World Economy Watch

Emerging Markets Daily – Asia Edition (05 March 2010)

6 March 2010

Indonesia — We expect a gradual improvement on Indonesia’s rating to high double B in this year; China — Choppy data in Jan-Feb may show healthy progress in recovery; India — IP rose by 14.5% YoY in Jan; Korea — Benign inflation in Feb is likely to prompt BOK to hold policy rate unchanged at 2%; Malaysia — Favorable base effect along with mfg/export recoveries likely to maintain YoY IP growth in Jan at 11.5% YoY; Philippines — Lower-than-expected inflation in Feb (4.2%); BSP is not expected to hike rates at the next MP meeting; Taiwan — Inflation reached 2.4% YoY in Feb; Thailand — Benign inflation in Feb likely to ease the pressure on policy rate hike

Malaysia: Upside Surprise in Exports and Trade Surplus Positive for MYR

6 March 2010

Exports leapt by 37.0% YoY in Jan 10 (Dec: 18.7%) outperforming market expectations (31.3%), but somewhat in-line with our expectations (38.6%). The outperformance was mostly due to favourable base effects. The stronger growth in exports caused the Jan trade surplus to widen to RM12.93bn from Dec’s RM12.1bn, significantly outperforming market expectations of Rm10.2bn.

India Property Weekly (05 March 2010)

5 March 2010

Confusion on Service Tax (ST) levy on construction: Although the aim is to discourage speculation and encourage the sale of ready flats, developers see this as pushing up prices 3-4%. Other ST provisions rolled out in property: 1) “Activity of renting itself is a taxable service”, levies a 10% ST on it (circumvents Delhi HC ruling in Apr09); 2) ST levied on rent of vacant land leased for business/commercial; 3) premium services like higher floors, preferential views to be subject to ST. Implications for sector? 1) ST being passed on to tenants/customers will be dependent on demand-supply, 2) higher impact of ST seen on affordable housing (could impact volumes)

China Preliminary Feb-10 Car Sales +46% YoY

5 March 2010

China Feb-10 car sales were up 46% YoY to about 623,791 units according to China Auto Market. Car sales declined 33% MoM, which is weaker than 02 to 09 average Feb seasonality of -14% MoM growth. We believe weaker than seasonality MoM decline is driven by fewer working days in Feb-10 due to Chinese New Year and an unseasonally strong Jan-10 (i.e. Jan-10 sales was +13% MoM versus 02 to 09 average Jan seasonality of -8% MoM).

Japan Equity Market: Strong Asian Growth and Currency Strength

5 March 2010

Major Points: Exports to Asia recovering rapidly; Exports to Asia recovering rapidly; Yen does not follow the renminbi higher; Exports of electronic components, autos, auto parts surging; Companies that are big beneficiaries of Asia demand include electronic component and electronic material manufacturers; We recommend Nidec and TDK among electronic component makers, Aisin Seiki among auto parts makers, and Nissan Motor and Suzuki Motor among automakers.

China: National People’s Congress Sets Modest Goals for the Year

5 March 2010

On Day 1 of the National People’s Congress, Premier Wen Jiabao reiterated the intention to maintain appropriately easy monetary policy and proactive fiscal policy. He also revealed major economic targets for this year: (i) Inflation target 3%, GDP growth target 8%; (ii) New lending target 7.5 trillion, M2 growth 17%; (iii) 9 million new urban jobs and 4.6% urban unemployment rate target; (iv) RMB policy stable; (v) Budget deficit of 850 billion, plus 200 billion bond issue on local gov behalf; and (vi) Investment growth target at 20% and property investment at 18%.

Bank of Japan to Consider More Easing Measures

5 March 2010

According to the Nikkei, the Bank of Japan began consideration of additional monetary easing steps. Specifically, in the current framework of new fund-supplying market operations introduced at the emergency meeting on December 1, 2009 (providing up to ¥10tn in three-month funding at a fixed rate of 0.1%), the Bank is likely to explore options including: 1) extending the lending period from three months to six months and 2) increasing the total supply above ¥10tn. Even if the BoJ goes ahead with the reported steps, we believe the effects on the economy and prices will be highly limited.

Philippines: Headline CPI Eases But Core Speeds Up in Feb

5 March 2010

Inflation at 4.2% yoy in Feb beat Street estimates, including our own, but it’s not a reason to be complacent about upside inflation risk. Consider the following 3 factors: 1. Core inflation, 80% of CPI basket, up to 3.6% yoy in Feb from 3% yoy in Jan; 2. On sa basis, we estimate Feb headline inflation at 0.6% mom (Jan: 0.1%); 3. Extrapolation from Feb data.

Indonesia Banks: BI Quandary

5 March 2010

Recent events seem to indicate that there is a risk of dilution of Bank Indonesia’s Policy and Regulatory authorities. They include 1) Parliament vote that the Bank Century bailout was illegal; 2) Proposed change in law that aims at transferring banking sector supervision away from BI to a newly created Financial Services Authority (OJK); and 3) Weak transmission of monetary policy.

Indonesia: Bond Outlook – Does Rally Have Legs?

5 March 2010

We think S&P’s rating is very much behind the curve at BB- (pos), and that it can be argued that Indonesia could surpass Turkey’s ratings (Ba2/BB/BB+), given strong fiscal and external strength, but some qualitative issues may be a bit of a constraint. While Indonesia’s fiscal ratios are already healthier than peers, external liquidity, while improving, is not quite at par with investment grade peers. However, gradual improvements this year should allow ratings to go to high double B; investment grade will likely take longer. Recent political noise may slow the upward momentum, but we don’t think it will change the direction.

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