Russia Expanding its Influence

Tuesday, March 16th, 2010

With the United States preoccupied with two wars, Russia is taking advantage of an opportunity to expand its influence and control over neighboring states. The first phase is nearly complete, and Stratfor analyst Marko Papic says pressure now is growing on the Baltics.

As an aside, “extortion by corrupt officials in Russia has got so bad that some Western multinationals are considering pulling out altogether,” Alexandra Wrage, the head of a US anti-bribery group, told Reuters. “There appears to be a sense of near-complete impunity, a sense of entitlement … there is no sympathetic low-level management, no sympathetic mid-level management, or sympathy at the top (for anti-bribery efforts).”

Russia really worries me. I hope I’m wrong.

Source: Stratfor Global Intelligence (via YouTube), March 9, 2010.

Tags: Advantage, Alexandra, Baltics, Bribery, Control, Corrupt Officials, Extortion, Global Intelligence, Impunity, Level Management, Mid Level, Multinationals, Opportunity, Reuters, Russia, Sense Of Entitlement, Sympathy, United States, Youtube
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Emerging Markets Highlights (3/15/2010)

Monday, March 15th, 2010

Emerging Markets

Strengths

• The number of people living at or above the level of “medium development”— considered to live in reasonable conditions and have access to education, health care, clean water and electricity—has grown by more than 2 billion people during the past several decades. That is more than the entire global population in 1900.
• The Asia Pacific region provided 234 names to the latest Forbes World’s Billionaires list released this week, up from 130 last year. The region accounted for 23 percent of the total 1,011 billionaires globally.
• China’s February exports grew by a higher-than-expected 45.7 percent year over year due to a strong rebound in exports of textile, steel products, televisions and motorcycles. Imports rose 44.7 percent in February from a year earlier thanks to a large swing of crude oil prices from last year.
• Brazil highway traffic in February rose by 6 percent year over year. It was driven mainly by heavy vehicles traffic (up 11.9 percent) and passenger traffic (up 4.3 percent).
• Brazil’s budget minister says his country is likely to see 6 percent GDP growth this year and the creation of 2 million jobs.
• January retail sales in Brazil increased 10.4 percent year over year.
• Industrial production in India in January rose 16.7 percent and was driven by higher activity in the mining sector (up 14.6 percent) and manufacturing (up 17.9 percent).
• Turkish new-car sales in February jumped 42 percent year over year, aided by tax incentives and a low base. The rise was above industry expectations.

Weaknesses

• China’s growth in fixed-asset investment moderated to 26.6 percent year over year in January and February combined, compared with the stimulus-driven rate exceeding 30 percent between March and October 2009, as the government wound down new public investment projects.
• Despite restraining government policies, property prices in 70 cities in China climbed another 10.7 percent year over year in February, the fastest pace in 23 months, after January’s 9.5 percent gain. New and existing home prices increased 1.3 percent and 0.4 percent month over month, respectively.
• All three publicly traded airport groups in Mexico reported declines in passenger traffic during February.
• Turkey ended IMF negotiations without a loan agreement. In absence of the IMF loan, there will be little upside to 4 percent GDP growth projections for 2010.

Opportunities

• If home-buying sentiment in China has shifted toward “wait and see,” auto purchases have remained very strong as the government maintained policy incentives. Even in the seasonally slowest month of February, 1.21 million vehicles were sold. The combined 2.88 million units sold in January and February was 84 percent higher than the same period in 2009. Such strength is likely to carry into March and April, typically strong months for car sales, as potential auto buyers rush to purchase before subsidy programs are withdrawn. Opportunities still exist for Chinese automakers and steel mills.

• It is estimated that damage to Chile’s infrastructure from recent earthquakes will be $20 billion to $30 billion, and will result in a massive government revival program. Dealing with effects of the earthquake is going to be a priority for the new president, Sebastian Pinera. Chile has a very healthy fiscal position and should easily fund the program from its copper fund, as well as from local and external debt.
• After years of neglect, there is a structural shortage at the residential end of Russian real estate market. New strategy announcements from the Russian real estate companies suggest that they are coming out of hibernation and are planning to launch construction and start pre-sales.

Threats

• While China’s central bank governor said February’s 2.7 percent increase in consumer prices from a year earlier was in line with his expectation, the latest inflation figure did surpass the one-year deposit rate of 2.25 percent. Negative real interest rates may provide an additional incentive to drive asset prices further ahead, creating fears of imminent monetary tightening that may introduce short-term volatility into the market.

