Emerging Markets Weekly
Recent data from India and China signify that fiscal and monetary stimulus in China and India is working and that economies are expanding. The Purchasing Managers Index in China rose for a third straight month in May indicating that the manufacturing sector is expanding. Most notably, the new export order index signaled expansion.
In India, GDP data for the fourth quarter 2008 indicated that India’s economy grew more quickly than originally anticipated at the height of the global economic crisis. Economic output in the fourth quarter was reported at 5.8% with a healthy shot in the arm from government spending. That factor and the recent favourable election results for India’s Congress Party has induced capital back to the region—US$5-billion in a single month—and sent the stock market soaring.
Positive data and rising stock markets tend to beget more capital inflows and higher economic growth as a result—especially since capital outflows were the primary cause of the economic downturn especially in India. Investors should expect positive revisions to India’s GDP numbers this year and next over the coming weeks and months.
The positive economic data has reignited discussions of economic decoupling in India and China . Without wading into the debate, suffice it to say, that the economic growth and return to profitability has more justification in these two countries than anywhere else in the world.
The developed economies are likely to recover later this year or early next year. As the dust settles it will become apparent that the recovery will be weak and that will have repercussion for emerging markets. That said, investors are realizing that the selloff in emerging markets was far too rapid and that fundamentals in these countries are more favourable than in the developed world. Therefore, stock markets at current levels—well beyond the rebounds in the developed world—are justified.
In India, GDP data for the fourth quarter 2008 indicated that India’s economy grew more quickly than originally anticipated at the height of the global economic crisis. Economic output in the fourth quarter was reported at 5.8% with a healthy shot in the arm from government spending. That factor and the recent favourable election results for India’s Congress Party has induced capital back to the region—US$5-billion in a single month—and sent the stock market soaring.
Positive data and rising stock markets tend to beget more capital inflows and higher economic growth as a result—especially since capital outflows were the primary cause of the economic downturn especially in India. Investors should expect positive revisions to India’s GDP numbers this year and next over the coming weeks and months.
The positive economic data has reignited discussions of economic decoupling in India and China . Without wading into the debate, suffice it to say, that the economic growth and return to profitability has more justification in these two countries than anywhere else in the world.
The developed economies are likely to recover later this year or early next year. As the dust settles it will become apparent that the recovery will be weak and that will have repercussion for emerging markets. That said, investors are realizing that the selloff in emerging markets was far too rapid and that fundamentals in these countries are more favourable than in the developed world. Therefore, stock markets at current levels—well beyond the rebounds in the developed world—are justified.
Posted at
6/05/2009
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