Global Aftershocks of America’s Election
November 17, 2006
By Stephen S. Roach | from Hong Kong
The world is nervous about the implications of America’s stunning political upheaval. At least, that’s the impression I have gleaned from a quick post-election spin around the globe that has taken me from our own conference in the Bahamas to Doha, Singapore, and Hong Kong. In a series of meetings with investors, business executives, and senior government officials, I detected growing concerns over Washington’s post-election posture toward geopolitical risks and trade policy. If these fears come to pass, liquidity-driven world financial markets could be taken by great surprise.
At my first stop in Doha, I had the opportunity to address a group of about 75 institutional investors from the Middle East. Doha, now emblematic of the failures of global trade liberalization, is another one of the Gulf region’s most rapidly growing cities. By Dubai standards, this capital of Qatar is a laggard, but considering what little was there just three years ago, the hyper-growth of Doha is nothing short of astonishing. This phenomenon is emblematic of a major difference in the Middle East when this oil shock is compared with the three that preceded it. In the early 1970s, the late 1970s, and even the early 1990s, the region was lacking the infrastructure to absorb the windfalls of surging oil revenues. Today, the region not only has major urban development projects and other commitments to local infrastructure, but it also has broader and deeper internal capital markets. That fundamentally changes the character of the well-known “petro-dollar” recycling phenomenon -- the inclination of Middle East oil producers to reinvest surging oil revenues in dollar-based securities markets. Due to dollar-pegged currency regimes, recycling still occurs in official channels. But private portfolio investors now have a considerably larger number of domestic options to consider than was the case during oil shocks of the past. Notwithstanding the region’s newfound prosperity, the Gulf States remain fiercely loyal to the Great Protector -- the United States. Against that background, we asked the assembled group of investors to assess the impact of the November 7 elections in the US on current and prospective developments in the Middle East. By a relatively thin margin -- 56% to 44% -- the crowd did not believe the election outcome would have a positive impact on the Iraq problem. Moreover, by an even wider margin, fully 62% of the group felt the US election outcome would have no meaningful impact in resolving the broader Middle East conflict -- including, but not limited to, the Israeli-Palestinian conflict, as well as the Iranian nuclear threat. The pundits have billed the election of November 7 as a referendum on Iraq, with the American public voicing a clear displeasure with Bush Administration policies. For what it’s worth, this group of major Middle East institutional investors does not believe the political upheaval in the US will lead to a breakthrough in the wrenching problems that continue to plague this region. I also couldn’t resist asking the assembled Middle Eastern investors where they thought oil prices were headed over the next year. The largest chunk of the crowd -- fully 36% of them -- thought oil prices would fluctuate in the $50 to $59 range. The balance of the group thought the oil price outlook was skewed more to the upside than the downside: 28% were looking for oil prices to fluctuate in the $60s, 13% in the $70s, and 6% thought oil would move above $80 over the next 12 months. By contrast, only 17% of this group looked for oil prices to move below $50 per barrel over the next year. The most astonishing thing about this informal survey conducted in Doha is that these results were virtually identical to the readings we obtained from our US-domiciled clients who attended last week’s Lyford Cay investment conference. That’s right, those closest to the largest deposits of oil in the world, whose livelihood depends almost exclusively on the price of “black gold,” have nearly the same exact outlook as those who observe (and trade) oil from afar. Talk about an amazingly tight consensus -- or a strong hint of the dreaded curse of a tightly bunched group of investors! At my two stops in Asia, I drilled the assembled crowds on the outlook for US trade policy. In my view, externally-dependent Asian economies have far more at stake than any other region in the world in the future of trade liberalization. With trade-related economic pressures playing an important factor in the recent mid-term elections in the US, I asked those in Singapore and Hong Kong if they felt a pro-Democrat tilt would lead to any improvements in an increasingly contentious trade climate. By a margin of about 3 to 1, both groups answered in the negative -- expressing fears of an increasingly ominous tilt toward trade protectionism by a pro-labor Democratically controlled US Congress over the next year. Needless to say, these fears were immediately borne out in the form of Congressional resistance to a US-Vietnam free trade zone proposal on the eve of President Bush’s departure to APEC meetings in Hanoi. Make no mistake -- Asia hears the drumbeat of protectionism loud and clear in this post-US election climate. Meanwhile, protectionist fears or not, ever-frothy Asian equity markets were surging to new multi-year highs as I toured the region. We had record crowds at our Asian Summit in Singapore, and Hong Kong has a new swagger that several seasoned investors told me they haven’t seen since 1997. Go figure that. In my in-depth meetings with Asian investors, business executives, and senior government officials, there was a fairly tight consensus of opinion that the US economy would be just fine over the next year -- thereby providing more than an ample offset to the recent shift in political winds. In particular, there was a strong belief that nothing would derail the American consumer -- the mainstay of external demand that continues to support this trade-oriented