposition, caps investment growth, and may force the government to slow the pace of fiscal consolidation. The government’s structural agenda is impressive though. Off to the Philippines in the evening.


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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