Asia: Markets revive, backed by positive regional indicators

- Markets revive, backed by positive regional indicators "Asian markets were on the upside over the last week, encouraged by strong regional indicators and improved global sentiment."
- China’s PMI and 2Q GDP for Australia underscore Asia’s economic vitality "China posted a better-than-expected August PMI (see Highlights). Moreover, 2Q GDP growth in Australia also beat expectations (3.3% y/y, consensus: 2.8%), as domestic and external demand improved. That said, Korean exports fell in August (see Highlights), as regional export growth continues to show signs of slowing. On the inflationary front, prices remained under control in Korea (2.6% y/y) and Thailand (3.3% y/y), and picked up in Indonesia (6.4% y/y)."
- The uncertain global environment is keeping monetary authorities on a cautious footing "As expected, Bank Negara Malaysia and Bank Indonesia left their policy rates unchanged last week. However, Bank Indonesia raised its reserve ratio to 8% from 5%, in order to drain liquidity in the midst of rising inflation. Moreover, the Bank of Japan and the government unveiled a new stimulus plan (see Highlights)."
- In the coming week…. "Trade figures in China (see What to watch), Philippines and Taiwan, inflation in Philippines and Taiwan, industrial production in India and Malaysia, and machinery orders in Japan. On the monetary policy front, we expect Australia, Korea and Japan to all leave rates unchanged."

Latin America: different recovery cycles

- "While Peru maintains a high growth rate (above expectations), in Brazil the data for 2Q10 shows that the economy continues growing at a high pace, though lower than 1Q10. The Central Bank of Brazil kept its policy rate at 10.75%. There was a setback to confidence among manufacturers in Mexico as a result of worse news about the US, while consumer confidence remained stable. In Peru, consumers’ confidence dropped to neutral levels due to concerns about inflation. In Argentina and Mexico, tax revenues have been boosted by value added tax. Unemployment has increased in Colombia, signaling a weakening of the labor market, while in Chile it fell, supported by the strong growth of economic activity and employment."
- "Perceptions of global risk are having a negative effect on financial markets, but this depends on the degree of exposure to the global cycle and local factors."
- "There is a positive differential in the currencies of Brazil and Chile, relative stability in the case of Colombia, Peru and Argentina, and a negative differential in the Mexican peso. The prospects for higher growth in the region with respect to other parts of the world have led to stock markets performing relatively better."

BBVA Latin Weekly Observatory 20100903

LatAm: strong exports

- LatAm: strong exports "The strength of raw material exports keeps the trade balances of Argentina, Brazil and Chile in the black. However, Brazil’s current account is deteriorating rapidly, and Mexico’s is still negative. Bank lending in Brazil slowed in June, in line with other economic activity indicators. Public spending keeps growing fast in Argentina and Peru, but is still being financed by increasing revenues. Employment figures also improved in Argentina, where the unemployment rate fell to 7.9%; however, unemployment is worsening in Venezuela, having increased to 8.7%. On the other hand, the Central Bank of Argentina announced the relaxation of the Monetary Program for the last 2 quarters and Peru’s currency strength leads the Central Bank to raise the bank reserves requirement and to S&P to ratify the solvency of public debt, changing the outlook to positive."
- Fears about the global economic cycle had asymmetrical effects in Latin America due to local factors. The outlook is still positive for the region’s assets "Brazil and Mexico experienced the largest exchange rate adjustments following the release of negative economic indicators in the USA, whilst the currencies of Chile, Peru and Colombia strengthened. The appetite for LATAM issues (stocks and private debt) remains high in the face of positive economic differentiation in most of the countries in the region."

BBVA Latin Weekly Observatory 20100827

Real estate tightness counterbalances net loosening in commercial and industrial

- "Credit standards loosen for both large and small firms, but this is mostly the result of competition rather than robust loan demand"
- "Prime loan standards loosened, but overall residential loan demand remains weak"
- "Willingness to extend consumer installment loans is at the high end of the past decade"