region. Post-housing bubble adjustments were viewed as largely over -- and most assuredly containable by the all-powerful income-generating machine of the Great American labor market. I took the other side of the debate on virtually all of those points, but my views were met with polite indifference as the multi-taskers present at my meetings checked their Blackberries for messages and market quotes as I spoke. In Asia, long the land of some of the greatest boom-bust cycles in world financial markets, I sensed a gnawing suspicion that this boom may not last either. For now, however, there were virtually no concerns of what might lie on the other side. Hotel rooms were fully booked, flights were packed, and the buzz in Asia is as giddy as I have seen it in years. Meanwhile, the political winds have shifted in the region’s main engine of economic support -- the United States. With pro-labor Democrats clearly on the ascendancy and trade tensions likely to intensify as a result -- especially on the US-China front -- I suspect a year from now the mood in Asia will be very different than it is today. Moreover, despite the sharp recent decline in oil prices, it’s no different in the great new hubs in the Gulf region of the Middle East -- especially Dubai and Doha. Euphoria over booming economic development masks any concerns evident elsewhere in this war-torn region. Here, as well, there was a gnawing sense of unease about the implications of shifting political winds in the United States. But for now, economic triumphalism reigns supreme. History teaches us to be mindful of the potentially potent interplay between economic and politics. That was certainly the message that historian Niall Ferguson left us at Lyford Cay. Yes, the political winds are shifting in America. The Middle East gets it, and so does Asia. But in these liquidity-driven days of froth, the message rings on deaf ears in the markets -- at least, for now.
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Inflation Report and Data Support an ‘On Hold’ Outlook
November 17, 2006
By Melanie Baker | London
CPI inflation was more subdued than expected in October, with the long-anticipated (but tricky to forecast) upward impact from the rise in university tuition fees smaller than many expected. However, we still see both CPI and RPI inflation rising in coming months. The continued feed-through of previously announced rises in utility bills may help push CPI inflation somewhat higher. RPI inflation should also get a further short-term boost from the November rate rise (as the mortgage interest payments component rises). Such a near-term rise in inflation would not be a surprise to the MPC. What matters more for the MPC is the profile over the medium term. The MPC’s new inflation profile is consistent with rates ‘on hold’. The MPC now has a central profile for inflation which shows a near-term rise, then shows inflation around target at the two-year horizon. This is true for the profile which incorporates ‘market expectations’ on interest rates (at 5.2% in 3Q07, 5.1% in 4Q07 and then back to 5.0% by 4Q08) and the profile which assumes flat interest rates at 5.0%. This reflects the fact that a 20bp difference in rates (the gap between the current 5% and the market implied 5.2% for early 2007) has virtually no impact on forecasts produced by Bank of England economic models. As a central case they see moderating energy and import price inflation being “partly offset by slightly higher pay growth and some rebuilding of profit margins”. The Bank of England (BoE) Inflation Report and Press Conference continued to suggest to us that having a central (single most likely) case of the BoE remaining on hold next year, but with risks skewed towards rate increases, is sensible. We thus leave our own forecasts unchanged — the single most likely (the mode) outcome is that the BoE leaves rates on hold next year, but our estimate of the mean outcome (the probability-weighted average of all outcomes) would show an interest rate slightly higher than 5.00%. Risks on inflation: not so symmetric? The MPC describes risks to its inflation forecast as balanced — i.e., it does not see risks to their inflation profile as skewed to the upside. On our central profile, inflation looks a little higher, particularly in the near term, than it does on the MPC’s profile. Our own risk profile for inflation incorporates somewhat less symmetry than the Bank of England too, partly reflecting upside risks to wages around the turn of the year. Labour market data released this week showed no significant upward wage pressures. However, with the 5.9% rise in the minimum wage in October and RPI inflation (cited in many wage negotiations) rising again in October, and likely elevated into the turn of the year, risks remain to the upside, in our view. Partly as a result of this, we continue to see risks to our central profile for interest rates over the forecast horizon as skewed to the upside. Uncertainty on inflation outlook “greater than usual”. The Bank of England’s central view is that no letter will need to be written to the Chancellor over the turn of the year explaining how it intends to get inflation back to target from a level above 3%. However, the BoE describes uncertainties to the profile as significant and Governor King continues to think it “more likely than not” that a letter will be written over the next two years. Those greater-than-usual uncertainties on the BoE inflation outlook reflect heightened uncertainty about the supply side of the economy. To a significant extent, this reflects the difficulty in assessing the degree of slack in the labour market. The uncertainty in gauging the effect of migration is acute — there were numerous mentions of migration related issues throughout the BoE press conference this week. Changing spare capacity within business can be offset by a changing degree of slack in the labour market. It is likely that this uncertainty over labour market slack gives the risks around the bank’s central inflation profile much of their symmetry. In terms of other sources of