Emerging Markets Cheat Sheet (January17, 2011)
Strengths
- Thanks to a second year of government stimulus, China’s total vehicle sales rose 32 percent in 2010 from a year earlier to 18.1 million units, and passenger car sales grew 33 percent to 13.8 million units. Total vehicles sales gained 17.9 percent year-over-year in December to 1.67 million units, and passenger car sales increased 18.6 percent to 1.3 million units.
- China’s foreign exchange reserve registered the largest quarterly increase of $199 billion to a world record $2.85 trillion in the fourth quarter of 2010. Both M2 money supply and new domestic bank loans exceeded estimates in December, increasing 19.7 percent and RMB 480.7 billion year-over-year, respectively.
- Thailand’s consumer confidence rose to 71.9 in December from 70.3 in November, the first gain in three months, as the local currency eased from a 13-year high against the U.S. dollar and export growth remained resilient.
- Vietnam’s government is targeting 7-8 percent GDP growth and is seeking to triple per capita income to $3,000 through 2020. The government also aims to reduce the budget deficit to 4.5 percent of GDP and create 8 million jobs by 2015.
- Peru is a clear beneficiary of higher commodities prices – the country’s exports of copper increased by 50 percent to $7.9 billion in the eleven months ending November 2010, despite a 0.6 percent decline in copper output. According to Fitch, Peru’s GDP is likely to grow by 6 percent in 2011 and 2012.
- Codelco of Chile, the largest global copper producer, is taking advantage of higher copper prices – the company announced a $16.3 billion investment program between 2011 and 2015.
- The Turkish auto sector is celebrating record domestic sales of 148,000 cars in December, or 67 percent growth year-over-year. Sales for 2010 were at a record 761,000 cars, which is 37 percent growth on top of the 13 percent growth seen the previous year.
- BP announced Friday that Russia’s state-owned oil firm Rosneft is to take 5 percent of BP’s ordinary voting shares in a major stock swap that will speed exploration of Russia’s Arctic continental shelf (Bloomberg).
Weaknesses
- China’s export growth decelerated to 17.9 percent year-over-year in December from 34.9 percent in November, worse than market consensus, largely due to high base effect, as the slowdown was led by destinations such as Southeast Asia and Japan.
- South Korea’s central bank unexpectedly raised the benchmark interest rate by 25 basis points to 2.75 percent. The government planned to cap utility prices and reduce food tariffs to curb rising inflation which is approaching the central bank’s 4 percent threshold.
- Singapore will raise the down payment ratio for second mortgage borrowers to 40 percent from 30 percent and extend the period homeowners must hold properties to avoid a stamp duty to 4 years from 3 years, as private home prices climbed to a record.
- China’s central bank raised reserve ratios for a fourth time in two months by 50 basis points effective January 20 to soak up excess liquidity from overseas hot money and a potential bank lending spree in January and February.
- A bank levy to be introduced this year in Poland will raise 1 billion zloty in annual revenue. Citi estimates the introduction of the levy will reduce 2011 bank earnings by 4.2 percent.
Opportunities
- China will allow individuals from the city of Wenzhou to make direct investment in nonfinancial companies overseas in an effort to encourage capital outflows to reduce pressure on inflation of both consumer and asset prices. A closed capital account and limited investment alternatives have subjected China to a chronic risk of asset bubbles because of excess liquidity trapped domestically. This move is a new step to address one of the fundamental causes of asset speculation in China and should contribute to a healthier market overall.
- SNC Lavalin, the largest engineering firm from Canada, acquired Itansaca, the largest engineering company in Colombia. The state-owned oil company, Ecopetrol, is one of the largest clients of Itansaca. The acquisition of Itansaca positions SNC Lavalin well for reaping benefits of continued investments in the sector in Colombia and other South American countries.
- Credit growth has accelerated in recent months in Russia, up 8 percent since September. Merrill Lynch sees a conservative 12 percent growth in 2011, with asset quality improving along with the economy. Potential earnings per share growth of 36 percent through 2012 could be the best among Brazil, Russia, India and China.
Threats
- Rising international oil prices may have a negative impact on most Asian countries’ trade balances given their dependence on foreign oil, all other factors held constant. South Korea, Taiwan, Thailand and India seem most vulnerable, according to Morgan Stanley’s sensitivity study.
- The Brazilian government postponed its decision on proposed budgetary cuts in 2011. It is likely that devastation in the Rio de Janeiro area caused by heavy rainfall will demand state funds for reconstruction, although it has not been communicated what the cost will be.
- Dilution risk is mounting for minority shareholders as the Russian state hydro power utility is poised to issue new shares in order to acquire additional power dams in a compromise between the government, which is looking for a higher price for the assets, and the company, according to J.P. Morgan.
