Emerging Markets Cheat Sheet (May 30, 2011)
Strengths
- First quarter results from Russian retailers surprised investors on the positive side, showing strong recovery in margins as they successfully passed on higher prices to customers while still enjoying acceleration in traffic growth.
- A power shortage in China has supported demand for thermal coal, as production during the January through April period rose 11 percent.
- The minister of China’s Ministry of Water and Irrigation said China will double its investment in water projects every year for the next five years.
- Mr. Sun Guoqing, director of the Ministry of Communication’s Comprehension Planning Department was quoted as saying that China plans to invest about 6.2 trillion Rmb on transportation infrastructure by the end of 2015.
- Ad agencies in China expect the country’s overall ad market will grow 10 percent this year and online is expected to grow 30 percent. They believe, as evidenced by the revenue growth of Baidu Inc., a Chinese web services company, that search advertising growth will be even stronger, and e-commerce, social media, and online video will be new growth drivers.
- Retail in China is seeing strong growth: Gome Electrical Appliances Holding Ltd. reported 66 percent sales growth in April, and Belle International reported same store growth of 22 percent for the first quarter and expected same growth pace for the second quarter.
- China’s Rmb strengthened to a 17-year high at 6.49 per U.S. Dollar at close of Friday. This will help reduce commodity import costs in oil and minerals.
- China plans to train 2,000 experts to conduct research on a new form of nuclear fusion for power generation called magnetic confinement fusion. This proves that China will continue its nuclear power policy and build more capacity once safety concerns are being addressed.
Weaknesses
- With the exception of Poland and the Czech Republic, credit growth rates in Eastern Europe have been flat or negative due to continued high unemployment rates, the banks’ impaired balance sheets and hefty bank levies imposed in Hungary.
- China Automotive Technology and Research Center suggested that China’s auto sales may fall 10 percent this year with the end of the government stimulus policies and restriction on car licenses.
- The drought in China may affect food prices in the short term and be a drag on industrial production. However, the previous drought has not slowed industrial growth.
- The Shanghai Interbank Offered Rate (SHIBOR) has almost tripled since November 2010 to 4.6 percent, clearly indicating a liquidity dry-up, according to Bloomberg data.
Opportunities
- The RGE Monitor reports that the eurozone debt jitters could facilitate a banking consolidation process in Eastern Europe, giving the healthier banks a larger market share. Some Western European banks directly affected by the eurozone debt crisis—including Allied Irish Banks and EFG Eurobank—have already sold their Polish subsidiaries to preserve capital for their core domestic operations.
- China high speed trains are connecting smaller cities and countryside with major cities and shortening travel time. Retail benefits from rural and small town travelers.
Threats
Residential house sales are seeing a slowdown in major Chinese cities this year. With the tightening of lending to property developers and restriction of purchases by the governments in China, developers are forced to raise money by selling at lower prices.