BBVA US Banking Watch 20100817

Asian markets unnerved by US spillovers

- Asian markets unnerved by US spillovers "Signs of a weakening US growth outlook dragged Asian markets down over the past the week. The deterioration in sentiment was exacerbated by indicators of slowing growth and domestic demand in China, even though the data were in line with expectations. Rising risk aversion has led to a steep strengthening of the Japanese yen, which benefits given its safe haven characteristics, with officials beginning to express concern about the impact on Japan’s recovery. The tentative nature of Japan’s recovery was underscored by a weaker-than-expected Q2 GDP outturn (0.1% q/q, s.a., versus consensus of 0.6%) on weak private consumption."
- Indicators continued to show a gradual slowdown in the region… "China’s monthly economic indicators for July provide further evidence of a soft landing for the economy in the second half of the year (see Highlights). Industrial production, housing prices, and credit growth all moderated. Exports remained resilient, resulting in a surprisingly large trade surplus. Elsewhere in the region, indicators were soft. In addition to a weaker Q2 GDP outturn, Japan’s machinery orders for July (-2.2% y/y) were well below expectations. June industrial production in India was also weaker than expected (7.1% y/y) raising questions about India’s 8.5% GDP growth target for the year. Meanwhile, Q2 GDP growth in Hong Kong came out in line with expectations, at 6.5% y/y (BBVA: 6.7%)."
- The Bank of Korea pauses on interest rate hikes… "While some market participants were expecting a second straight interest rate hike in Korea, the Bank of Korea left rates unchanged, although it signaled the likelihood of further rate hikes in the coming months to contain rising inflationary expectations."

BBVA Asia Weekly Watch 20100816

LatAm: acceleration under control

- "The data released this week shows divergent movements between countries. On the one hand, Peru and Colombia continued to show signs of growth with positive expectations and confidence, while growth in Brazil stabilized despite the support provided by domestic demand and in Mexico industrial output showed signs of stagnation. Central banks continued to control appreciation pressures and overheating: in Chile the CB once again raised its policy rate by 50 bps to 2%, while in Peru the CB again increased reserve requirements. The new Colombian president re-established commercial relations between Colombia and Venezuela, although political tensions over bilateral trade remain."
- "Renewed fears over global cycles, with divergent effects on assets of the region's countries."
- "Events in the US and China have renewed appetite for safe assets. However, the credit market remained open for the region's issuers, as did the appeal of the currencies of economies with a higher growth profile. In spite of this, technical corrections in the region's currencies against the US dollar during the week cannot be ruled out."

BBVA Latin Weekly Observatory 20100813

LatAm: Inflation below expectations

- "Inflation data took center stage this week. It was low in Peru and in line with expectations. Although high in Chile, it was still below expectations, as it was in Brazil, Colombia and Venezuela. In Brazil and Colombia the trend was also down."
- "The indicators of economic activity have maintained their trend of pervious weeks: very strong in nearly all the region, but with clear indicators of a slowdown in Brazil and Mexico. The decision by the Central Bank of Peru to raise its policy rate by 50 bps in response to the persistent increase in domestic demand surprised markets and makes clear the complex risk balance faced by the monetary authorities in the region."
- "Global markets show divergent movements, with LatAm assets demonstrating a positive trend in general."
- "After the easing of financial tension and the region's favorable economic performance, financial assets in Latin America have maintained their positive trend in the medium term, but adjustments in the next few days cannot be ruled out, with investors taking up technical positions."

BBVA Latin Weekly Observatory 20100806

LatAm: sustained growth in activity

- "Economic activity continues to grow, with a surprise from the EMAE (Monthly Estimator of Economic Activity) in Argentina, good data on construction and durable goods in Colombia and Peru, and an increase in credit in Peru and Venezuela. Internal demand is growing in Mexico, although it is still quite slow. In Brazil the Central Bank raised its reference rate but only by 50 basis points instead of the 75 bps expected a few weeks ago, while Argentina and Peru are taking measures to prevent their currencies from strengthening."
- "Financial assets in the region performed well, despite greater global volatility. Although international markets were volatile, financial assets in the region performed well, in general, and reacted to monetary policy measures (Brazil), announcements of currency intervention (Peru), the bond bidding schedule (Chile), and corporate results (Brazil and Mexico)."
BBVA Latin Weekly Observatory 20100723

