Emerging Markets Equity -
Monthly Product Commentary: November 2012
Thomas White International
December 24, 2012
Sustained domestic demand growth and a revival in export demand are anticipated to drive expansion next year
Emerging market equities moved in tandem with the rest of the world and made modest gains in November, as global economic trends continued to see marginal improvements. Positive data from the U.S. and select countries in Europe lifted expectations about a recovery in global demand, and improved the export prospects for large emerging economies. Apprehensions about a ‘fiscal cliff’ in the U.S. eased after the re-election of President Obama, as it is hoped that lawmakers will be able to arrive at an agreement before the end of the year. Investor sentiment was also lifted by signs of further progress in negotiations to establish tighter regulatory supervision over Europe’s large banks under the European Central Bank.
Economic data from major emerging markets showed further improvement in manufacturing activity and a reversal of weak export trends in select countries. Factory output growth continued to accelerate in China, India, Brazil, and Mexico during the month of November. Both China and Brazil had seen output declines in earlier months and the current recovery is seen as a sign of improving global demand. Indonesia, Russia, and Turkey also saw sustained expansion in manufacturing, though the pace of growth came down. Korea, where exports were declining until September, and South Africa, which has been hit by labor agitations in the mining sector, saw improvement from October, though output continued to decline in both countries. Among the major exporting countries, the recovery in exports continued in Korea during November while Chinese exports appear to have stabilized. However, third quarter GDP growth for India and Brazil came in below forecasts.
The growth outlook for emerging countries across most regions, except Europe, has improved since September. Sustained domestic demand growth, supported by fiscal and monetary stimulus measures, and the likely revival in export demand are anticipated to drive the expansion next year. In Asia, Chinese GDP growth is expected to move back above 8 percent next year while the average growth for South East Asian countries such as Indonesia and Malaysia are forecasted to be close to 6 percent. Thailand is continuing its recovery from last year’s floods and is likely to see accelerated growth during the current quarter. Korea and India are also anticipated to recover from the slow growth recorded for the third quarter, though the pace of expansion will likely remain restricted in both countries. In Latin America, Brazil is now showing early signs of a recovery from the slowdown that set in last year while Mexico continues to benefit from the positive trends in U.S. consumer demand.
However, the outlook for emerging countries in Europe remains clouded by weak demand across the developed countries in the region. Factory output continues to decline across Emerging Europe, except Hungary, though most countries saw some improvement in November. If the Euro-zone economy declines next year, as forecasted by the ECB, it will likely take longer for the emerging economies in the region to see a sustainable recovery.
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