uncertainty, the outlook for wages and prices in light of “rapid growth in money and credit and movements in energy and import prices” was also highlighted by the MPC — although of course the medium-term outlook for wages will also partly depend on the migration and degree of economic slack issue. In addition, substantial uncertainties are attributed to momentum in consumption and investment spending and on prospects for the world economy. On the first of these, the retail sales data this week did little to alleviate any confusion. Stronger than our own or consensus expectations, retail sales volumes grew 0.9%M in October after September’s 0.4%M fall. Year-on-year sales volume growth accelerated to 3.9%Y from 3.0%Y. However, at least some of this movement can be attributed to changes in pricing (the ONS deflates the values data using retail inflation in order to get to the volumes data) — the year-on-year retail inflation numbers used declined from 0.7%Y to 0.1%Y. The retail sales data did not fit well with our own analysis, which suggested that declining discretionary income growth would mean that retail sales growth would peak out in 3Q. Neither did it fit particularly well with October survey data (CBI distributive trades survey or the total sales measure of the BRC survey). Given volatility in month-on-month sales and the role that sharp gyrations in retail inflation have been playing in the volumes data, we are reluctant to read too much into today’s figure, and wait for the consumer data over the coming month for more clarification on recent trends.
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The Curse of Alpha
November 17, 2006
By Serhan Cevik | London
Generating attractive returns in a world of low interest rates has become increasingly exigent. When you see a book titled Hedge Funds for Dummies in high street bookstores, you know that the simple world of tested financial transactions has disappeared and left us with a new set of risks and challenges. Financial liberalisation and deregulation over the past couple of decades may have set the stage for this ‘brave new’ global financial system, but the real boost occurred just a few years ago when the US Federal Reserve and other central banks around the world started easing monetary conditions in an unprecedented fashion. As interest rates declined to their lowest level in the post-war period, cheap and liquid financing — growing faster than global GDP — has flooded international capital markets and encouraged investors to become less risk averse. The result has been a sustained phase of extraordinary capital gains across all asset classes. However, with the natural compression of returns, generating excess returns — alpha — in a world of low interest rates has become increasingly exigent. And confronted by greater competition and fewer opportunities, investors have started leveraging even more to maintain past performance. The explosive growth in leveraged financial transactions is a potential threat to stability. Driven by the global liquidity cycle and investors’ growing risk appetite, the notional amount of exchange-traded derivative instruments increased from US$2.3 trillion in 1990 to US$14.3 trillion in 2000 and then soared to US$84 trillion in the first half of this year. According to the Bank for International Settlements, annual turnover recorded an astounding surge from 510 million contracts to almost 7 billion contracts over the same period. However, this is still just a small part of the pool of synthetically created financial products, most of which are actually traded over the counter. Indeed, the data compiled by the International Swaps and Derivatives Association show that the outstanding volume of over-the-counter credit derivatives increased from US$3.5 trillion in 1990 to US$63 trillion in 2000 and over US$283 trillion this year. Put differently, the total amount of exchange-traded and over-the-counter structured financial instruments ballooned from 27.3% of global GDP in 1990 to 772.8% this year. Highly leveraged positions have started turning into a futile game of musical chairs. In today’s global network of financial markets, almost everything becomes interdependent and correlated, diminishing the advantage of portfolio diversification. Take, for example, the breathtaking rise of the hedge fund industry. In 1990, there were only 300 hedge funds in business, increasing to 3,000 by the end of the decade. On the latest count, however, the number of hedge funds reached over 10,000, with approximately US$1.5 trillion worth of assets under management. Although that may still look small relative to the rest of the investment community, hedge funds employing risky derivatives strategies to enhance returns already account for 45% of emerging-market bond trading volume and 55% of all credit derivatives trading in the world. In other words, the rise of hedge funds, driven by cheap financing, is behind the explosive growth in structured products and massive flows to emerging markets. However, as the number of players searching for arbitrage opportunities has kept increasing, seeking alpha via highly leveraged positions has started turning into a futile game of musical chairs. Indeed, as competition has squeezed returns, the number of failed hedge funds increased from 4.7% of the funds in operation in 2004 to 11.4% last year. Emerging economies are simply unable to absorb enormous capital flows. Financial innovation certainly helps distributing risk more broadly, but untested complex instruments could still increase sensitivity to noise and amplify shocks. Unfortunately, despite all the fundamental gains, developing countries remain vulnerable to the risk of a chain reaction in financial markets (see The Contagion of Mutual Imitation, June 13, 2006). This is why the authorities must be vigilant not just in maintaining the strength of domestic financial institutions, but also managing liquidity conditions in money markets. Though it may not always be a fair deal, buying insurance against the curse of alpha is still a priceless option, in our view.