Asia’s robust growth indicators begin to moderate

- Asia’s robust growth indicators begin to moderate… "In a week that was light on data releases, our attention was focused on Taiwan’s export orders which, while still robust, show signs of slowing. This is in line with our expectations of a slower H2 for the region as the global inventory cycle and impact of policy stimulus wears off. Last week’s release of China’s strong, but slowing, Q2 GDP reinforces this view."
- …while inflation temporarily eases ""A number of recent inflation releases for June show moderation for the time being. China, Korea, Thailand and Singapore, for example, have all posted lower-than-expected inflation over the past month.Nevertheless, many central banks in the region appear ready to continue normalizing interest rates from very low levels in order to preempt rising underlying inflationary trends."
- Markets rebound on improving European sentiment "Asian currencies and equities were supported by a modest decline in global risk premiums."
- In the coming week…. "Korea’s Q2 GDP outturn is expected to reveal another strong quarter of growth, while markets will watch for CPI releases in Australia and Japan as a guide to the future course of monetary policy. The Reserve Bank of India will hold its next scheduled policy meeting on July 27, with expectations of another rate hike."
BBVA Asia Weekly Watch 20100723

LatAm: a faster recovery

- "The recovery is gaining speed as the news arriving from the region continues to remain positive. Very significant are the raised debt rating for Argentina by Fitch, the take-up of Colombian bonds and good economic indicators in Colombia, Mexico and Peru. There are some signs of a slowdown in Brazil after high growth in the first quarter of this year. The official interest rate was increased in Chile, but continue to be very expansionary."
- "The equity markets are going up again, and we expect the same to happen in the foreign currency market. Most of the share indexes in the zone are reacting positively to the corporate results from the USA and of a reduction in the risk premium. Currencies reacted to factors in the cycle, which we expect to be corrected shortly."
BBVA Latin Weekly Observatory 20100716

Asian growth stays strong, with signs of a soft-landing

- Asian growth stays strong, with signs of a soft-landing "The key data releases over the past week were China and Singapore second quarter GDP. Markets generally reacted positively to signs of a soft-landing in China and continued robust growth in Singapore,
despite expectations of a weaker second half as global demand declines."
- China’s second quarter GDP growth eases… "Recent tightening measures appear to be working, as China’s Q2 GDP growth came in slightly lower-than expected at 10.3% y/y, in line with other slowing indicators such as industrial production, M2, retails sales, and fixed assets (see Highlight). Inflation for June came in much lower than expected (2.9% y/y), helping to ease concerns of overheating, and reducing the likelihood of additional tightening measures in
the near term. Other export-oriented economies in the region are still booming, such as Singapore which posted another quarter of rapid GDP growth (see Highlight). Both Singapore and Japan raised their official economic growth forecasts for 2010 to 13-15% (from 7-9%) and 2.6% (from 1.8%), respectively. India posted an inflation outturn of 10.55% in June, rising expectations of further interest rates hikes in the next monetary policy meeting scheduled on July 27th."
- …monetary tightening continues "As expected, Thailand raised its policy rate by 25bps to 1.50% last week, following similar moves in recent weeks by Korea, Malaysia, Taiwan, and India. On the other hand, Japan and Philippines remained on hold. Tightening measures reveal the region’s confidence in the growth outlook (see IMF Hightlight)."
- In the coming week…. "The coming week is relatively light on data releases. Markets will focus on June’s CPI inflation for Hong Kong, Singapore and Malaysia, and exports orders for June in Taiwan."
BBVA Asia Weekly Watch 20100719

China: Real Estate Outlook

- "Building on BBVA’s first Real Estate Outlook on China last year, this edition updates developments and policiesin the residential property sector, including an evaluation of recentprice trends against fundamentals and a comparison ofinternational experience with housing price bubbles."
- "Property prices in China have continued to rise sharply over the past year. While the magnitude of China’s housing price increases is not particularly large in comparison to international experience at this stage, the authorities have taken early action to cool the market in order to maintain housing affordability and to forestall destabilizing price bubbles. The measures have resulted in a sharp fall in sales transactions and a moderation in price increases."
- "According to our estimates, housing prices over thepast year in the major first tier cities have outpaced the rise in equilibrium values for housing. This raises the likelihood of further near-term adjustments in the housing market, including a downward correction in prices."
- "Over the medium term, however, prospects for China’s property market are bright given rapid income growth, high rates of urbanization, and favorable demographics."
BBVA China Real Estate Outlook 2010