• Mexico’s official inflation in February rose 0.58 percent month over month (vs. 0.50 percent expected) and was up 4.8 percent on an annualized basis. While the rate is still within the 4.75 percent to 5 percent target range, we will closely monitor the trend in coming months.
• The issue of exiting from monetary stimulus becomes pressing in countries like Brazil and Turkey, where inflation pressures are building. The chart below shows Citi’s estimates of upcoming rate increases in emerging countries in 2010.

Tags: Asia Pacific Region, Asset Investment, Billionaires List, Brazil, Budget Minister, China, Cities In China, Crude Oil Prices, Education Health Care, Emerging Markets, Forbes World, GDP Growth, Global Population, Heavy Vehicles, Highway Traffic, Img Src, India, Industry Expectations, Investment Projects, Motorcycles Imports, New Car Sales, Openx, Passenger Traffic, Public Investment, Random Number, Russia, Steel Products, Target, Tax Incentives
Posted in Emerging Markets, India, Markets | No Comments »

How Russia Sees the World

Friday, March 12th, 2010

Source: Unknown

Tags: Russia, World Source
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Emerging Markets Highlights

Saturday, February 20th, 2010

Emerging Markets

Strengths

• Overseas worker remittance to The Philippines in December reached an all-time high of $1.57 billion, representing 11.4 percent growth year over year. Remittance reached $17.4 billion for all of 2009 and accounted for 10.8 percent of nominal GDP.
• South Korea’s power sales to industrial users rose 24 percent in January from a year earlier in volume terms, the fastest pace in nearly 34 years due to continued recovery in global demand for auto and steel.
• More than 180,000 net new jobs were created in Brazil in January, bringing the total for the past 12 months to about 1.3 million.
• Eastern European countries are running a tighter fiscal policy and are far less indebted than the major world economies (see chart), enabling them to grow faster than the developed countries saddled with ever-higher deficits and debt burden.

Weaknesses

• Singapore’s non-oil domestic exports in January grew at a slower than expected 20.8 percent year over year, representing a seasonally adjusted 8.9 percent decline month over month, due to a moderation in both electronics and pharmaceuticals exports.
• Thailand’s daily trading turnover has shrunk 34 percent this month from January’s average, as investors stayed on the sideline ahead of Supreme Court’s Feb. 26 ruling on whether to confiscate the former prime minister’s assets, a decision that could lead to domestic political turmoil.
• Official Argentina CPI in January reached 1 percent, bringing year-over-year CPI to 8.2 percent compared to 7.7 percent in December. However, private sector estimates of the CPI are much higher and range between 14 and 17 percent.
• Data released Tuesday by Poland reveals a deep deflation in gross wages and salary income during the month of January, defined by a single-month plunge of 11.5 percent.

Opportunities

• Walmart de Mexico in 2010 is planning to open 300 new stores in Mexico and 30 in Central America. Around 60 percent of new stores will be in the Express format to gain market share from the informal sector.
• Mexico’s National Infrastructure Fund is planning a substantial increase in its investment program in 2010. In total, 30.4 billion pesos ($2.37 billion) will be committed to 42 projects, up from 22.1 billion pesos in 23 infrastructure projects last year.
• Citigroup revised its expectations for Russian growth upwards to 6.2 percent in 2010, with two-thirds of the growth to come from household consumption. A number of indicators suggest that the recovery in consumption is already under way – there was substantial improvement in retail sales in December and real household income was up 7.1 percent in January.

Threats

• An earlier-than-expected increase of the discount rate by the U.S. Federal Reserve might help sustain the current U.S. dollar rally and prolong the unwinding of the U.S. dollar carry trade. Emerging-market equities in general are susceptible to near-term selling pressure given their negative correlation with the U.S. dollar.
• The arrest of a prosecutor in Turkey revived tension between the courts and ruling AK Party. A Financial Times article suggests that any government attempts at constitutional reform that could precipitate early elections would hit sentiment, as the recent polls suggest that AK Party could not win an outright majority.