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Soft Patch in 4Q but Friendly Liquidity Cushions Landing
November 17, 2006
By Denise Yam, CFA | Hong Kong
October data suggest a soft patch in 4Q06 China reported economic data for October over the past week. The dataset appears to suggest a smooth and gradual deceleration just as policymakers have wanted: - Urban fixed asset investment growth decelerated for the fourth straight month, to 26.8% YoY in January-October (+28.2% in Jan-Sep).
- Loan creation dipped to Rmb17 billion in October, a pleasing 36% YoY decline.
- Export growth proved resilient (+29.6% YoY versus +30.6% in Sep), contrary to the disappointing data out of Korea and Taiwan earlier in the month, with shipments to the US (+22.1%), EU (+31.4%) and Japan (+15.4%) still expanding at a robust pace.
- Retail sales growth was also resilient, picking up for the third straight month in October to 14.3% YoY (+13.9% in Sep), reaching a new monthly record of Rmb699.8 billion. Although the data incorporate the sale of goods associated with residential investment (such as construction materials and furniture), there was a genuine pick-up in consumer spending, as evidenced in cosmetics, jewellery and autos.
- Inflationary pressure was subdued, with CPI inflation easing to 1.4% YoY in October from 1.5% in September, and PPI inflation dipping to 2.9% from 3.5%, helped by the correction in energy prices of late.
Nevertheless, the slowdown in imports and industrial production was sharper than expected. Import growth slipped to just 14.7% YoY in October, the smallest gain since July 2005. The dip was led by slower purchases of energy (crude oil -2% YoY versus +42.6% in Sep; refined products +22.2% versus +36.3%) and resources (iron ore +3.4% versus +30.2%). Meanwhile, industrial output growth also slowed to 14.7% YoY, and the breakdown revealed the most noticeable deceleration in export-oriented industries such as textiles (+12% YoY in Oct versus +14.8% in Jan-Sep), electrical machinery (+12.6% versus +16.1%) and electronics (+17.3% versus +22.8%). Stacked against disappointing trade reports from Taiwan and Korea and apparent weakness in consumer demand in the US, the latest data could well suggest slower export growth for China in the remainder of the year, and a soft patch in growth in 4Q06. [For more detailed comments on the individual economic indicators, please refer to our reports published over the past week (Slowing Imports versus Resilient Exports Give Record Surplus, November 9, 2006; Upstream Inflation Eases on Oil Price Correction, November 10, 2006; October Monetary Data — Still Too Much Money, November 13, 2006; Consumer Inflation Capped by Government Policy, November 13, 2006; Retail Sales Gains Beat Expectations in October, November 14, 2006; October Industrial Production Suggests Soft Patch in 4Q06, November 15, 2006; and Slowing Fixed Investment in Line with Soft Landing, November 16, 2006.) Tightening — what now? The Chinese government has been eager to claim success in macro tightening, reporting slower economic activity in response to administrative controls. Many see the apparent slowdown in loan and investment growth, as well as easing inflation, as signals of no further tightening measures. We agree that the government may adopt a wait-and-see attitude before deciding on more controls. Specifically, we had expected one more interest rate hike before year-end, and thought that interest rates needed to be raised significantly over the medium term to achieve better allocation of financial resources. However, it is quite possible that the next hike may not take place until next year. While administrative controls have helped curb lending and investment, China has not yet resolved the fundamental problem of excess liquidity from the large trade surplus and capital inflows. The cost of capital remains too low in China, leaving the economy vulnerable to a revival in overheated and speculative investment. Recent PBoC rhetoric has shifted the policy focus to liquidity management, through lifting reserve requirements and/or issuing bonds (People’s Bank of China 3Q06 Monetary Policy Report, published November 14, 2006). Hiking reserve requirements instead of interest rates reflects the political resistance against rate hikes, and the difficulty in reaching a consensus on a level of interest rates that is appropriate for the whole economy, which is comprised of sectors at varying stages of development. Reserve requirement hikes are also perceived to be effective in limiting new loan creation, rather than hurting existing debtors. Incomplete sterilization underpins friendly liquidity So far this year, the PBoC has hiked interest rates twice (Apr 27 and Aug 18) and raised reserve requirements on renminbi deposits three times (Jun 16, Jul 21 and Nov 3). Meanwhile, issues of central bank bonds