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  • Emerging Markets Debt Daily

    China’s Private Sector Could Use a Boost

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    January 31, 2019

    China’s latest activity surveys show that the private sector continues to struggle. Trade balances in Turkey and South Africa point to downside growth risks. Brazil signals that pension reform may be deeper than previously expected.

    There are a couple pieces of good news in China this morning. First, Bloomberg announced that renminbi-denominated government bonds will be included in the Bloomberg Barclays Global Aggregate Index1 starting from April 2019 (with a 20-month phase-in period), putting to rest fears about potential delays. Second, China’s official activity surveys looked more stable in January. The manufacturing Purchasing Managers Index (PMI) edged higher to 49.5 and the services PMI rebounded more decisively to 54.7. The improvements, however, came on the back of state-owned enterprises, while activity surveys for small companies moved even deeper into contraction territory (see chart below). This should prompt authorities to come up with more inventive measures to turn the situation around.

    The markets’ favorite high-betas, Turkey and South Africa, posted some interesting foreign trade numbers this morning. Turkey’s December trade deficit widened to USD2.7B, sparking concerns about the external adjustment’s early demise. The fears may be premature, as imports’ decline accelerated to 28.3% year-on-year in December (albeit we are mindful about potential risks associated with pre-election spending). South Africa’s December trade surplus was the largest on record, but collapsing imports is a bad sign for gross domestic product (GDP) growth (which is closely watched by rating agencies as a potential headwind for fiscal performance).

    The Brazilian real rallied this morning – in part on the back of the post-Federal Open Market committee’s “sugar rush”, but also reflecting comments by Vice President Hamilton Mourao that pension reform may be deeper than expected (including both civilians and the military). This welcome piece of news helped to offset the negative impact of the worse than expected primary and nominal deficits in December and yet another increase in the government’s debt-to-GDP ratio.


    Chart at a Glance

    China Large Corp PMI

    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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