Tags: Brazil, BRIC, China, CPI, Debt Burden, Deflation, Domestic Exports, Eastern European Countries, Emerging Markets, Fiscal Policy, Former Prime Minister, Global Demand, Gross Wages, India, Industrial Users, Month Of January, New Jobs, Nominal Gdp, Political Turmoil, Remittance, Russia, Salary Income, South Korea, Volume Terms, Walmart, World Economies
Posted in Emerging Markets, India, Markets | No Comments »

Emerging Markets Highlights (week ending 2/15/2010)

Monday, February 15th, 2010

Emerging Markets Highlights (week ending 2/15/2010)

Strengths

• China’s passenger car sales continued to surge by 113 percent in January from a year earlier to 1.32 million units. While year-over-year growth may be affected by the low base one year earlier, January’s print represented a solid 20 percent increase from December.
• Indonesia’s GDP expanded by a higher than expected 5.4 percent year-over-year in the fourth quarter, as lower interest rates and government stimulus continued to encourage consumer spending.
• Taiwan’s exports grew 75.8 percent in January from a year earlier, the highest year-over-year increase in more than thirty years and ahead of expectations, thanks to better electronics demand driven by holiday spending before the Chinese New Year.
• The 4Q 09 results of Itau Unibanco and Vivo in Brazil slightly surpassed market expectations reinforcing the view that Latin American largest economy is on the way to recovery. The results of the home builder, Gafisa, were also ahead of expectations.
• Brazilian industry capacity utilization in December rose to 81.7 percent from 81.3 percent in November, above the consensus expectation of 81.4 percent.
• Brazilian air traffic in January rose 31.6 percent year-over-year with the load factor rising by 6 percent to 78 percent as a result of stronger economic activity.
• At 25.2 percent growth over last year, December industrial production in Turkey came in considerably stronger than expected. It is also worth highlighting that the increase was broad based (see chart below, courtesy of Citi research), with capital and durable consumer goods leading the advance.

Weaknesses

• Although attributable largely to a jump in labor force participation in response to government’s job creation programs, South Korea’s unemployment rate climbed to a ten year high at 4.8 percent in January from 3.6 percent in December.
• Despite government intervention, average property prices in 70 cities in China continued to rise 1.3 percent month-over-month in January, an eleventh consecutive monthly increase.
• Chile CPI in January came in at 0.5 percent month-over-month (vs. 0.1 percent expectation) while CPI in Colombia reached 0.69 percent month-over-month (vs. 0.6 percent expectation).
• All the three airport groups in Mexico (ASUR, GAP, OMA) posted declines in traffic in January.
• January sales of new vehicles fell by 37 percent year-over-year in Russia. There was a strong base effect from January of last year when buyers rushed in to convert collapsing currency into hard assets. Also, the start of its “cash for clunkers” program was postponed from January 1 March 8, so customers are holding out for the state subsidy.

Opportunities

• Weaker than expected inflation in consumer prices, moderating bank lending, and narrowing trade surplus in China in January may provide some relief to lingering fears of early monetary tightening from Chinese policymakers in the near term.
• Grupo Televisa in Mexico, the largest media group in the Spanish speaking world, received a permission from authorities to bid for a stake in the mobile operator, Nextel Mexico (NIHD) that will permit it to offer triple play services for clients. Televisa and NIHD are expected to bid jointly for a new 3G spectrum.
• Earnings release by a bellwether bank in Turkey provides a positive glimpse into outlook for 2010, according to Morgan Stanley banking analyst Magdalena Stoklosa. Margin contraction is less than expected as rebalancing out of government securities had already begun, and improvement in asset quality is coming sooner than expected.

Threats

• If the higher than expected rise in China’s Producer Price Index (PPI) in January, primarily driven by energy and raw materials, proves more than transient, Chinese manufactuers’ profit margin may face challenges as their costs inflate whereas competition severely limits their pricing power.
• A potential deceleration in the economic activity in China would negatively impact resource rich countries in Latin America.
• Continued monetary tightening in China would have a cooling effect on commodity exports, despite current strong demand for steel and raw materials.
• Risk aversion over public finance in crisis Greece is likely to spill over to the periphery countries of European Union, such as Poland, Czech Republic, and Hungary.

