Roundup: Emerging Markets (12/24/2009)

Emerging Markets

Strength

  • Thailand’s exports rose 17.2 percent from a year earlier in November—the first year-over-year increase in 13 months—as global recovery gained momentum and drove expansion in both agricultural and industrial exports. The government forecast exports would continue to grow 10-15 percent next year.
  • Russia and Turkey have made the biggest recoveries in emerging EuropeConsensus earnings-per-share (EPS) forecasts have risen the most from their lows in the two most-cyclical economies—Russia (Up 39.3 percent with help from a recovery in crude oil prices) and Turkey (Up 36 percent benefiting from a sharp fall in interest rates). Poland made the best improvement (7.7 percent) in the month of December, while Turkey made the best recovery towards its earnings peak, with December EPS only 4.7 percent below the highs seen last year.

Weakness

  • Indonesia delayed a planned raise in power prices, which may increase electricity subsidy spending from the government by 1.2 trillion rupiah a month.
  • Latvia’s unemployment rate rose to 18.4 percent in the third quarter, the highest rate in seven years. Vedomosti reports, with a bit of schadenfreude, that former Soviet satellite state has become a net car exporter in 2009 as more than 10 thousand repossessed cars left Latvia for Germany and other Baltic countries.

Opportunity

  • China will raise pension payments for retirees of state-owned enterprises by 10 percent next year and allow transfer of pension accounts across provinces. This should increase labor mobility in China and provide additional support for domestic consumption going forward.
  • In the first 22 days of December, Turkey’s exports posted a 32 percent (year-over-year) on the back of a pick up in global economic activity. Turkey’s successful export diversification and favorable base were also factors. Analysts expect Turkish exports to grow by more than 10 percent in 2010.

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Threats

  • High mortgage expenses likely to squeeze discretionary consumption in China's tier-one citiesHousing affordability in China’s top tier cities continued to deteriorate, as average new home prices in Shanghai soared to a record 22,270 yuan per square meter in the second week of December from around 14,000 yuan in January. Spending on mortgages, though off the 2007 highs, still account for more than 50 percent of income in China’s major cities. With food and utility prices on the rise, discretionary consumption may be affected among the richer urban residents.
  • Russia's money supplyMoney supply in Russia is expected to increase 12 percent in 2009, according to the country’s Finance Minister Aleksey Kudrin. The November-December acceleration is driven by the remainder of stimulus funds being spent before the end of fiscal year. VTB Capital is concerned that the pick up in money supply growth might push inflationary pressures upward in 2010.
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