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  • Emerging Markets Debt Daily

    China Demand-Side Recovery Continues

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    December 14, 2020

    China’s demand-side recovery continued uninterrupted in November. The new U.S. sanctions against Turkey were quite “light”, removing a major geopolitical uncertainty.

    China’s recovery momentum remained strong in November, and―importantly―the demand-side continued to catch up with the industrial sector (see chart below). The last month also brought a significant acceleration in manufacturing investments, pointing to another kind of growth rebalancing (away from real estate and infrastructure that dominated the initial rebound). There was a whiff of disappointment following the release, as key activity indicators were “only” in line with consensus (no upside surprises). However, the currency finished the day in the black, and equities (Shanghai Stock Exchange Composite Index1) retraced the initial losses: there is a growing realization that China’s yearly expansion may top 6% in Q4 2020

    Turkish assets handled the new U.S. sanctions over the purchase of the Russian S-400 missile system quite well, with both equities and the currency stronger on the day at the time of the publication (9:45am ET, according to Bloomberg LP). The main reason is that the sanctions were “lighter” than feared. With a major geopolitical uncertainty removed, the market’s focus shifts back to domestic policies, including the central bank’s rate-setting meeting on December 24. The benchmark rate was raised by 475bps in November, but the subsequent jump in inflation pushed the real rate down (below 1%). Many observers now argue that the central bank should hike again to maintain credibility. 

    The emerging markets (EM) overseas remittances story looks really good, with countries in different geographies reporting solid inflows despite the pandemic. In Asia, the Philippines posted stronger than expected 2.9% year-on-year growth in remittances in October, bringing the year-to-date decline to mere 0.9%. This is a far cry from the 20% drop projected by the World Bank earlier this year―and nice support for consumption going into 2021.

    Chart at a Glance: China’s Demand-Side Growth Is Catching Up


    Source: Bloomberg LP

    1The Shanghai Stock Exchange Composite Index is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.


    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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