1. By:
Sonam S. Dhonde
Source: Roll No.07
www.businessweek.com
MMS-2
On 30th August 2012
2. Regional economic powerhouses-large populations,
large resource bases, and large markets
Adopting open door policies to replace their
traditional state policies that failed to produce
sustainable economic growth.
World’s fastest growing economies
– By 2020, the five biggest emerging markets' share of world output will double
to 16.1 percent from 7.8 percent in 1992.
– They will also become more significant buyers of goods and services than
industrialized countries
Critical participants in the world's major political,
economic, and social affairs.
3. The developed world - GNP of over $10K per capita-
constitutes only 14% of the world’s population
86% of the world – the emerging markets - has a GNP
of less than $10K per capita
It is this 86% that represents the future of global
commerce 14%
86%
GNP per capita greater than $10K GNP per capita less than $10K
4. Emerging markets present opportunities.
Even though they are as beset by Europe as the rest of
the world and have additional problems of their own.
5. Demanding markets, culture and environments
“Don’t build a car when you need a bullock cart”
Rapidly changing markets
Develop with the market
Youthful and growing populations
Think Young
Limited income and space
Grow big by thinking small
Weak supply and distribution channels
Take the market to the people
Underdeveloped infrastructure
‘Bring your own infrastructure/ Look for the Leapfrog’
6. Beyond the great cloud of uncertainly rising from the
old continent, China, depends on Europe as a market
for its exports.
Many other emerging economies depend on China as
a market.
Emerging equity markets have performed poorly
since spring.
China's Shanghai Composite Index fell about 8% to
mid-year from its highs of early spring.
Brazil's Bovespa Stock Index did even worse, falling
some 15% during that time.
India's SENSEX Index, though it moved off its lows in
June, still showed a drop of approximately 9%.
7. Brazil's real lost about 15% of its value against the
dollar during those months
India's rupee lost 14%.
China's yuan, which faces considerable diplomatic
pressure to appreciate, gave up about 1.0% of its
dollar value.
High market correlations will likely persist in a world
responding more to global macro developments,
such as Europe's crisis, then to company, sector, or
even national problems.
8. China's economic prospects have suffered
from three adverse influences.
o Europe's debt crisis and that continent's attendant
recession.
o Legacy of last year's monetary restraint.
o China's burst housing bubble - should abate.
9. The European Union (EU) is the single largest market for
Chinese exports, and exports are the single biggest
growth driver in that economy.
With deepening Europe's recession, there is little hope
for relief on this front, though any viable rescue
mechanism.
Especially if the European Central Bank (ECB) makes its
immense financial resources available, could lift spirits
and valuations in all markets and economies, including
China and other emerging markets.
10. Beijing put on the policy brakes. Fearing a rise in inflation
toward 8% or more a year, it engaged in a major
monetary tightening.
The People's Bank of China (PBC) in 2011 drained
liquidity from Chinese markets by raising the percent of
reserves banks had to hold against their loans and
deposits and by raising target interest rates both several
times.
The economy still labors under the lingering effects of
that restraint. But things are changing.
11. With inflation back down to the much more
acceptable 3% annual rate, Beijing has begun to
reverse last year's policy.
The PBC has recently cut its benchmark interest rate
and reduced the reserves required of banks.
They feared a "liquidity trap" in which monetary ease
loses its economic effect.
But such fears were likely misplaced.
12. Chinese house buyers are not nearly as leveraged as were
Americans.
By law in China people must put down at least 20% of the
property's cost on their first house and at least 50% on their
second.
Few in China find themselves "under water" on their mortgages.
China's debt burden lies largely with local governments.
China should work off its excessive housing inventory far faster
than the U.S.
There are, after all, 11 million marriages a year in China and
some 10 million to 12 million people a year migrate from the
countryside into China's cities.
13. It also is clear that many Chinese have begun to take
advantage of now reduced mortgage rates, especially
discounts of 15% for first-time homebuyers.
Major cities already report increased transactions. Though
housing prices are down 25% from their peak of a couple of
years ago, recent month-to-month figures show relative
pricing stability.
14. Beijing, worried over speculation, has moved more
cautiously than it did with its huge 2008 stimulus.
But still the government has done much: streamlined
approvals for new business development and offered tax
breaks for businesses.
Fast-tracked some 66 billion yuan ($10.5 billion) of
infrastructure projects, including huge investments in three
steel plants, hydropower plants, and airports; increased
finance for 2.3 million additional public housing rental
units; and provided 36 billion yuan ($5.7 billion) in subsidies
for the purchase of energy-saving household appliances.
Since China's households save at a rate of 51% of their
disposable income, they surely can take advantage of such
largess.
15. It would strain credulity to suggest that such efforts can
allow China to reach its old 10% to 12% yearly real growth
rate.
China's need for fundamental, longer-term adjustments,
away from export dependence and toward broad domestic
development, will keep growth slower than in the past.
But matters look poised to allow China to meet its 7.5%
real annual growth target.
16. That alone should provide some relief given today's
depressed pricing.
Such growth should also help lift many of the other
emerging economies that depend on China, Brazil,
and other more purely commodity-dependent
economies.
The picture, though far from robust, is better than
the expectations implicit in today's pricing.