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Weekend Data from Asia

12/01/2013

As the final month of 2013 begins, investors have some weekend economic data from Asia to digest: the November PMI manufacturing index from China and the November trade balance report from South Korea.

The November China PMI index came in at 51.4, unchanged from October and slightly above consensus estimates of 51.3. The November reading keeps the PMI manufacturing index at its highest level since April 2012. However, the composition of the report does suggest investors elevate their attention to the December and January reports to determine if the four-month rebound will be “as good as it gets.”

The new orders sub-index moderated to 52.3, the weakest reading since July’s 50.6. Finished goods inventories also are on the rise, with the index back at 47.9, the highest level since June’s 48.2. Falling new orders and rising inventories are not an optimal scenario for accelerating growth.

New Orders Index


November

October

September

August

July

52.3

52.5

52.8

52.4

50.6

Finished Goods Inventory Index


November

October

September

August

July

June

47.9

45.6

47.4

47.6

47.3

48.2


China PMI Manufacturing Index


November

October

September

August

July

June

51.4

51.4

51.1

51.0

50.3

50.1

Source: National Bureau of Statistics of China, China Federation of Logistics and Purchasing

Also released over the weekend was South Korea’s trade balance report. During the month of November, the elevated expectation for FOMC tapering, as a consequence of better U.S. economic data, and the resumption of the Japanese yen’s downtrend presented a once again tough environment for emerging market risk assets. During November, the MSCI Emerging Market Index (Figure 1) experienced its first down month since August.

Additionally, the Japanese yen in November weakened (Figure 2) to its lowest level since May, placing its Asian currency antithesis, the South Korea won, in an unfavorable appreciating position, which slowed domestic exports as its currency strengthened. In fact the won traded (Figure 3) to a five-year high versus the yen in November. Again, investors must elevate the attention paid to the upcoming South Korea trade balance figures to determine if slowing exports becomes a trend that halts the perceived overall economic recovery of the past four months for South Korea.

November South Korean Trade Balance Report

  • November exports rose 0.2%, well below consensus estimates for +3.0%
  • October exports was revised from a previously reported +7.3% to +7.2%
  • November imports fell 0.6%, well below consensus estimates for +4.4%
  • Exports to Japan fell 6.4% on a year-on-year basis, highlighting the competitive disadvantage the recent won/yen currency move is dictating
  • Exports to overall Asia, ex-China, fell 11.2% year on year
  • Exports to the United States rose 3.7% year on year, highlighting the U.S. domestic improvement relative to last fall’s fiscal cliff retrenchment

Figure 1 MSCI Emerging Market Index, July 2013 to Present

Source: Bloomberg

Figure 2 Japanese Yen, May 2013 to Present

Source: Bloomberg

Figure 3 South Korea Won versus Japanese Yen, May 2008 to Present

Source: Bloomberg

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.