By Natalia Gurushina, Economist, Emerging Markets Fixed Income for VanEck Global
China’s December activity data was generally better than expected, with industrial production’s rebound looking particularly impressive (not just on a monthly basis, but also as a 3-month moving average), and manufacturing investments picking up. This is yet another sign that the past stimulus is working. We were, however, disappointed that the industrial production rebound was driven by state-owned enterprises. It looks like the availability of capital and the cost of funding continue to weigh on private companies. Private sector investments are improving, but the overall growth rate is still below the country’s average.
Yesterday brought small signs of normalization in Argentina. In particular, the central bank eased some currency restrictions for companies that bring foreign exchange into the country and sell it in the official market. The central bank was able to stop the bleeding of the international reserves following the imposition of tight capital controls after the elections. It apparently feels more secure that it can preserve the status quo while the government is conducting negotiations with holders of Argentina’s sovereign debt.
Today is the final day of my trip to Europe. A discussion on the impact of President Recep Erdogan’s policies on living standards in Turkey was a real eye-opener. A side-by-side comparison of recent increases in taxes and fees with changes in wages suggests that there might be headwinds to consumption growth in 2020, and to consumption’s contribution to real GDP growth. The fact that fiscal constraints led to a large number of lower-income Turks being dropped from free healthcare plans (under the pretext of delinquent co-payments) can have political repercussions in the next election cycle.
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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