have been kept up to absorb liquidity from the banking system. However, these measures have not been enough to offset the supply of liquidity from the balance of payments surplus. Here’s why: Against a deposit base of Rmb32 trillion, each percentage-point increase in the reserve requirement supposedly locks up Rmb320 billion of banking system liquidity. There is indeed an inverse relationship between the reserve ratio and loan growth. However, financial institutions’ deposits with the PBoC totaled Rmb3.8 trillion at the end of September, already covering 11.6% of total deposits, exceeding the requirement. In other words, the ‘required’ ratio has not been a binding constraint on liquidity. In fact, subsequent to the sharp increase in reserve deposits (and the reserve ratio) in 4Q03 following the first tightening move (August 2003), which brought loan growth down effectively over 4Q03-2Q04, the actual reserve ratio has again drifted downwards since early 2005, allowing or possibly contributing to the reacceleration in loan growth. Because the reserve requirement has not been a binding one, the total achieved sterilization (increase in actual reserve deposits and central bank bonds outstanding) has fallen short of the intended sterilization (increase in required reserves and central bank bonds) as well as the balance of payment surplus (or increase in FX reserves). The balance of payments surplus of US$207 billion in 2005 met with only a Rmb1.2 trillion (US$146 billion) increase in reserve deposits and outstanding central bank bonds, or 71% of the surplus. In 2006, sterilization remains incomplete, at 76% in 1H06 (US$122.1 billion BoP surplus versus Rmb741 billion or US$92 billion achieved sterilization) and worsened to 59% in 3Q06 (US$46.8 billion increase in FX reserves versus Rmb218.4 billion or US$27.4 billion sterilization). The unsterilized surplus since 2005 therefore totaled US$110 billion. Quantifying the impact of sterilization against the balance of payments surplus helps explain why the monetary tightening measures so far have not been sufficient to lift the cost of capital meaningfully, which we believe is vital in discouraging wasteful fixed investment. Direct controls on lending had been much more effective in bringing down loan growth in China. Meanwhile, PBoC bond issues even seem to have downsized in recent weeks. It is possible that the PBoC is merely substituting bond issuance with the reserve requirement hike, rather than stepping up overall liquidity withdrawal of late. We believe that this incomplete sterilization underpins the friendly liquidity environment in China, leaving lending, investment and overall economic activity vulnerable to a rebound. Gradual deceleration still the central case Year-to-date fixed asset investment growth (+26.8% YoY in Jan-Oct) has finally been brought below that in 2005 (+27.7%). However, even excluding asset acquisition transactions, we believe that fixed capital formation continues to grow at a faster rate, and will claim yet a larger proportion of nominal GDP this year, from 41.5% last year based on the revised national income accounts. It remains to be seen in the coming years of adjustment how economic growth will be rebalanced from investment to consumption. Although the October datapack suggests softer growth in 4Q06, while government policy also continues to target slower growth, ample liquidity amid incomplete sterilization of the expanding balance of payments surplus should limit the harshness of the deceleration. We continue to expect an increasing policy focus on rebalancing and redistribution, and gradual deceleration in overall economic growth along the process. Following our estimated 10.5% growth this year, we forecast real GDP growth of 9.3% in 2007, revised upwards from our previous projection of 8.5%. Export growth is forecast to dip below 20% next year, for the first time since 2001, in line with the cyclical slowdown in Europe, Japan and the US. We forecast 18% export growth. Import growth, on the other hand, is expected to slow to 17%, in line with further cooling in investment (fixed capital formation +14.5% versus our original estimate of +17.5% in 2006) and increasing substitution of domestically produced machinery for production. The trade surplus, though under international criticism, will likely expand further and jump through the US$200 billion mark. Our forecast for sustained growth above the government’s target is reliant on a soft landing in the industrialized economies, and dovish central banks that maintain a friendly global liquidity environment. The downside risk to our forecast is that a harsher economic slowdown could come through tightening in external factors under a global stagflation scenario ― i.e., a sharper slowdown in demand from and hence exports to the industrialized economies, and tighter global liquidity.
