State of emerging market economies in January 2018


The stock market and economy move in sync over the medium-long term. That’s why it’s extremely important to understand the state of a nation’s/region’s economy. Is the economic data improving or deteriorating?
Let’s take a look at emerging market economic data as of January 2018.

China

China is the main driver for emerging markets. Many of the BRICs and other emerging markets are exporters to China.
Manufacturing PMI
After rising in 2016, China’s Manufacturing PMI has been flat for most of 2017.

Non-manufacturing PMI
Like the manufacturing PMI, China’s Non-manufacturing PMI has been flat for most of 2017 after rising in 2016.

New Orders
New Orders in China are slowly trending higher.

Leading Economic Index
China’s Leading Economic Index continues to surge. This indicator is extremely useful for China watchers.

Consumer Confidence
Chinese Consumer Confidence continues to soar as China’s economy transitions from manufacturing to services/consumption.

Conclusion
China’s old economy – manufacturing – has plateaued and most likely will not experience a surge in growth over the next few years. China’s new economy – consumption & services – continues to grow at a very healthy rate. This is a long term bullish factor for the Chinese stock market. Here’s SSE (Shanghai stock index).

Brazil

Brazil is one of the BRIC’s.
Unemployment
Unemployment has only started to go down recently after surging in 2016.

Inflation
Inflation has only started to increase recently after plunging in 2016.

Producer Prices
Producer Price growth has only started to pick up recently after plunging in 2016. This is just like inflation.

Business Confidence
Business Confidence continues to trend higher.

Industrial Production
Industrial Production in Brazil continues to trend higher.

Consumer Confidence
Consumer Confidence in Brazil continues to trend lower.

Retail Sales
YoY % change in Retail Sales continues to trend higher.

Conclusion
Brazil’s economic data is mixed because the Brazilian economy is still climbing out of its worst recession in history. In other words, Brazil’s economic expansion still has a lot of room to go. This is a long term bullish factor for the Brazilian stock market. Here’s Bovespa (Brazil stock index).

Russia

Russia’s economy is heavily dependent on commodity exports (oil, natural gas, etc).
Unemployment
The Russian unemployment rate has been trending down over the past 2 years.

GDP growth rate
Russian GDP growth continues to pick up.

Inflation
Russian inflation continues to trend lower. This is normal. Inflation skyrocketed in 2015/2016 thanks to Putin’s fallout with the E.U. and U.S.

Industrial Production
Russian Industrial Production is deteriorating.

Consumer Confidence
Russian Consumer Confidence is trending higher.

Retail Sales
Like Consumer Confidence, Russian Retail Sales growth is improving.

Conclusion
Russia’s economy is dependent on energy exports. The Russian economy is improving because oil prices are up year-over-year. With oil prices in a long term bull market, the Russian economy should improve over the next few years. This is a long term bullish factor for the Russian stock market. Here’s MOEX (Russian stock index).

India

India is very different from other emerging markets. India isn’t as influenced by China’s economy as e.g. Russia, Brazil, Southeast Asia, etc.
More importantly, India’s economic data is not very good:

  1. There’s not a lot of historical data
  2. There’s a lot of statistical noise in the available data.

Inflation
Indian inflation has been trending higher over the past few months.

Producer Prices YoY % change
Producer Price growth has been flat throughout most of 2017.

Business Confidence
Indian Business Confidence is surging.

Stock market
Here’s India’s NSE Nifty 50 (stock index).

4 comments add yours

  1. Thanks for the EM analysis Troy. To what extent do you agree/disagree with Grantham’s analysis regarding EM vs US stacked portfolios during the next significant correction? Is his a strategy you’re considering pursuing for yourself?

    • From a discretionary standpoint, I agree with Jeremy. EM will outperform the U.S.
      EM valuations are significantly lower, and coming out of a long economic decline, their economic snapback will be stronger.
      However, I’m sticking to the S&P 500. I don’t know how to predict significant corrections in EM. You gotta stick to what you know. Trading is hard enough as it is.

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