The sentiment pendulum swings positive

- The sentiment pendulum swings positive "The past week was marked by a positive reversal in market sentiment, as expectations on the global outlook firmed, with upward growth revisions by the IMF adding to optimism. Central bank rate hikes in the region also indicated policymakers’ confidence in their economic growth prospects."
- Strong growth outturns continue, despite weakening external demand… "The region again posted strong growth indicators, including for Australia (falling unemployment), and Malaysia (industrial production), although economic weakness in Japan persists (machinery orders). The inflation picture remains benign, with the Philippines releasing a lower-than-expected figure for June, and Taiwan posting a higher-than-expected, albeit still tame reading of 1.2% yoy. Over the last weekend, China posted a surprisingly exports outturn for June of 43.9% yoy, showing that external demand is not cooling as much as previously expected."
- …causing central banks to resume monetary tightening "Interest rate hikes in Korea and Malaysia showed that the region’s policymakers are growing more confident in their economies’ growth outlooks. Monetary stances nevertheless remain accommodative,
given risks to the global outlook."
- In the coming week… "China will release a batch of new data for June including inflation and industrial production, and Q2 GDP. Elsewhere in the region, Thailand, the Philippines and Japan will hold monetary policy meetings. We expect the Philippines, Japan, and Thailand to remain on hold, although the latter is signaling rate hikes in the near future."
BBVA Asia Weekly Watch 20100712

Infrastructure investment of pension funds in an international context

- "Infrastructure investments by the private sector have reached a high growth rate in recent decades. Multiple Public-Private Partnerships (PPPs) models have emerged as the key tool to this development."
- "The fact that infrastructure investment projects are of a long term nature, and that there remains a good relationship between profitability/risk observed in many of them, has attracted the attention of pension fund administrators in many countries who have been increasing the weight of this type of investment in their portfolios."
- "However, not all the results have been successful. This type of project is highly complex and requires specialized multidisciplinary teams to study each project after individually, which has made accurate evaluation difficult in some cases. At the same time, there can be numerous limitations in some countries that make pension fund participation difficult. Among other notable problems, there exists the lack of coverage in the face of specific and diverse risks for each project, bureaucratic and regulatory issues."
- "Conversely, in other countries, institutional changes have been made to favour infrastructure private financing, modifying regulation, offering diverse types of warranties and making the processes of awarding of bids more transparent and effective."
- "The private pension funds participation in develop countries has had different kind of funds schemes and cotized and non-cotized companies in the market. However, the basic model is in each one."
- "In this pension watch we will describe the model of private investment in countries outside of Latin America where a greater participation from the private sector has developed in recent years. Specifically, we will review the cases of Australia, the United Kingdom, Canada, the USA and Continental Europe."
BBVA Pension Watch July2010

Markets react to weaker growth indicators

- "In line with global trends, market sentiment the past week across Asia was dented by indicators of slower global and regional growth. In addition to weaker data on the jobs and housing front in the U.S., markets reacted to a lower-than-expected PMI reading for June in China (see Highlights). Japan also posted lower-than-expected outturns for retail sales and industrial production. On the policy front, at the end of the week India raised interest rates to tame inflation. The timing of the move was unexpected (intermeeting), although markets had been expecting the possibility of a rate hike."
- "Korea, whose government recently revised up its 2010 growth outlook, posted better-than-expected exports for June, together with a set of robust data on domestic demand and production. Vietnam also posted a robust Q2 GDP outturn (6.4% y/y). And on the CPI front for June, inflation in Korea and Thailand moderated, although Indonesia posted a higher-than-expected CPI outturn (5.1%). Other positives were the signing of an anticipated trade agreement between China and Taiwan (see Highlights), and the reaching of a comprise in Australia on a new mining tax."
- "Monetary policy meetings will take place in a number of countries (see Highlights). We expect Indonesia, Malaysia, and Australia to remain on hold, with a possibility of a first rate hike in Korea. Markets will also be watching China’s June export figure at the end of the week to gauge the extent of the slowdown and whether global demand is weakening."
BBVA Asia Weekly Watch 20100705

LatAm: Positive activity indicators offset the impact on markets of an adverse global environment

- "Activity indicators in Argentina, Chile and Mexico surprise positively. Total credit growth in Colombia kept growing in May (4% y/y), boosted by the mortgage portfolio (20.6% y/y). In Peru, public expenditure grew above expectations in May, although it slowed versus the previous month, despite the Government’s announcement regarding moderation of public expenditure."
- "Differing Latam exchange rate dynamics due to domestic factors."
- "In Brazil and Peru domestic factors continue to support lower depreciation, while in Chile the link to the price of copper is expected to generate pressures. Colombia’s relative exchange rate strength was boosted following Moody’s announcement."
BBVA Latin Weekly Observatory 20100702

