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Emerging markets show growth

Nov 4, 2009

HSBC has launched a powerful new economic indicator designed to track the economic and business health of the world's fast growing markets - the HSBC Emerging Markets Index (EMI).

A market first, the EMI is the largest survey of emerging market economic data, incorporating information from over 5,000 purchasing managers in 13 countries.

It combines the results of independent purchasing managers index (PMI) data with HSBC's emerging market expertise to provide a unique global overview of the economic, social and political trends influencing the developing world.

The first EMI findings show emerging markets are set to lead the world out of recession. The output of emerging markets rose strongly in the third quarter of 2009 and forward indicators point to further improvements in the fourth quarter.

This is good news for the many Singapore companies engaged in trade with emerging economies like China and India.

Stephen Green, Group Chairman of HSBC Holdings plc said: 'As the world's economic centre of gravity shifts from West to East, the economic strength of emerging markets will play an increasingly central role in the development of financial markets and international relations.

'The HSBC Emerging Markets Index provides a unique snapshot of the economic heartbeat of emerging markets.'

The HSBC EMI rose from 50.7 in the second quarter of 2009 to 55.3 in the third quarter. Any reading below 50 indicates a contraction of output during the quarter while readings above 50 signal expansion.

Emerging market manufacturers reported a fall in output and new orders throughout the second half of last year and the first quarter of 2009, but growth has since recovered sharply.

The resulting average growth in the manufacturing sector during the third quarter of 2009 was the strongest since 2007, though growth of exports lagged domestic orders.

All emerging nations covered by the EMI saw a return to growth of manufacturing output with the exception of South Africa.

Emerging Asia continued to lead the upturn in the third quarter, while Central and Eastern European countries continue to lag behind.

In the service sector output also rose for the second consecutive quarter, having fallen in the previous two quarters.

The rate of increase was identical to that seen in manufacturing, powered by rising levels of incoming new business. Both service sector output and new business increased at the strongest rates since the second quarter of 2008.

Mainland China, closely followed by India, saw the fastest growth in new orders in manufacturing and services in the third quarter. Both economies also led service sector expansion and are confident about demand in the fourth quarter.

These are clear signs emerging Asia is recovering and is set to drive world economic activity in the years ahead.

According to the recent SME Development Survey, 64 per cent of Singapore SMEs are engaged in overseas trade, with a high percentage doing business in China and India.

The growth of these two giant nations will help Singapore SMEs to recover swiftly from the impact of the economic downturn.

There are several factors behind the recovery in the world's emerging markets. HSBC's Chief Economist, Stephen King, points to the success of stimulus packages such as the infrastructure spending in China and the strength of the banking system in emerging countries.

'Banking systems in the emerging world for the most part had relatively low loan-to-deposit ratios, leaving them less exposed to the collapse in demand for asset-backed securities which had presaged the credit crunch,' he said.

"Although the US remains the most important trading partner for many emerging nations, its relative importance is declining.

'Increasingly, emerging nations trade with each other. And strong demand in some emerging nations is raising the value of exports for other emerging nations.

'China's huge appetite for oil and metals, for example, is providing benefits for raw materials producers elsewhere in the emerging world, notably in Latin America and the Middle East,' said Mr King.

A pioneer in emerging markets, HSBC is uniquely placed to provide insight and analysis of the trends in the developing world.

Founded in Hong Kong and Shanghai, China in 1865, HSBC has always believed in the potential of these dynamic new markets and continues to break new ground in penetrating emerging and fast growing economies.

For over a century the HSBC Group has maintained a strong presence in global trade as a participant and witness to the development of emerging markets, establishing branches in countries that were once considered closed, restricted or highly centralised.

The HSBC EMI will be released quarterly and is available via: http://www.hsbc.com/1/2/emergingmarketsindex