Global Investing

Emerging markets’ export problem

Taiwan’s forecast-beating export data today came as a pleasant surprise amid the general emerging markets economic gloom.  In a raft of developing countries, from South Korea to Brazil, from Malaysia to the Czech Republic, export data has disappointed. HSBC’s monthly PMI index showed this month that recovery remains subdued.

With Europe still in the doldrums, this is not totally unsurprising. But economists are growing increasingly concerned because the lack of export growth coindides with a nascent U.S. recovery. Clearly EM is failing to ride the US coattails.

Does all this confirm the gloomy prediction made last month by Morgan Stanley’s chief emerging markets economist, Manoj Pradhan. Pradhan reckons that a U.S. economy in recovery would be a competitor rather than a client for emerging markets, as  the world’s biggest economy tries to reinvent itself as a manufacturing power and shifts away from consumption-led growth. It is the latter that helped underwrite the export-led emerging market boom of the past decade.

It’s early days yet. Yet the impact of the U.S. rebound this time does appear different from the past.

Typically, a recovery in the United States leads to a rise in demand for all sorts of products – chemicals,  home furnishing, clothing, footwear, light manufacturing,  electrical appliances, machinery and equipment, transport – and this leads to a broad-based rebound in imports, analysts at UBS say. That has not happened in this cycle, and imports from  EM in particular have lagged. The answer, according to UBS, lies in the kind of things the United States has been importing. Look at their chart below  - most in demand are heavy machinery and transport equipment because the rebound is centred on construction, autos and infrastructure. UBS says:

from Davos Notebook:

Tigger bounces back in the boardroom

PWC_chart for blogCEOs are, of course, ebullient by nature.

So it's no surprise that confidence about growth prospects is bouncing back as emerging markets continue to barrel along and even sluggish developed economies show signs of recovery.

What is, perhaps, remarkable is just how far confidence has returned. The latest survey of 1,201 company bosses by PricewaterhouseCoopers shows it is back almost to pre-crisis levels.

But how much should we trust the bouncing boardroom Tiggers? There are also plenty of Eeyores in Davos, warning about fiscal deficits, growing economic imbalances and the rising threat from inflation.

from Summit Notebook:

Green shoots and short attention spans

Coming out of one of the darkest recessions, have we learned the lesson at all? Or are we going to repeat the mistakes of the past again?



Khuram Maqsood, managing director of boutique corporate financing advisory firm Emirates Capital, thinks we may well repeat them.


He says a second wave in the downturn – if it comes at all – is unlikely to come from a new, unseen fault in world markets.

Hook joins the alphabet soup

About a year ago investors hotly debated what would be the shape of a world economic recovery — would it be a steep V? Or could it be moderate U, stagnating L or double-dipping W?

Now ratings agency Moody’s is introducing the new scenario of “hook-shaped” recovery.

This has the steep downturn signalled by the U-shaped scenario, but neither the steep but delayed rebound of the U scenario, nor the flat stagnation of the L-shaped scenario. Instead, the agency says, it has an upward tilt that lies somewhere in between, implying a gradual and painful economic recovery.

“We cannot rule out that the hook-shaped scenario will evolve into an L-shaped scenario — and there is a real risk of this materializing – but it is too early to adopt the latter as our central scenario. This is because the full effect of government stimulus policies has yet to be seen,” Moody’s says.

How to Spend It – for sovereign wealth funds (2)

On our way to a meeting in London with a senior official of a sovereign wealth fund from an emerging market country, my colleague and I came across a van from a company called Sovereign Recovery.

How timely, we thought, given the billions of dollars emerging sovereigns have had to pour into local markets to revive their economies hit by sudden drainage of foreign capital by the credit crisis.

 The company, of course, is not engaged in any of sovereign economic recovery work — they are motor engineers who have contracts with leading transport operators including Transport for London.