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3Q06 Recovery Underway
November 17, 2006
By Deyi Tan | Singapore
GDP rises 5.5% YoY in 3Q06. Indonesia’s GDP grew 5.5% YoY in 3Q06 (versus +5.1% YoY in 2Q06), in line with our expectation of 5.5% and the market expectation of 5.6%. Quarterly data for the previous two quarters were revised to 4.8% (1Q06) and 5.1% (2Q06) from 4.7% and 5.2%, respectively. Year to date GDP growth stands at 5.1%, and remains on track to reach our full-year forecast of 5.3%. Economic growth still reliant on external demand ... Despite the overall headline acceleration, economic growth remains reliant on external demand. Domestic demand (including inventories) expanded at a lesser 2.5% YoY (versus +5.6% YoY in 2Q06), contributing 2.2ppt (versus +5.0ppt in 2Q06). On the other hand, external demand rose at a faster 12.1% YoY (versus +11.7% YoY in 2Q06). Imports also ticked up to 9.7% YoY (versus +8.4% in 2Q06). Net external demand contributed 1.7ppt (versus +1.9ppt in 2Q06). ... as domestic demand is weakened by capex ... On the domestic demand side, gross fixed capital formation contracted slightly (-0.3% YoY versus +1.1% YoY in 2Q06). Inventory additions contributed 0.4ppt (versus +1.0ppt in 2Q06). ... and public spending. Public spending, which typically picks up through the course of the fiscal year, surprisingly contracted 5.1% QoQ. On a YoY basis, spending rose a mere 1.7% YoY, reversing the 21.1% increase seen in 1H06, partly due to base effects. Nonetheless, private consumption remains stable. Private spending remained resilient, growing 3.0% YoY as spending adjusts to higher retail fuel prices. The quarterly disbursements of Rp300,000/household for poor families since 4Q05 likely also helped mitigate the impact, in our view. We expect domestic demand to recover as macro conditions turn favourable. Going forward, we continue to expect domestic demand to recover as macro conditions such as inflation turn benign and rate cuts continue.
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October Trade Weakened
November 17, 2006
By Deyi Tan | Singapore
Trade slowdown continues in October. October exports rose a mere 2.7% YoY (versus +12.7% in Sep) on the back of weaker domestic exports (-2.7% YoY versus +5.3% in Sep) and re-exports (+9.1% YoY versus +21.5% in Sep). Imports also decelerated in line, contracting 3.8% YoY (versus +11.3% in Sep). The trade balance stands at S$5.9 billion (versus S$5.8 billion in Sep). Weakness in electronic NODX. Non-oil domestic exports rose 3.8% YoY, following the temporary rebound in September (+8.2% YoY). The weakness in electronics NODX remains evident (-2.6% YoY versus +0.3% in Sep), especially in specific segments such as disk drives (-27.4% YoY versus -36.1% in Sep), PC parts (-19.2% YoY versus -1.0%) and PCs (-16.5% YoY versus -16.7%). Nonetheless, momentum in integrated circuits (+7.5% YoY versus +21.6%) and telecoms (+28.1% YoY versus +27.9%) remained at respectable levels. Non-electronics NODX still holding up reasonably well. Weakness in electronics NODX was offset by continued strength in non-electronics NODX, which still registered double-digit expansion (+10.5% YoY) following the 16.6% increase in September. Specifically, pharmaceuticals rose 37.2% YoY (versus +59.6% YoY in Sep), while petrochemicals rose 6.9% YoY (versus +12.6% in Sep). USmarket healthy; EU and Japan relatively weaker. The trend for exports in the various end markets remained unchanged. NODX to the US continued to grow at a double-digit rate (+21.8% YoY versus +28.0% YoY in Sep). Export demand from the EU, Japan and China was comparatively weaker at 4.4% YoY (versus +6.5% YoY), -6.3% YoY (versus -5.6% YoY) and -8.2% YoY (versus +9.2% YoY).
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