Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
October 14, 2020
A big theme at this year’s Annual IMF Meetings is China’s emerging as an independent global growth driver. The market seems unfazed by a delay in South Africa’s budget presentation.
We are at the virtual Annual IMF meetings this week, and the idea of the U.S.-centric worldview is getting increasingly questioned. China is emerging as an independent driver of growth, and this will have important implications for other emerging markets (EM) and investors. We hear a lot about post-COVID growth divergences—with almost complete recovery in parts of Asia, but with many countries still lagging behind due to sub-optimal policies (and the fact that monetary policy toolboxes are getting exhausted). The growth outlook for EM ex-China is not yet clear, however, a vaccine could mean the light at the end of the proverbial tunnel. The longer-term consequences of incomplete recoveries and fiscal stress is a big concern. The idea of a progressive mandate in the U.S.—and its global impact—is entering the discussion. Stay tuned!
China’s above-consensus credit aggregates provided more evidence that the economic recovery is alive and well. Both total social financing and new yuan loans exceeded their respective multi-year seasonal ranges, reflecting stronger demand for loans across the board (households, corporates and government). One noteworthy development is a big increase in medium- and long-term corporate lending—a positive signal for manufacturing investments and GDP growth. Today’s numbers confirm that the overall policy stance remains accommodative. Comments from the central bank’s statistics and analysis department—describing the pace of credit expansion as “reasonable”—signal that it is too early to talk about policy accommodation’s withdrawal.
South Africa’s domestic activity indicators are looking better—the mining production growth and August’s retail sales beat consensus by a wide margin—but the market is clamoring for more clarity on the fiscal front. Yesterday’s request by Treasury to postpone the medium-term budget presentation to October 28 was unexpected, albeit there is a benign explanation that the sides simply need more time to incorporate new fiscal targets. Anyway, the rand was not particularly concerned about this twist, trading in line with EM peers this morning.
IMPORTANT DEFINITIONS & DISCLOSURES
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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