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Prospects Daily: EM equities up at sharpest rate in 2 years

Global Macroeconomics Team's picture

Important developments today:

1. Emerging market equities gained the most in 2 weeks

2. U.S. new home sales surge 17.5% in December 2010 (m/m)

 

Emerging market equities gained the most in 2 weeks. Developing-country stocks climbed the most since January 12 on Wednesday, as expectations for increasing prices of semiconductors and higher raw-materials prices boosted technology and commodity shares. The MSCI Emerging Market Index gained 0.6% in mid-day trading, heading for the largest gain in two years. The gauge rose from a four-week low, trimming 2011 year-to-date declines to 0.7%. Benchmark stock indexes in China, Hungary, Indonesia, Poland, Russia, South Africa, South Korea, and Thailand all gained more than 1% today. In contrast, Egypt’s benchmark EGX30 index plummeted 6.1%, the biggest decline since November 2009, amid ongoing protests against the government of President Hosni Mubarak. Emerging-market bond spreads over comparable U.S. Treasuries tightened by 8 basis points (bps) to 240 bps today, according to JPMorgan’s EMBI+ Index.

U.S. new home sales surge 17.5% in December 2010 (m/m). Closing off a disastrous year for the homebuilding industry, in which new home sales dropped 12% to the lowest levels since 1963, a 17.5% jump in sales during December was welcome news. This follows last week’s release that purchase of existing homes ratcheted higher at year–end as well, such that the a degree of dynamic is being returned to the market, with buyers taking advantage of low mortgage rates and reduced prices.

The median price of a new home sold during December also picked-up, by 8.5% versus year earlier levels to $241,500; the increase in values probably reflects the change in the mix of sales toward the West of the country were prices are generally higher [see Chart at http://gem or http://www.worldbank.org/gem. The supply of homes on the market fell to 6.9 months, the lowest since April, at December’s sales pace. “This is consistent with a gradual path of recovery”, notes Drew Matus of UBS Securities.

Among Emerging Markets

In East Asia and the Pacific, in a bid to rein in speculative investment in the domestic property market, China increased the minimum down-payment for houses (other than the primary home) from 50% to 60% today, and simultaneously asked local authorities to release more land for affordable housing construction to ease supply bottlenecks. Home prices in Shanghai surged 26% in 2010 according to SouFun Holdings.

In Latin America and the Caribbean, Mexico's retail sales dipped 0.5% in November from the previous month, as consumers remained shy of increasing spending amidst the economic recovery. While retail spending is 2.4% above what was recorded last year, median market forecasts had expected a rise of 4.3% over November 2009. In Brazil, the benchmark IPCA consumer price index increased to 0.76% in the month to mid-January (m/m) following a 0.7% gain in the previous monthly span. This corresponds to annual inflation of 6.04% for January compared to 5.8% recorded in December, pushing inflation to the top of the central bank's target 2.5-6.5% band. 


 

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