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Emerging Markets Equity Commentary: October 2014

November 24, 2014

by Team

of Thomas White International

Improved U.S. Consumer Spending to Help Exporters of Manufactured Goods

Emerging market equity prices turned volatile during October as concerns about weak global growth and the impending close of bond purchases by the U.S. Federal Reserve unnerved investors. Still, some of the large emerging markets in Asia rebounded strongly during the second half of the month. China, India and Taiwan ended the month with healthy price gains, and helped the emerging markets to outpace the developed markets. Outside Asia, Turkey and South Africa rallied strongly on expectations that improved political stability would help revive their respective economies. In Brazil, markets were disappointed by the reelection of President Rousseff, as expectations of an actively pro-business government have faded. Most markets in Eastern Europe continued to decline with the perception that the weak Euro-zone growth could hurt export demand. Latin American markets also slipped further as commodity prices remained weak. 

Chinese GDP growth for the third quarter was marginally above expectations and boosted prospects that the economy is stabilizing at a sustainable pace of expansion. Exports from China have seen continued gains in recent months, allaying fears of a sharp slowdown. To help support domestic demand by reviving credit availability, China’s central bank has provided additional short-term funding to banks. However, the pace of Chinese manufacturing output growth slowed in October. Among other emerging countries, manufacturing output increased at a faster pace in Mexico and Turkey. Korea and Indonesia recorded declines in manufacturing activity during October, while India’s factory output expanded at a slower pace. 

Near-Term Outlook 

Though Euro-zone demand remains weak, the positive trends in U.S. consumer spending should help emerging countries in Asia and Latin America that export manufactured goods. China, South Korea, and Taiwan in Asia, as well as Mexico in Latin America, have seen healthy export growth in recent months. These gains are likely to be sustained as U.S. consumer confidence has seen further improvement, helped by the fall in unemployment and lower fuel prices. However the weak euro and Japanese yen could erode the price competitiveness of emerging market exporters in select industries such as capital goods and electronics. In the case of Mexico, part of the gains in exports of manufactured goods could be offset by the lower value of oil shipments. 

Low energy prices should be of significant help to large emerging markets such as India and Indonesia that were facing widening current account and budget deficits earlier this year. The decline in oil prices is likely to substantially reduce the fuel subsidies in these countries, giving the government more flexibility to expand infrastructure spending. Cheaper fuel is also likely to lower inflation risks and allow the central banks to advance interest rate cuts, and help consumer demand further. China also reduced its fuel prices further in October, and cheaper fuel should lift domestic spending in the country, which represents the world’s largest automobile market.

This article is for informational purposes only. This article is not intended to provide tax, legal, insurance or other investment advice. Unless otherwise specified, you are solely responsible for determining whether any investment, security or other product or service is appropriate for you based on your personal investment objectives and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation. The information contained in this article does not, in any way, constitute investment advice and should not be considered a recommendation to buy or sell any security discussed herein. It should not be assumed that any investment will be profitable or will equal the performance of any security mentioned herein. Thomas White International, Ltd, may, from time to time, have a position or interest in, or may buy, sell or otherwise transact in, or with respect to, a particular security, issuer or market on our own behalf or on behalf of a client account.


Certain statements made in this article may be forward looking. Actual future results or occurrences may differ significantly from those anticipated in any forward looking statements due to numerous factors. Thomas White International, Ltd. undertakes no responsibility to update publicly or revise any forward looking statements. 

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