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  • Emerging Markets Debt Daily

    China - What’s Behind January Credit Surge?

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    February 20, 2020

    China’s January credit surge reflects both seasonality and policy decisions. The IMF finally admits that Argentina’s debt is unsustainable.

    China’s January credit aggregates were much higher than expected—both new loans and total social financing. A big portion of January’s surge was seasonal (Lunar New Year), but there was also a sizable increase in bond issuance by local governments (special early timeline), as well as the first positive shadow lending print in months. Given that the impact of Coronavirus started to affect the economy already in January, this might be a precursor of “whatever it takes” approach to support private companies (which were affected the most by the deleveraging drive).

    We had an interesting internal exchange a few day ago about China’s February activity gauges (official and Caixin Purchasing Managers Indices). The gut feeling is that the numbers should look very bad, given what we saw in the media (empty towns) and read in various reports (coal consumption down by >40%, 14 working days lost, pollution levels down, massive traffic disruptions, etc.). China’s Emerging Industries PMI (released today and down by 20 points) supports this view. However, analysts point out that the commodity price dynamics look better than in previous downturns. In addition, the official PMI survey is conducted later in the month and can be affected by the government’s stimulus. So, February PMIs are likely to be messy, but I am not sure whether they are going to tell us something that we already do not know. I am much more interested in March’s PMIs, which might give us a better idea about the likelihood of the V-shaped recovery.

    It’s “Empire IMF Strikes Back” in Argentina. The new report released by the Fund argues that the country’s debt is unsustainable (surprise, surprise) and that resolving the situation requires a meaningful contribution (=haircut) from private creditors. We were not the only ones who described the report as backward-looking and not particularly information-rich. But it nevertheless had a negative impact on Argentine bonds.

    Natalia's À Propos: there’s some pretty important stuff happening in the world right now, yet I saw a dog with Jane Fonda leg-warmers and I cannot unsee it now.


    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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