Skip directly to Accessibility Notice
  • Emerging Markets Debt Daily

    Sifting Through Emerging Markets Growth Signals

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    January 02, 2019

    The dichotomy between China’s manufacturing and services surveys helps to explain the central bank’s stance against massive monetary stimulus. Brazil is gearing up for pension reform debate following the presidential inauguration.

    China’s weak Caixin Manufacturing Purchasing Managers’ Index (PMI) spooked the markets this morning. The survey slipped into contraction territory in December (49.7), echoing an earlier downside surprise in the official manufacturing PMI (49.4). Note, however, that even though China’s manufacturing looks very sluggish right now (the impact of the past easing measures will be felt only with a lag), the services sector appears to be more vibrant, with the official services PMI rebounding to 53.8 in December (see chart below). This dichotomy may help to explain recent statements from central bank officials arguing against a monetary policy “bazooka” (at least for now).

    Elsewhere in emerging markets, there are some bright activity spots (sound manufacturing PMIs in Indonesia, India, Philippines, Thailand, Hungary, and Brazil), but still reasons for concern. The manufacturing PMIs in parts of Asia (Malaysia, Taiwan, and South Korea) are in contraction territory. Central Europe is catching the European “flu” – Poland’s PMI dropped unexpectedly to 47.6 and the Czech Republic moved abruptly (and unexpectedly) to contraction territory. Turkey’s growth appears to be in serious trouble, as the manufacturing PMI dropped further from its already very low level to 44.2 in December, paving the way for the Turkish lira’s underperformance in the morning trade.

    Brazil’s presidential inauguration is now behind us, and the focus shifts to the new administration’s reform agenda. Local reports suggest that the pension reform discussion will take place in February and that the government will focus on improving the business environment and dealing with benefits fraud until then. The provisional measure on the latter is currently being prepared by the Ministry of Finance and is considered a gauge for pension reform support in the congress.


    Chart at a Glance

    China Manufacturing 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.

    The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change.

    Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

    All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.