Economic recovery on track, but uncertainty increases

- "World environment: challenges ahead for a sustained recovery."
- "Domestic demand in the eurozone was subdued. Strong exports supported for the strength of the industrial sector.""
- "The first steps of the recovery are still modest."
- "The sovereign bond crisis, the lack of restructuring in the financial sector and the end of temporary stimulus will put a break on the recovery of domestic demand, but world trade growth and euro depreciation will partly compensate for it."
- "The outlook for 2010 and 2011 presents a very slow recovery, and heterogeneous across member states, while uncertainties increase."
- "Monetary policy to remain adequately accommodative until at least the end of 2011."
- "The fiscal consolidation challenge ahead is important, but the risk of a large negative effect on growth is small."
BBVA Europe Economic Outlook June2010

Policymakers growing more confident on Asia's outlook

- "The past week’s economic news across Asia has been dominated by China’s announcement to allow greater exchange rate flexibility. Markets welcomed the announcement and stock markets and currencies initially rallied, although euphoria soon faded on realization that any appreciation will be limited and gradual through the year. The RMB appreciated for the week by about 0.5%, a small move in absolute terms, but relatively large given the de facto peg that had been in place since July 2008. And certainly large enough for China to successfully fend off criticism at the G20 meeting that concluded over the weekend in Toronto."
- "The week ended with a surprise interest rate hike in Taiwan (see highlights), a signal of the authorities’ growing confidence in the economic outlook. Adding to optimism was the announcement that Taiwan and China have concluded their historic trade agreement, ECFA, to remove barriers to cross-strait trade and investment ties. Korea’s government also significantly upgraded its growth outlook and signaled a more aggressive implementation of its exit strategy. Elsewhere in the region, CPI figures show that inflation remains under control, although it is gradually rising (outliers are India and Vietnam with relatively high inflation, and Japan with deflation) except in India and Vietnam). For further confirmation of the outlook, Markets this week will be awaiting important PMI data in China, and trade, production, and inflation data for June in Korea."
- "Australia provided a political surprise for the region, with Prime Minister Kevin Rudd resigning, as his popularity had fallen in recent months. The new PM, Ms. Julian Gillard, has signaled more flexibility in negotiating and formulating Australia’s new mining tax. For the region, the fallout of Australia’s integration with Asia will be watched, as Kevin Rudd had been known as a keen promoter."
BBVA Asia Weekly Watch 20100628

LatAm pushes forward on the back of domestic demand

- "Imports data from Argentina, Brazil and Chile confirm strong growth of domestic demand in the region. Lending continued to grow in Brazil in May (19% y/y). Also Colombian GDP (4.4% y/y, 1.3% q/q) beat expectations due to robust expansion of domestic demand. Argentina completed with a 66% acceptance rate the debt swaps with holdouts, beating expectations, while en Venezuela Cadivi increased access to formal exchange rate market in May by 59.2% y/y. Mexico's GDP fell -0.3% q/q (4.4% y/y), as a result of a drop in private consumption and public sector investment. Chile announced new local issue of sovereign long-term debt for value equivalent to 3 billion dollars."
- "Positive outlook for Latin American currencies, despite the uncertain international environment."
- "Uncertainty about European economies added to jitters about U.S. recovery, and fears surrounding appreciation of the Chinese Yuan; however, domestic factors in each economy prevailed and contributed to strengthening the region's currencies."
BBVA Latin Weekly Observatory 20100625

Greek Sovereign Debt Crisis: Assessing Contagion to Emerging Economies

- "The impact of Greek Sovereign Debt Crisis on capital flows into Emerging Market (EM) economies has been quite mute. In fact, fixed income funds have virtually remained on positive territory during the current turmoil."
- "A regional comparison leaves Emerging Europe as the worst performer in this episode as happened already during Lehman Brothers’ default. However, CDS rose more then and stock markets fell further."
- "The impact on commodity prices, crucially determined by USD appreciation, has been less severe this time around due to China’s rapid growth."
BBVA Economic Watch 20100623