Glenn Maguires Asia Sentry Dispatch

July 25, 2012

Pan-Asia coincident weakening in exports and imports continues.

One of our key themes this week has been how global trade flows appeared to be retrenching through June, in advance of the likely exogenous shock emanating from Europe building in the offing. Japan, Hong Kong and the Philippines published their June trade ledgers today and guess what? Coincident weakness in both exports and imports across Asia speaks of only one thing: the global trade cycle is spluttering. Cyclical asset prices should be spluttering in sympathy.

Pan-Asia trade flows surprise to the downside in June.

Japans adjusted merchandise trade balance was better than expected, on a headline basis, as the trade balance unexpectedly returned to surplus. Though lower oil prices would have had an effect in deflating the total nominal imports bill, the 2.2% actual decline in imports over the month was wide of the expected 1.2% increase and suggests generalised import volume weakness was a more significant contributing factor. Exports were down 2.3% over the month. The drop in Japans exports over June provides some colour on the brutal swathe Europe looks set to cut through the regions trade figures if policy makers do not arrest the negative feedback loop developing between peripheral bond markets and core import demand. In the year to June Japanese exports to Europe plunged by 21.3%, whilst exports to the rest of Asia were down 4.4% and exports to China down 7.3%. As China and other Asian platform economies tend to import to export, the ongoing weakness in Europe will have second round knock on effects to intra-Asian trade. The story in Hong Kong was broadly the same. Exports fell by 4.8% over the year to June versus a consensus expectation of a 1.8%YoY increase. Imports and re-exports also posted hefty year-on-year declines. Exports to Asia were down 4.1%YoY whilst exports to Britain (-18.9%), Germany (-16.2%) and the US (-01%) saw a good deal of red ink on the trade ledger.

Wednesday, July 25, 2012.

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Sentry Dispatch: The High Frequency Letter of Asia Sentry Advisory. One of our preferred proxies for global trade, particularly that emanating from China, is the container throughput data published by the Hong Kong Ports Authority. We like the throughput data for Hong Kong, as it captures most of the exports coming out of Chinas pearl river delta manufacturing hubs just to the north of Hong Kong. It also captures the external demand side of Chinas trade dynamic (ie exports) quite nicely. Its a useful simplification to note that China imports goods in bulk commodity tankers/carriers and exports processed goods in container ships. The chart below speaks for itself. Chinas manufacturing sector is doing it tough. Container shipments and electricity production still suggest there has been a significant loss of momentum in the trade-exposed sectors of the Chinese economy.
20 15 10 5 0 -5 -10 -15 -20 -25 Jun-07 Jun-08 Jun-09 Hong Kong Ports Container Throughput YoY 3mma LHS -10 China Electricity Production YoY 3MMA RHS Jun-10 Jun-11 Jun-12 -15 35 30 25 20 15 10 5 0 -5

Trackbacks. China sets RMB daily mid-point against USD at 8-month low. We received some questions yesterday on why we were so bearish on our interpretation of the Flash PMI reading. The fact that Chinese authorities are weakening the RMB fix to an 8-month low suggests they also believe the manufacturing sector is not out of the woods just yet.

Todays Conclusion: The evidence is pretty much in. The regions trade figures took a significant turn for the weaker over June. Markets appear to be starting to price in this conclusion with equity market underperformance driven by key exports such as Toshiba in Japan and Samsung in South Korea this morning.

Wednesday, July 25, 2012.

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Sentry Dispatch: The High Frequency Letter of Asia Sentry Advisory.

Asia Sentry Advisory Pty Ltd Suite 9, Level 40, Northpoint Tower 100 Miller Street, North Sydney, NSW, 2060, Australia. Ph: +61 2 9931 7820 Fx: +61 2 9931 6888 M: +61 401 548 820 www.asiasentry.com gbmaguire@bloomberg.net glenn@asiasentry.com

Asia Sentry Advisory Pty Ltd is a boutique economic consultancy established to meet the growing demands of clients seeking greater exposure to the most dynamic economic region in the post-crisis global economy, Asia. Asia Sentry Advisory marries keen judgment with a rigorous model-based approach and a deeply intuitive understanding of Asia that can only come from on-the-ground experience to deliver market out-performing analysis and forecasts.
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