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  • Emerging Markets Debt Daily

    China - More Credit, Less Shadow Financing

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    September 11, 2019

    China’s overall credit recovered in August, but shadow financing continued to contract. Brazil’s growth outlook brightened further after a better than expected retail sales print.

    A combination of policy stimulus and seasonality pushed China’s money and credit aggregates higher in August. The upside surprise notwithstanding, shadow financing continued to contract—a sign that authorities continue to persevere with structural reforms despite the trade dispute headwinds (see chart below). Another observation is that the August credit rebound was not strong enough to discourage further monetary easing, which now includes both “drip” and “blanket” measures. Even though funding costs for private companies moderated in the past two months, they remain prohibitively high, necessitating additional targeted support for the sector.

    This morning brought another cautiously optimistic signal about Brazil’s growth. Retail sales continued to recover at a faster than expected pace in July, rising by 4.3% on a year-on-year basis. The rebound was broad-based, supporting a positive outlook for domestic consumption and its contribution to gross domestic product growth. Encouraging noises about tax reform (growth-positive), the central bank’s policy rate cuts, and the government’s privatization plans strengthen the impression that Brazil’s economy may finally grow at a faster pace after the two-year lull.

    Looking at South Africa’s latest business confidence numbers was like traveling back in time. The confidence index produced by the chamber of commerce was the lowest since 1985. The Bureau for Economic Research’s index hit the level last seen in the late 1990s. This should be a wake-up call for the government, which was betting on the post-election boost to sentiment, investments and growth, but failed to deliver on structural issues, such as tax reform, land reform and restructuring of the state-owned utility, Eskom.

    Chart at a Glance: China Continues to Tackle Shadow Financing Despite Growth Headwinds

    China Continues to Tackle Shadow Financing Despite Growth Headwinds

    Source: Bloomberg LP


    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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