Emerging Markets Radar (May 5, 2014)

Emerging Markets Radar (May 5, 2014)

Emerging Markets Radar (May 5, 2014)


Russian Share Prices Underperform Oil Price on Poor Governance
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  • European Union (EU) membership has expanded the export opportunities for Eastern European countries, with the highest contribution to export growth in these countries coming from exports to old member states. This unique opportunity allowed for companies in Western Europe to build new or scale up existing production capacities in the Eastern Europe EU member countries. Car manufacturing became the most prominent export oriented industry in the four Central European countries of Czech Republic, Hungary, Poland, and Slovakia, known as the Visegrad Four, or V4. These countries have been persistently outperforming car production in old member states and, as a group, have become the second largest car producer in EU, after Germany.
  • Fitch Ratings changed the outlook on Slovenia’s credit rating to stable from negative, saying the economy is recovering faster than expected. According to Fitch, “the government’s policy actions in late 2013 and early 2014 have materially reduced risks surrounding the banking sector, and thus the sovereign balance sheet.” The government actions over the past 12 months helped the Adriatic nation avoid a bailout last year by repairing the banking industry, initiating the sale of state-owned companies and pledging to reduce a budget gap that ballooned to 15 percent of output.
  • Indonesia’s trade balance remained in surplus for a second straight month in March at $673 million, higher than consensus estimates. Headline inflation continued to moderate to 7.25 percent year-over-year in April, thanks to easing food inflation.


  • Brazilian President Dilma Rousseff has presided over more corporate bond defaults in Brazil than any of her predecessors. Last week, auto parts maker Sifco halted payments on its dollar-denominated bonds, pushing the amount of defaulted debt to $8 billion during Rousseff’s presidency. That represents more than double the amount during the two-term presidencies of predecessors Luiz Inacio da Silva and Fernando Henrique Cardoso. Rousseff’s inability to revive growth in Latin America’s biggest economy and tame inflation that has exceeded Brazil’s target since she took office helps explain some of the 11 defaults during her tenure, said Sterne, Agee & Leach Inc.
  • Poland's manufacturing sector expansion slowed in April as output and new orders dragged the purchasing managers' index to its lowest level in nine months, according to HSBC. The survey of 300 industrial companies showed the manufacturing PMI dropped to 52 points in April from 54 points in March, below expectations of a 54  reading.
  • The Chinese renminbi weakened by 3.3 percent year to date, the worst performing Asian currency, driven by Chinese central bank’s resolve to reform and growing fears of more defaults from high yielding wealth management products.


Russian Share Prices Underperform Oil Price on Poor Governance
click to enlarge

  • A recent correction in Chinese healthcare equities has brought sector valuation to a more reasonable level relative to projected growth.  Structural drivers remain unchanged including aging population, worsening pollution, unhealthy lifestyles, and, more importantly, rapidly increasing government spending on healthcare which grew 24 percent per year in the last 14 years.
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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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