Investing in the Big Picture: Emerging Markets

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

Emerging Markets

The People’s Bank of China (PBOC) is ready to use reserve required ratio (RRR) cuts and open market operations (OMOs) to boost liquidity where necessary, Xinhua News reported.
China will widen the yuan trading band to 1 percent as of April 16, PBOC said in a statement. The new move eventually will pave the way for RMB internationalization and an open capital market.
China has cut RRRs for some county-level lenders by 100 basis points.
Recently China started experimenting in Wenzhou with legitimizing private capital for bank lending. This type of lending has been banned since the Communist party started ruling the country. The move should have significant impact for long-term social and economic development in China, which tends to thrive in a freer environment.
Brazil’s central bank cut its benchmark rate by 75 basis points to 9 percent from 9.75 percent this week. This positively impacts money supply, but weakens the Brazilian real and may cause money to flow out of the country.
India also cut its benchmark rate by 50 basis points to 8 percent to help boost growth after inflation stabilized and first-quarter GDP growth significantly slowed.

China International Capital Corp. reported that the big four banks in China lost Rmb 1 trillion of deposits in early April, which may renew concerns over a lack of new loans this month.
Foreign direct investments in China dropped for a fifth-straight month in March. Inbound investment fell 6 percent from a year earlier to $11.76 billion after a 0.9 percent drop the month before.
The Philippines central bank maintained its benchmark rate at 4 percent, halting after two consecutive cuts.
Singapore’s non-oil domestic exports fell 4.3 percent in March as shipments of electronics and petrochemicals eased, while the market expected a gain of 7.1 percent.
Chinese premier Wen Jiabao indicated from a State Council meeting that China remains firm on its property curbs despite slowing economic growth (China power use rose only 7 percent in March, the lowest for a long time) and will strictly regulate local government financing vehicles (LGFV). In truth, the housing market may become healthier if developers can come to reality by lowering prices and clearing up inventories.

The population in China is increasingly using mobile internet as smartphone penetration rises. The chart below by Morgan Stanley shows the number of mobile internet users is reaching 400 million, and the firm says this will benefit social network and search engine providers such as Sina, Tencent, and Baidu.

China’s economy is still seeing downward pressure and the second quarter may mark a “lower point” for growth before it slowly accelerates in the second half, said Zhu Baoliang, chief economist at the State Information Center’s forecast department in China.