Chinese economy to cool down

Hong Kong/China markets were subject to volatility last week. Given that the China manufacturing PMI (purchasing managers index) moderated to a six-month low of 52.2 in February from 52.9 in January, according to government data, the economy is expected to be cooling down and that the inflation overhang will fade out. Globally, crude oil prices remain elevated although off their peaks due to supply concerns amid political unrest in the Middle East. Our portfolio was largely unchanged this week.

Hong Kong and China stocks edged higher as oil prices receded from recent highs but political tensions in Libya kept geopolitical risks relatively high. On the positive side, Hong Kong and China companies turned in some resilient annual results, despite the current uncertainties, indicating domestic growth remains robust.

Apart from property and commodity names, the consumer-related sector also saw some positive profit forecasts. Chinese retailer Suning Appliance expects 2010 sales revenue to increase almost 30percent from a year earlier while net profits will rise over 35percent.

India

Indian stocks edged higher last week as oil prices receded a little, after a sharp surge the week before amid the violent uprising in Libya and fears about supply disruptions. Food inflation also slowed, easing some concerns about the likely chances of another rise in interest rates by the Central bank.

An India index measuring wholesale prices of agricultural products including lentils, rice and vegetables rose 10.39 percent in the week ending Feb. 19 from a year earlier, the commerce ministry said in a March 3 statement. India’s food inflation slowed to near a three-month low after supplies of fruits and vegetables increased from the winter harvest.

Equities also continued to benefit from a positive reception for the Feb. 28 Union Budget, which included measures to trim the budget deficit. The budget was also seen as “marginally positive for banks and autos,” according to a March 1 Credit Suisse Group note.

Looking at stocks, select autos, state banks and infrastructure stocks outperformed whereas power and some telecoms stocks brought up the rear.

Brazil

Brazil GDP growth reached 0.7percent quarter-over-quarter in the fourth quarter of 2010 (5.0 percent year-over-year), in line with the market consensus. In 2010 real GDP grew 7.5 percent. The highlight is the buoyancy of domestic demand, which jumped to 10.1 percent in 2010, from minus 0.7 percent in 2009.

Private consumption led the way up in 2010 confirming the view that tight labor market conditions, strong credit expansion and positive readings of consumer confidence supported the key growth drivers in 2010.

However, potential GDP in Brazil is still quite low (around 4 to 4.5 percent) given that, among other things, investment as a share of GDP is still very low. Investment spending grew a solid 21.8 percent in 2010 (partly due to base effects as investment collapsed 10.3 percent in 2009) driving investment to a still low 18.4 percent of GDP.

Russia

Russia has been a definitive beneficiary of the global move out of dis-inflation trades into commodity trades. While any reversal of this macro trade will weigh on Russian equities, we believe the greater driver for the Russian market in 2011 is delayed but now definitive cyclical economic recovery which is by no means dependent on a high price for oil.

This BRICS report is provided by Mirae Asset Financial Group