Tags: 4q, Brazil, Brazilian Industry, Capacity Utilization, China, Chinese New Year, Cities In China, Consumer Spending, Contin, Creation Programs, Durable Consumer Goods, Emerging Markets, Gafisa, Government Intervention, Holiday Spending, India, Job Creation, Labor Force Participation, Latin American, Market Expectations, More Than Thirty Years, Passenger Car Sales, Russia, South Korea, Unemployment Rate, Unibanco
Posted in Emerging Markets, India, Markets | No Comments »

Putin ‘Bitch Slaps’ Billionaire Deripaska

Thursday, November 19th, 2009

This is an eye opener - Russian Prime Minister Vladimir Putin treats his cronies like little children in the following video, (hat tip: Hugh Hendry), in particular, Magna partner, Russian billionaire, Oleg Deripaska.

According to Hugh Hendry (from this month’s Eclectica Fund Letter):

Furthermore, the big Russian players like Rusal are under intense pressure from Putin not to cut capacity (check out ‘Putin bitch slaps Deripaska’ on http://www.youtube.com/watch?v=PprlM5R3Hbg), and are rumoured to be surviving only by not paying their electricity bills.

As I watched this video, I realized that things are different in Russia. Its a foregone conclusion that Russia is a command economy, but to actually see it in action is revealing.

Tags: Advertisement, Billionaire, Bitch, Capacity Check, Command Economy, Cronies, Eclectica, Electricity Bills, Eye Opener, Foregone Conclusion, Hat Tip, Hugh Hendry, Intense Pressure, Magna, Oleg Deripaska, Partner, Russia, Russia Economy, Russian Players, Russian Prime Minister, Vladimir Putin, Www Youtube
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Nigel Rendell: Buy Brazil, Sell Eastern Europe

Tuesday, November 10th, 2009

Nigel Rendell, emerging market strategist of RBC Capital Markets, talks to Izabella Kaminska of FT Alphaville about a broad spectrum of emerging-market related issues.

Part 1:
Rendell talks about the differing fortunes of economies from Russia to Argentina. He says Brazil remains a great pick outside Asia.

Click here or on the image below to view the video.

Part 2:
With many analysts bullish on Chinese growth, the big challenge for investors is gaining exposure. Rendell says Korea and Taiwan offer the best proxy plays.

Click here to view Part 2 of the interview.

Part 3:
With interest at record lows in developed economies, investors are increasingly looking for yield in emerging markets. Rendell comments on whether this inflow of money is creating a fresh bubble.

Click here to view Part 3 of the interview.

Source: Izabella Kaminska, Financial Times (here, here and here), November 9, 2009.

Tags: Alphaville, Argentina, Best Proxy, Brazil, Broad Spectrum, Chinese Growth, Eastern Europe, Emerging Market, Emerging Markets, Financial Times, Fortunes, Ft Alphaville, Inflow, Interview Source, Kaminska, Market Strategist, Rbc Capital Markets, Record Lows, Rendell, Russia
Posted in Emerging Markets, Markets | No Comments »

Goldman Recommends Companies with High Sales Exposure to BRICs

Friday, October 9th, 2009

Goldman Sachs recently put out a report, and continue to follow it up, in which they aggressively recommend overweighting US companies that have high sales exposure to BRIC economies, as they have been outperforming the market and are expected to continue to do so.

The basis of this is Goldman’s outlook for growth in the BRICs next year. GS expects BRICs combined GDP to grow by 8.7% vs. the consensus 7.2%, with China and India leading the way. For China and India, Goldman’s outlook for growth is also more aggressive with China registering 11.9% and India 7.2% in 2010.

Goldman’s BRICs hit list of 50 companies makes the case, with Year-To-Date performance of 43% vs. 17% for the S&P 500. Its hard to argue with Goldman, given that they rule the BRICs trade, and to their credit, coined it themselves.

Goldman said:

We favor exposure to Brazil, Russia, India and China (BRICs) over developed markets given the significantly higher GDP growth outlook. We believe investors should use this basket to identify stocks with high exposure to emerging market growth. Long/short investors should consider buying this basket against the S&P 500 to gain exposure to higher growth in the BRICs countries versus slower growth in developed regions.

In its morning notes yesterday GS said:

BRICs-exposed companies outperform during earnings season Our basket of 50 stocks with high sales exposure to BRICs economies has posted stronger sales growth and surprises than the S&P 500 during the past 10 earnings seasons. We believe this outperformance will continue.

Here is Goldman’s list:

Download the GS Slideshow: goldman-research-where-to-invest.

