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  • Emerging Markets Debt Daily

    Positive Structural Shift in China Credit

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    April 12, 2019
    Our second day at the International Monetary Fund (IMF) Spring Meetings brought yet another grand reform scheme from Turkey, which unfortunately was lacking in detail and addressed wrong issues. Further, authorities’ failure to follow through on their last year’s promises at the IMF undermines credibility. By contrast, Mexico’s central bank looked very competent in defending its cautious policy stance, whereas Brazil reaffirmed its commitment to social security reform. We were also hearing more chatter about the incipient growth recovery in Europe, as well as more positive noise about the growth outlook for the U.S.

    The latest batch of money and credit aggregates in China sends a strong signal that the policy stimulus is bringing results. Total social financing, new renminbi (CNY) loans, and money aggregates—all surprised to the upside in March. The recovery in long-term bank lending was really encouraging. This is a positive structural signal for the investments outlook, and as such for the real gross domestic product (GDP) growth. The recovery in shadow financing was alarming—the last thing China needs right now is the return of the “macro imbalances are widening” narrative.  

    February’s services prints in Brazil show that risks to the growth outlook remain to the downside. Services contracted again on a monthly basis (-0.4%), and the recent activity surveys sent ambiguous signals about the future dynamics. More certainty about social security reform should rectify the situation—but probably only later this year, when the reform time-line becomes clearer. 



    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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