PP 7767/09/2010(025354)

Economic Highlights
Global
•MARKET DATELINE

31 May 2010

1 China’s Real Estate Bond Market Pointing To Rising Risk

And A Slower Economic Growth In The 2H Of The Year

2 US Consumer Spending Eased Somewhat But Will Likely

Sustain The Country’s Economic Growth In The 2Q

3 Japan’s Headline Inflation Rate Fell Deeper And

Unemployment Rate Inched Up In April

Tracking The World Economy...

Today’s Highlight

China’s Real Estate Bond Market Pointing To Rising Risk And A Slower Economic Growth In The 2H Of The
Year

Bonds sold by China’s real estate companies this year are the worst performers among Asian non-financial corporate
debt denominated in US dollar given concerns over an overheating property market in China. Yields on the US$3.9bn
of bonds issued by Kaisa Group Holdings Ltd., Country Garden Holdings Co. and seven other developers since January
widened by an average 2.26 percentage points relative to US Treasuries as of last week, according to data compiled by
Bloomberg. Kaisa is developing 18 projects in Shenzhen, Dongguan and other cities in the Pearl River Delta, most of
them high-rise residential complexes that combined recreational and commercial space. That was more than the 2.05
percentage points increase in spreads for the seven dollar-denominated bonds sold by other companies in Asia outside
Japan, indicating that investors are demanding higher yields in view of rising risks of defaults. As a result, Glorious
Property Holdings Ltd., which has 26 real estate projects in cities including Shanghai, Beijing, Harbin and Changchun, was
forced to postpone its first sale of US dollar-denominated bonds in April. The amount of US dollar bonds sold by China
developers represents 45% of all corporate dollar debt sales in Asia outside Japan this year, Bloomberg data show. China
has introduced various measures to cool the property market, including raising banks’ reserve requirements three times
since January, restricting pre-sales by developers and curbing loans for third-home purchases. It also raised minimum
mortgage rates and tightened down-payment requirements for second homes.

As funding become more difficult and coupled with restrictions being put in place by the Chinese authorities, the property
market will likely cool off in China in the months ahead. This will likely translate into a slowdown in economic activities
in China in the 2H of the year, in our view.

The US Economy

Consumer Spending Eased Somewhat But Will Likely Sustain US Economic Growth In The 2Q

◆ US personal consumption expenditure (PCE) remained unchanged in April, after accelerating to +0.6%
in March from a low of +0.3% in January. This was the first stagnation in consumption spending so far this year,
indicating that consumers have turned slightly cautious in spending in view of a rising economic uncertainties in
Europe. In real terms, PCE also remained unchanged in April, after rising by 0.5% mom in March. On an
annualised basis, the PCE, however, grew at a faster rate of 4.0% in April, compared with 3.5% in March and
a low of +1.0% in November last year, suggesting that consumer spending will continue to help sustaining

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 31 May 2010

the US economic growth in the 2Q, but the momentum has eased somewhat. The US uses this figure
to compute its consumer spending in real GDP. Meanwhile, income held stable at 0.4% mom in April, the same
rate of increase as in March and after remaining unchanged in February. Consequently, the personal savings
rate rose to 3.6% of disposable income in April, a rebound from the lowest level of 3.1% in 16 months in March.

◆ Separately, the headline PCE price index stagnated in April, after rising by 0.1% mom in March. Yoy, the
headline PCE price index held stable at 2.0% in April, the same rate of increase as in March and compared with
+1.8% in February. Similarly, the core PCE price index remained stable at 0.1% in April, the same rate of
increase as in March and after remaining unchanged in January-February. Yoy, the core PCE price index eased
to 1.9% in April, from +2.0% in March and compared with +1.8% in February. This suggests that price pressures
remained stable and it would provide more room for the US Fed to hold its key policy rate unchanged at between
0-0.25% in the near term. The Fed, however, will likely use other instruments to absorb excess liquidity from
the system.

Asian Economies

Japan’s Headline Inflation Rate Fell Deeper And Unemployment Rate Inched Up In April

◆ Japan’s inflation rate fell by a larger magnitude of 1.2% yoy in April, after improving to -1.1% in
February-March and from -1.3% in January. This was the 15th consecutive month of decline, on account of a
sharper drop in core inflation (which excludes fresh fruit, fish and vegetables), which fell by 1.5% yoy in April,
compared with -1.2% in February-March. The sharper drop was due to sharper declines in the prices of clothing
and the costs of education during the month. These were, however, offset partially by smaller declines in the
costs of utilities and medical as well as prices of household goods, while the costs of transport & communications
inched up. Similarly, food prices fell by a smaller magnitude of 0.7% yoy in April, compared with -1.6% in March.
As a whole, Japan was still in deflation and it will likely continue its monetary policy easing to ensure that
economic growth could be sustained in the months ahead.

◆ Separately, Japan’s unemployment rate inched up to 5.1% of total labour force in April, from 5.0%
in March. This was the second consecutive month of picking up, indicating that businesses have turned slightly
cautious in recruiting workers in view of economic uncertainties in Europe.

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