Strengths
- Thailand’s exports in March rose 40.9 percent year-over-year, the fastest pace in 20 months and much higher than market expectations, thanks to external demand for electronics and agricultural products. Imports grew 59.7 percent and trade surplus widened to $1.2 billion.
- Brazil’s mobile subscriber base continues to grow. The total number of subscribers reached 179 million at the end of March compared with 153 million a year ago. The increase puts Brazil’s mobile penetration rate at 93 percent.
- Industrial Production in Colombia in February rose 3 percent while retail sales increased 3.9 percent.
- For the first time since it defaulted on its domestic debt in 1998, Russia issued $5.5 billion worth of eurobonds in a move The Wall Street Journal called a “triumphant return.” The five-year bond priced at 3.147 percent yield, with a cost of insuring Russian sovereign debt, was below that of many EU member states.
Weaknesses
- China has ordered banks in localities with excessive property price gains to suspend issuing third-home mortgages and suspend offering mortgages to buyers without proof of residence. The government also approved trial programs of property taxation in Beijing, Chongqing, Shenzhen and Shanghai. Third homes are said to be targeted for property tax purposes.
- Hong Kong joined China in tightening real estate policies with a plan to accelerate land auctions and to raise stamp duty on homes sold for less than $2.58 million.
- The Budapest municipal court of appeals has rejected an appeal by Soros Fund Management against a fine by the Hungarian financial market regulator for exercising unfair market influence. The trade in question took place in October 2008 during the market collapse.
Opportunities
- A succession of restrictive government policies have been announced recently to curb property speculation in China, exacerbating already negative sentiment towards industries exposed to real estate and construction. In anticipation of a slow down in property-related discretionary consumption, investors may continue to rotate into more defensive sectors such as staple foods and healthcare, which together comprise more than 40 percent of Chinese consumer spending.
- India raised interest rates by 25 basis points to 5.25 percent in light of rising inflation. While higher rates may be a headwind for some firms, others like the State Bank of India stand to benefit given the structure of their balance sheet.
- Banco do Brasil—Brazil’s largest bank by assets—is set to acquire a 51 percent stake in Banco Patagonia in Argentina. With 155 branches and 775,000 clients, Patagonia has a 2.5 percent market share in deposits in Argentina and is the first step in international expansion for Banco do Brasil.
- According to press reports, MTN of South Africa is in talks with Orascom Telecom (Egypt) about a potential deal. It remains to be seen if MTN were to buy all of Orascom’s business or just that in North Africa (Algeria mainly). The companies’ operations have no overlap.
- Russian transportation volumes are catching up to pre-crisis levels, with March cargo turnover growing 12 percent year-over-year and metals volumes up 17 percent year-over-year. Oil products and fertilizers exceeded pre-crisis volumes by 2 percent and 4 percent, respectively.
- Air passenger traffic growth in Turkey is supported both by strong domestic demand and increasing international and transit travel, reaching 85 million passengers in 2009. Istanbul is within a 3-4 hour flight from any major hub in Europe and Middle East.
Threats
- As of Wednesday, equity fund flows into emerging markets have stayed positive in 10 consecutive weeks. Going back 10 years, this historically correlates with at least a short term correction in emerging market stocks going back 10 years.
- Bond markets shrugged off a perceived threat of Greek crisis contagion spreading to Eastern Europe. While the credit default swap (CDS) spreads of the largest Western European countries widened since last September, the CDS spreads of most European countries contracted, reports UBS quantitative research.