Tags: Advertisement, Amp, Brazil, BRIC, BRICs, China, Consensus, Countries, Earnings Season, Emerging Market, Emerging Markets, GDP, GDP Growth, Gold, Goldman Sachs, Growth Outlook, High Exposure, India, Investors, Leading The Way, Outperformance, Russia, Stocks, Surprises
Posted in Emerging Markets, Gold, India, Markets | No Comments »

Global Equity Market P/E Ratios

Friday, June 26th, 2009

Below is a chart showing global equity market valuations, as produced by Bespoke Investment Group. Canadian stocks are currently fetching a P/E of 13X, and given Canada’s relatively stronger economic fundamentals, from a fiscal and banking industry standpoint, and its significant commodity complex, are relatively attractive. It is notable that Canada’s P/E was around 9X back at the beginning of March, so the strong rally since has aided significant P/E multiple expansion off the lows.

Bespoke: As shown, Russia currently has the lowest P/E ratio at 6, followed by Italy (10) and France (11).  At 14, the US is more attractive based on its P/E ratio than most countries.  Taiwan has the highest P/E at 60, and the UK is surprisingly bad at 34.  It’s valuation is worse than China’s.  Germany also has a very high P/E ratio at 27.

Tags: 13x, Banking Industry, Canada, Canadian Stocks, China, Commodities, Commodity, Economic Fundamentals, Equity Market, Germany, Global Equity, Investment Group, Italy, Lows, Market Valuations, Rally, Ratios, Russia, Standpoint, Taiwan
Posted in Markets | 3 Comments »

Richard Russell (Dow Theory Letters): Potential buyers of gold?

Monday, February 23rd, 2009

The following is an excerpt from Richard Russell’s Dow Theory Letters, February 18, 2009.

“Here are some figures, the first number is the nation’s holding of gold and the second figure is the percentage that gold is of their reserves. Nations with low percentages of gold in their reserves may be expected to be potential buyers of gold.

US — owns 8,135 metric tons of gold … Gold makes up 64.4% of US reserves. The US will not sell any of its gold.
Germany — 3,412 … 64.4% of reserves
IMF — 3,217 …
France — 2,508 … 58.7%
Italy — 2,451 … 61.9%
Switzerland — 1,040 … 23.8%
Japan — 765.2 … 1.9% (a potential gold-buyer)
China — 600.0 … 0.9% (should be a big buyer)
Russia — 495. 9 … 2.2% (is a buyer)
Taiwan — 422.2 … 3.6% (should be a buyer)
India — 357.7% … 3.0% (should be a buyer)
UK — 310.3 … 14.5% (sold most of its gold at the low price)
Saudi Arabia — 143.0 … 11.4% (should buy gold)
South Africa — 124.4 … only 9.0%
Australia — 79.8 … 6.3%”

Source: Richard Russell, Dow Theory Letters, February 18, 2009.

Hat tip: Investment Postcards

Tags: Buy Gold, Buyers Of Gold, Dow Theory Letters, Emerging Markets, Excerpt From, France 2, Gold Buyer, Gold Gold, Hat Tip, Imf 3, India, Italy, Metric Tons, Percentages, Postcards, Richard Russell Dow Theory, Russia, Saudi Arabia, Sell Gold, South Africa, Taiwan
Posted in Emerging Markets, Gold, India, Markets | No Comments »

Clinton vs. Putin: What of Free Markets?

Wednesday, February 4th, 2009

Clinton jokes about Putin, and supports ‘bad bank’ plan. Click play to see video:

Here’s where Putin warned against state intervention and nationalization as a policy error, one they are sure not to repeat, as it has cost Russia dearly:

Tags: Clinton Jokes, Free Jokes, Free Markets, Nationalization, Putin, Russia, State Intervention
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George Soros: Interviews at Davos

Wednesday, February 4th, 2009

George Soros interviewed at the World Economic Forum, Davos 2009. Click play to watch.

Soros discusses the formation of the Aggregator Bank, that Chavez’s days in Venezuela are numbered (he is begging for Big Oil to come back), Ahmedinejad may be out in elections in ‘09, and Russia and Putin’s troubles.

George Soros discusses the US economy in almost hushed tone.

Tags: Chavez, Economy, Elections, Forum Davos, George Soros, Hushed Tone, Interviews, Putin, Russia, Venezuela, World Economic Forum, World Play
Posted in Economy, Markets, Oil and Gas | No Comments »