Emerging Markets Radar (December 30, 2013)

Emerging Markets Radar (December 30, 2013)




  • China industrial enterprises above designated size saw profit growth of 9.7 percent year-over-year in November, 5.4 percent lower than in October dragged by declining profits at state-owned enterprises.
  • Taiwan November export growth stopped in November, while import growth was a negative 0.5 percent.
  • Opportunities

    • The Bundesbank president and ECB Governing Council member Jens Weidmann said Friday in an interview that the ECB should hike interest rates if inflation risks rise in the eurozone. He pointed out that keeping rates low for an extended period of time could negatively affect eurozone economies' reform policies and added that low inflation pressures don't give a license for arbitrary monetary easing. His view seemed to reinforce the view that the European recovery is well in its tracks and can sustain a rate hike. As a result, the euro rallied, providing for an interesting case in the needed export driven growth economies of Central and Eastern Europe.
    • International Monetary Fund (IMF) Managing Director Christine Lagarde said the budget deal reached in Washington and the Federal Reserve’s plan to taper its bond buying should increase confidence about the future. The IMF said it is preparing to bolster the outlook for developed economies for 2014. As a result, all 10 industry groups in the Emerging Markets Index rose on the expectation that external demand from a synchronized expansion in developed markets will drive a recovery in lagging emerging markets.

    China's Ownership of Civilian Helicopters is Significantly Smaller Than Those of Major Developed Countries
    click to enlarge

    • As shown in the chart above, China’s demand for civilian helicopters is set to grow. Helicopters are now purchased for land and sea logistics. With vast land and long sea shorelines in China and a growing economy, the ownership of civilian helicopters is deemed to catch up with developed countries.

    Threats

    • Turkey stocks dropped, as the lira tumbled with foreign investors selling the nation’s debt on concern the political instability will worsen. In addition, European Union Enlargement Commissioner Stefan Fule said he was concerned by “the removal of a large number of police officers from their duties” and urged Turkey to “take all the necessary measures to ensure that allegations of wrongdoing are addressed without discrimination.” The EU warning threatens Turkey’s ambitions of joining the common market once again, following the condemnation by EU officials of Erdogan’s treatment of the protests that engulfed the country last summer.
    • Russia’s Gazprom, the world’s biggest natural gas producer, announced its dividend will likely miss analysts estimates by about 25 percent as output stalls. The state-controlled company has failed to restore pre-recession output levels. In addition, the company’s profit margins suffered when Gazprom agreed to retroactive discounts for some European clients. Most recently, with the signature of a pact to normalize relations between Russia and Ukraine, Gazprom will be required to provide gas to Ukraine at subsidized prices, which are likely to add pressure to the already stressed profit margins.
    • Continued political uncertainty has further dampened consumption and demand in Thailand. With the recent postponement of the February 2014 election, the market may continue to see short-term volatility. Nevertheless, a declining price/earnings multiple will prepare the market for a rebound.
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    About the author

    Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., and a Toronto, Canada native, which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

    The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

    Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

    He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

    Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

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