Just a day after Singapore reported a sizzling second quarter GDP growth at 19.3% vs. the same period last year, China announced this morning that its economy grew by 10.3% for the same period. The data was better-than-expected for Singapore while a tad below for China.
For the first half, Singapore out-grew China with an 18% growth rate compared with China's 11.1%. The exceptionally strong growth for Singapore has been broad-based coming from stronger trade flows, banking services and visitor arrivals attributed to the two integrated resorts (Marina Bay Sands and Resort World Sentosa). With these figures, both the government and the private sector revised up their forecast for the full year 2010. The official estimate is now for growth between 13% and 15% while some economists predict a rate of up to 16.5%. This would place Singapore as the fastest growing economy globally, if realised.
Underscoring Singapore's strong performance is the economy's high leverage to its external environment. With the expected moderation in the G3 as these governments and their households cut spending to tackle their high debt levels, second half growth may be vulnerable. Still, even if growth turns out flat in the second half, full year growth would still be more than 15%. The upshot is with growth above trend, the MAS is likely to condone a stronger currency to contain price pressures. We expect the SGD to appreciate to 1.35 vs. USD in the coming months.
Meanwhile, China's 10.3% is no slouch. Although not as hot as Singapore's, it's still an incredible performance and must be seen in the context of policy tightening and a higher base of comparison. We have to remember that while the world was falling apart in early 2009, China still managed to pull in growth of 6%-8% due largely to the government's aggressive fiscal stimulus measures. As the fast pace of growth started to form pockets of bubbles, the government has since August applied brakes on certain sectors especially credit curbs to the real estate markets. The slowing growth may give policymakers slightly more breathing room to normalise policies. We do not expect a rate hike soon although we'll continue to see creeping appreciation of the RMB.
Even though China's economy seems headed in the right direction, there are still detractors. Some still see a rate above 10% as evidence that the economy is headed for a crash landing while others are worried that the slowdown coming at a time of global stress from sovereign debt crisis is a bad signal. It seems to me that when it comes to China, views are extremely polarised. What matters then is the markets. The Shanghai Composite Index rose immediately on the GDP news but by late morning drifted back into negative territory.
If indeed the economy achieves a soft landing as we expect, then we see further setbacks as long-term buying opportunity. Stocks have fallen almost 30% from its peak in August and is now trading at historically low valuation multiples. It may just be time for investors with longer horizon who are still bullish on China to drip back into this market.
Thursday, July 15, 2010
Friday, July 9, 2010
IMF raises forecast for 2010...
The International Monetary Fund raised its forecast for global growth this year to 4.6% in the latest update of its World Economic Outlook report. This is up a tad from its previous 4.25% only in April. Growth in 2011 is maintained at 4.3%.
On the face of it, the upgrade in forecast seems positive and indeed the markets seized that opportunity to trade higher in equities and commodities as risk aversion took a bit of a backseat. This is not surprising given investors have been spooked in recent weeks by a possible growth downturn stemming from fiscal consolidation in Europe and softer data from China.
But beyond the headline upgrade, which the IMF explains that it's because of a stronger than-expected first half, the document highlighted increased risks for the global recovery. In fact, it warned that the road ahead is strewn with obstacles and dangers.
One of the major risks is focused on Europe where fiscal consolidation is likely to retard growth and cautioned that the implementation of cutbacks as well as adjustments to social entitlements could risk endangering the already fragile state of economic affairs in the region.
Furthermore, banks in the euro area remain cautious in lending to each other on fears of the quality and strength of their balance sheets which are saddled with problematic assets from government bond holdings.
This is not much more than what we already know over the past months. We are not complaining that the markets chose to take it positively. Perhaps the fact that it did not downgrade estimates for 2011 even though it had reduced estimates for all advanced economies bar the US is a positive sign.
For now, we would wait eagerly for the results of the European bank stress tests. Overall, we expect the results should be well received by the markets and that should eliminate a source of uncertainty in the markets. But I wouldn't be surprised that some would remain critical of the assumptions and scenarios used for the stress testing.
If that does not turn the sentiment on the banking sector, perhaps we should expect the ECB to consider more desperate measures on quantitative easing or even a rate cut... That is certainly not a market consensus view at this stage but a move that should not be dismissed.
On the face of it, the upgrade in forecast seems positive and indeed the markets seized that opportunity to trade higher in equities and commodities as risk aversion took a bit of a backseat. This is not surprising given investors have been spooked in recent weeks by a possible growth downturn stemming from fiscal consolidation in Europe and softer data from China.
But beyond the headline upgrade, which the IMF explains that it's because of a stronger than-expected first half, the document highlighted increased risks for the global recovery. In fact, it warned that the road ahead is strewn with obstacles and dangers.
One of the major risks is focused on Europe where fiscal consolidation is likely to retard growth and cautioned that the implementation of cutbacks as well as adjustments to social entitlements could risk endangering the already fragile state of economic affairs in the region.
Furthermore, banks in the euro area remain cautious in lending to each other on fears of the quality and strength of their balance sheets which are saddled with problematic assets from government bond holdings.
This is not much more than what we already know over the past months. We are not complaining that the markets chose to take it positively. Perhaps the fact that it did not downgrade estimates for 2011 even though it had reduced estimates for all advanced economies bar the US is a positive sign.
For now, we would wait eagerly for the results of the European bank stress tests. Overall, we expect the results should be well received by the markets and that should eliminate a source of uncertainty in the markets. But I wouldn't be surprised that some would remain critical of the assumptions and scenarios used for the stress testing.
If that does not turn the sentiment on the banking sector, perhaps we should expect the ECB to consider more desperate measures on quantitative easing or even a rate cut... That is certainly not a market consensus view at this stage but a move that should not be dismissed.
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