Emerging Markets Diary (4/10/2010)

Emerging Markets Diary (4/10/2010)

Strengths

• Taiwan’s exports surged 51.3 percent in March from a year earlier, accelerating significantly from Chinese New Year-affected 32.6 percent in February, with real trade volumes almost returning to pre-crisis levels.
• China’s passenger car sales jumped another 63 percent year-over-year to 1.26 million units in March, thanks to continued subsidies from the government. Passenger car sales rose 76 percent year-over-year to 3.52 million units in the first quarter.
• Industrial Production in Brazil in February rose by 1.5 percent month-over-month and 18.4 percent year-over-year.
• Car sales in March in Brazil increased 60 percent month-over-month and 30 percent year-over-year. We do not expect this trend to continue at such a rapid pace as March was the last month of a favorable tax treatment of new car purchases.
• Mexico saw creation of 290,000 formal jobs during the first quarter of 2010, of which 125,000 were created in March (much better than expected). The Finance Ministry expects GDP to increase by 4.1 percent this year, following a 6.8 percent contraction last year.
• The Financial Times published an article on real estate prices in Europe, showing Poland with the highest house appreciation of 17.3 percent against the backdrop of a 1.8 percent decline in neighboring Germany and 12.4 percent drop in Ireland.
• Russian car sales were up 38 percent higher in March than in the previous month, encouraged by the government’s introduction of a “cash for clunkers” program.

Weaknesses

• Foreigners turned net sellers of Thai stocks this week for the first time in 6 weeks after the Prime Minister of Thailand declared emergency rule in Bangkok because of street protests.
• Malaysia’s industrial production grew by a slower than expected 4.9 percent year- over-year in February, as lower than expected exports caused a moderation in manufacturing across all major categories.
• With European conventional gas production in decline, much hope hinges on extending the U.S. unconventional gas “revolution” to shale deposits in Europe. Merrill Lynch initial cost estimates show that European shale gas would not be competitive with gas from Russia, Middle East, or liquefied natural gas imports.

Opportunities

• While the U.S. dollar has strengthened by about 10 percent since late November, Asian currencies, thanks to much healthier economic fundamentals than Europe, have remained fairly resilient against the dollar, managing to rise around 1 percent during the period. Stable and potentially appreciating currencies in Asia may bring at least two benefits for the region—stronger asset prices including equities due to additional currency returns for foreign investors and higher domestic demand because of improved purchasing power for foreign goods.
• The Central Bank in South Africa recently cut interest rates by 25 basis points to 6.50 percent in light of a strong rand and CPI being under control. We expect a positive momentum for the country in expectation of the World Cup (June 2010).
• A Bloomberg article quoted Deputy Prime Minister Ali Babacan expecting 10 percent growth in the first quarter, among G20 second only to China. February industrial production in Turkey showed 18.1 percent year-on-year increase, higher than the consensus.

Threats

• Investor fears in the Chinese property sector intensified this week due to rising local media coverage of potential property tax collection in Beijing, Shanghai, Shenzhen, and Chongqing. Policy uncertainty may continue to weigh on the sentiment towards Chinese real estate developers.
• The authorities in Mexico have not agreed to extend a deadline (set for April 10) for a formal registration of all mobile users in the country. It is estimated that as many as 30 millions users are not registered and the authorities have threatened to cut service to them, which would negatively affect America Movil and Telefonice, both of which account for around 91 percent of mobile users in Mexico.
• According to the polls, opposition Fidesz party has 59 percent voter support and is likely to win this weekend’s elections in Hungary. Fidesz officials said they will focus on jumpstarting growth and abandon the fiscal austerity program imposed by the governing Socialist party. Fidesz wants to renegotiate emergency loan agreement with the International Monetary Fund and European Union, seeking permission to nearly double the budget deficit.