Renewed investor confidence and the return of bargain investors led markets to continue the upward trend witnessed in March. The MSCI Emerging Markets index returned 16.7 per cent in dollar terms in April, after recording a 14.4 per cent increase in March.

Part of this return was due to weakness in the dollar, as investors shifted funds into higher yielding international assets.

Asian and Latin American markets ended the month with strong returns as the asset class continued to attract fund inflows. After a period of underperformance due to concerns about the financial welfare of the region's banks, Eastern European markets became the strongest performers in April.

Hungary and Poland returned more than 25 per cent in dollar terms, while Russia ended the month up 21.9 per cent. Turkey was among the top emerging market performers with a return of close to 30 per cent in April. An outbreak of swine flu towards the end of the month in Mexico's capital city led to fears of a global pandemic. Mexican and US authorities had since reported that the virus was not as severe as previously feared. The world is also better equipped to deal with the virus due to its experience with the bird flu outbreak some years ago. As a result, investor confidence remained unaffected.


Asia

China's GDP grew 6.1 per cent year-on-year in the first quarter of 2009, compared to 6.8 per cent y-o-y in the last quarter of 2008. This was mainly due to a decline in export growth and lower manufacturing and industrial growth. Investment in fixed assets, however, increased 28.8 per cent y-o-y, as government efforts to boost economic recovery showed results.

Credit growth also accelerated with new loans reaching $671 billion (Dh2.4 trillion) in the first quarter of 2009, higher than the total for the entire year in 2008. Consumer prices continued to ease in March with a 1.2 per cent y-o-y decline due to lower transport and housing costs.

This compared to a 1.6 per cent y-o-y fall in February. Showing signs of improvement, industrial output grew 8.3 per cent y-o-y in March from 3.8 per cent y-o-y in the first two months of the year. Economic recovery, supported by the government stimulus package, is expected to continue.

Government efforts to stimulate South Korea's economy showed some results in the first quarter of 2009 with GDP growing 0.1 per cent quarter-on-quarter, after declining 5.1 per cent q-o-q in the last three months of 2008.

Private consumption grew 0.4 per cent q-o-q, after recording a 4.6 per cent q-o-q decline in the previous quarter, due to greater consumer spending as a result of tax cuts, lower interest rates and a decline in oil prices.

Government expenditure rose 5.3 per cent q-o-q, compared to a 3.0 per cent q-o-q decline in the preceding quarter. Exports declined 4.2 per cent q-o-q, better than the 8.9 per cent q-o-q decline reported in final quarter of 2008.

Latin America

The Mexican Government forecast the economy to contract by 2.8 per cent in 2009 as a result of the current global economic environment. A recovery, however, is expected in 2010 with a GDP growth forecast of 2.0 per cent. The International Monetary Fund (IMF) approved a $47bn credit line for Mexico under its new Flexible Credit Line facility as a precautionary measure. The Central Bank continued to lower interest rates in April, reducing the benchmark interest rate by 75 basis points to 6.0 per cent. Inflationary pressures maintained a downward trend due to lower domestic demand. Consumer prices fell to 6.0 per cent y-o-y in March, after reaching a peak of 6.5 per cent y-o-y in December.

Brazil announced additional measures to support the economy, including higher deposit guarantees to improve liquidity in the financial sector, a housing plan which aims to provide one million new homes to low-income families, and tax breaks in the automotive and construction materials sectors.

The Central Bank maintained a loose monetary policy in April by cutting its benchmark interest rate by 100 basis points to 10.25 per cent.

Africa

South Africa's general elections were held in April where the ruling African National Congress (ANC) Party emerged victorious, but narrowly missed achieving a two-thirds majority. Party leader Jacob Zuma is expected to become the next president after a parliamentary vote next month.

Economically, weakness in the manufacturing sector continued with volume declining 11.1 per cent y-o-y in the first quarter of 2009 as a result of weak global and domestic demand. The result was, however, much better than the 21.8 per cent y-o-y contraction in the preceding quarter. Consumer prices rose 8.5 per cent y-o-y in March, in line with the 8.6 per cent y-o-y increase recorded in February.

Europe

After increasing the benchmark interest rate by 300 basis points in 2008, Russia's Central Bank switched to a loosening monetary policy in April by cutting its benchmark interest rate for the first time since June 2007. The interest rate was reduced by 50 basis points to 12.5 per cent. Consumer prices increased 14.0 per cent y-o-y in March, in line with the 13.9 per cent y-o-y increase in February.

Lower commodity prices, reduced export demand and tighter credit conditions led industrial production to contract 13.7 per cent y-o-y in March, its fifth consecutive monthly decline. Unemployment rose to 9.5 per cent y-o-y in the first quarter of 2009 due to staff reductions resulting from weaker domestic and export demand.


- Dr Mark Mobius, Executive Chairman of Templeton Asset Management, contributes a monthly column exclusively to these pages

 

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