Emerging Markets Diary (3/29/2010)
Strengths
- Malaysia’s central bank raised its 2010 GDP forecast for the country to 4.5 to 5.5 percent from its October estimate of 2 to 3 percent, citing recovering domestic demand and exports.
- Bank lending in Brazil in February grew 0.8 percent month-over-month and 16.8 percent year-over-year while the delinquency ratio eased to 7.2 percent from 7.6 percent.
- CPI in South Africa in February declined to 5.7 percent from 6.2 percent in January, which likely played a role in a decision by the Central Bank to cut interest rates by 50 bps to 6.5 percent. In addition, lower-than-expected electricity price increases (25 percent vs. 45 percent which Eskom had proposed over next three years) should reduce pressure on CPI expectations.
- Russia’s Central Bank also reduced interest rates by 25 bps to 8.25 percent, a twelfth cut since April 2009, when the rate was 13 percent.
Weaknesses
- China focused equity funds experienced net outflows in nine out of the first eleven weeks of 2010, even as emerging market funds continued to draw inflows, according to EPFR.
- Standard and Poor’s and Fitch expressed concerns that a passage of comprehensive fiscal and labor reforms in Mexico is unlikely by the end of President Calderon’s term in 2012.
Opportunities
- Mass demand for housing in Indonesia is being generated from the country’s young and expanding population and greater availability of credit. 44 percent of the country remains below 24 years of age, Greater Jakarta adds 1,000 people every day, and less than 1 percent of households are responsible for a mortgage, according to CLSA. This has already translated into rising domestic cement consumption, which climbed 13 percent year-over-year in the first two months of 2010, and should continue to benefit cement producers with exposure to the capital region.
- Chile’s President, Mr. Sebastian Pinera, indicated that the state may sell some assets in order to raise funds for reconstruction of the country following a series of earthquakes that shook the country in recent weeks. It is estimated that the earthquakes caused damage of $30 billion to the country’s infrastructure and industry.
- Zain Group of Kuwait approved a sale of its African mobile assets to India’s Bharti Airtel for $10.7 billion. The combined entity will have around 165 million subscribers making Bharti one of the leading emerging mobile operators with services in Africa and Asia. Competition for MTN of South Africa is bound to intensify, particularly in Nigeria and Ghana.
Threats
- Sentiment might remain low towards Chinese steelmakers amid fears of an economic slowdown as the government continues to withdraw liquidity. In particular, Chinese steelmakers have been under increasing pressure from accelerating iron ore cost inflation since mid-2009 compared with their anemic product pricing power, with the potential for more pain if the ongoing iron ore pricing negotiations make new contracts more expensive than anticipated.
- President Calderon of Mexico officially announced a tender for a new Riviera Maya airport. Bids are expected to be submitted by 15 April with a winner to be known by 12 May. Shares of ASUR (operator of the Cancun airport) are expected to be volatile in the near term as a new airport will likely lead to diversion of traffic, although it is not likely to be completed until 2015.
