Emerging market equities advanced in December. Global risk appetite improved as announcements by the Bank of Japan underlined the commitment of policymakers across the globe to pro-growth monetary policy.
As the table above indicates, emerging equity markets generally performed well during December as investor sentiment continues to improve. This was partly due to a continued stabilisation of the eurozone debt crisis, where yields on peripheral government bonds continued to fall. In addition, the Bank of Japan announced an ‘enhancement’ of its ‘aggressive monetary easing’ on 20 December. The central bank moved to expand its purchase of Japanese Government Bonds and Treasury Bills and will lend at low rates to Japan’s banks. Worries over the well publicised ‘fiscal cliff’ (i.e. a combination of potential tax increases and spending cuts) in the United States did not have a significant impact on emerging markets as investors correctly took the view that an agreement will ultimately be reached in Congress.
From an economic perspective, in its latest World Economic Outlook, the International Monetary Fund (IMF) projects robust growth in the emerging world over the coming year, despite ongoing problems in the developed world. Growth in the majority of the larger emerging markets is expected to accelerate in 2013. In many cases, this is being driven by an increasing contribution from domestic demand rather than exports as countries such as China continue to move away from a model of export-led growth.
Turkey is case in point in this regard. On 18 December, the central bank announced a 0.25% reduction in interest rates to 5.50%. The central bank noted that ‘domestic demand follows a moderate pace, while exports continue to increase despite weakening global activity.’
Elsewhere, comments from policymakers in Thailand and Indonesia further confirmed that domestic demand remains strong across the fast-growing economies of South East Asia. Bank Indonesia, for instance, said on 11 December that it expects the Indonesian economy to grow apace, driven by ‘private consumption and investment, while a slowdown in exports continues.’ On 28 December, the Bank of Thailand also remarked favourably on recent economic trends. ‘Private spending, both consumption and investment, remained the key drivers of growth, while merchandise exports also picked up, all of which led to a (notable) improvement in manufacturing production. In addition, growth in the tourism sector remained robust. … Unemployment was low and headline inflation moderated primarily (thanks to) fresh food prices.’
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