Emerging Markets Cheat Sheet (April 18, 2011)
Strengths
- China fixed asset investment (FAI) is up 25 percent in the first quarter this year on a year-over-year basis;
- Despite higher than expected CPI for March, which was just released over night by the China Statistic Bureau PBOC, overall monetary tightening policy has achieved some success. Also in March, industrial production grew at a reasonably high speed of 14.8 percent year over year; consumer retail sales increased 17.4 percent. First quarter results show a high probability that the Central Bank will be able to manipulate a soft landing for the economy.
- China GDP has grown 9.7 percent in the first quarter of this year, still much higher than the government’s new target of 7 percent annual rate.
- China foreign reserves reached 3 trillion USD in the first quarter, which adds more burdens for China to manage.
- For the first time in 6 years, China had a small quarterly trade deficit in the first quarter of this year. The number is not significant, but it shows China is balancing its trades with its trading partners. China still has to find a way to balance its trades with the US, or vise versa. This improves trading relations and strengthens goodwill and globalization among countries. Also, a growing China import will help other countries to grow as well.
- Singapore GDP accelerated 23.5 percent in first quarter, more than twice the pace of 11.4 percent economists estimated.
- Indonesia cement consumption was up 11 percent year-over-year in Q1.
- Mexico vehicle production in March increased by 26.3 percent year over year. Exports rose 18 percent year over year of which 63 percent was destined for USA.
- The IPO of Arcos Dorados, the McDonald’s franchise in South America, was 10 times oversubscribed with the stock surging 25 percent o the first day of trading
Weaknesses
- March CPI is 5.4 percent, higher than market consensus of 5.2 percent. However, it has made a 20 bps improvement over February, a positive sign that inflation may be in the process of peaking.
- Moody’s Investors Service lowered its outlook for China’s property sector to “negative” from “stable”, in expectation of lower residential sales.
- In March, India’s wholesale price index accelerated to 8.98 percent vs consensus of 8.36 percent.
- The Brazilian home builder, Gafisa, reported weaker than expected first quarter 2011 results with sales declining by 4 percent year over year and new projects in the pipeline falling by 27 percent . Higher forecast interest rates will be a headwind for the home industry in Brazil
- Russian industrial production expanded in March at the slowest pace since November 2009 as cost pressures constrained growth. Output at factories, mines, and utilities rose an annual 5.3 percent after a 5.8 percent increase in February, the Federal Statistics Service in Moscow said on Friday.
Opportunities
- By March, most of the infrastructure construction projects will start across the country. This is the season construction materials will sell. The market has seen cement price become strong in Western China.
- China retail sales are rising, as indicated by March retail growth rate of 17.4 percent. Department stores and home appliance makers have reported more than 30 percent sales growth in March. We expect consumer home appliance spending will continue, particularly with increasing public home purchases.
- The Chinese government announced its decision to start importing Brazilian pork from Brazil. We see Brasil Foods as one of the beneficiaries of this move.
- Market participants will have more opportunities for investments in the airline industry in Latin America – this week Aeromexico completed its IPO with proceeds going into fleet expansion.
- Aquachile, the largest salmon producer in Chile, will likely complete the IPO in the middle of the year. Chile is the world’s second salmon producer behind Norway.
- More clarity on the regulatory side should be a positive catalyst for the Russian utility sector, according to J.P. Morgan. The government proposed several measures to limit tariff growth to 15 percent; some of these measures were already implemented, which reduces the uncertainty.
Threats
- We expect a period of volatility in the Peruvian capital markets, the second worst performer year-to-date in the MSCI Index behind Egypt. This volatility is expected until June 5 , the date of the presidential election.
- Tensions over a plan to dismiss Czech ministers over corruption allegations threaten to split the three member coalition. Without the coalition, the government is less likely to follow on its pledge to overhaul the country’s pension system
