Category: Emerging Economies

Beer, tyres and luxury key to emerging markets

Reuters | Sep 12, 2010 | 8:01pm IST

delacour_shop European companies selling beer, luxury watches and winter tyres are among those best placed to benefit from exposure to fast-growing emerging markets, the manager of a Blackrock fund said on Wednesday. Russia is seeing a very strong recovery after a sharp recession in 2009, Alister Hibbert, manager of the 400 million pound ($618 million) Blackrock European Dynamic fund said at a press briefing. He said Finnish winter tyre maker Nokian Renkaat was an example of a company that would be able to benefit from a fast-recovering market for foreign-produced cars. "Russian banks have been starting to extend credit to showrooms again, and that is leading to new models being brought in, and demand is up strongly," said Hibbert, who highlighted a 40 percent year-on-year growth in demand for sales of foreign branded cars in Russia.

Another company benefiting from the improved economic situation in Russia is Danish brewer Carlsberg, the he said. In the year to end-August, the fund returned 17.72 percent, which was 28.3 percentage points above its peers, according to data from Lipper, a Thomson Reuters company. Hibbert said companies with exposure to China also offered interesting opportunities. "Industrialisation is a one-off opportunity, and Chinese consumption as a percentage of GDP is increasing," he said. Denmark’s Novo Nordisk, the world’s biggest maker of insulin, is set to benefit from the creation of a welfare state in the world’s most populous country, he said.

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Emerging market correlations shift, spark rethink

Emerging market correlations shift, spark rethink | Reuters   02/08/2010 | 03:58pm IST

Investors buying into emerging markets for a leveraged bet on global growth and portfolio diversification are having to rethink their strategies as the integration of major developing markets such as Brazil and China into the global economy intensifies. Generating outperformance from what is defined as a riskier asset class has become more challenging as these fast-expanding economies become more intertwined with their developed peers. More than mere diversification away from mature markets, portfolio allocations into this asset class will increasingly be driven by a recognition that emerging equities, currencies and bonds are moving out of sync with each other. “We’ve never seen such a meaningful breakdown in correlations (within emerging markets),” said Daniel Tenengauzer, global emerging markets fixed income strategist at Bank of America-Merrill Lynch. “If you map out correlations on a six-month basis over the past 10 years, the breakdown you see in the past three months have never been there before… We’re going to see more of this because emerging markets are maturing,” he said.

But while assets and currencies within the broad spectrum of emerging markets show an unprecedented idiosyncrasy, correlations between emerging equities and their developed-market peers are now higher than during the global credit crisis. More significantly, the beta of emerging equities — measuring price fluctuations relative to developed markets — has fallen to one since the start of the year, suggesting that emerging markets now merely track developed markets. Gains are thus likely be modest even when global sentiment picks up. “The long-term outperformance of emerging markets is a powerful and secular story but in the short term, it’s still very much risk-on/risk-off,” said Trevor Greetham, asset allocation director at Fidelity International. Of course there is still a differentiation. The benchmark MSCI Emerging Markets Index is down 0.3 percent so far this year, versus a 3.4-percent decline in its global equity counterpart.    Continue reading

IMF Raises 2010 Growth Estimate, Sees Greater Risks

Bloomberg | Jul 8, 2010

The International Monetary Fund raised its forecast for global growth this year, reflecting a stronger-than-expected first half, while warning that financial- market turmoil has increased the risks to the recovery. The world economy will expand 4.6 percent in 2010, the biggest gain since 2007, compared with an April projection of 4.2 percent, the Washington-based fund said in revisions yesterday to its World Economic Outlook. Growth next year is projected to be 4.3 percent, unchanged from the April forecast. Canada and the U.S. are leading advanced economies out of the worst recession since World War II, trailed by euro-area countries that need additional measures to boost confidence in their banks, the fund said. Faster expansions in Brazil, China and India are helping to protect the global recovery as a sovereign-debt crisis weighs on Europe, the IMF said. “The overarching policy challenge is to restore financial- market confidence without choking the recovery,” the IMF report said. “The new forecasts hinge on implementation of policies to rebuild confidence and stability, particularly in the euro area.” The euro has fallen against the dollar in each of the past seven months on concern nation including Greece and Spain might default on their debt. The MSCI AC World Index of stocks has dropped for three straight months, and the Markit iTraxx SovX Western Europe Index of default swaps insuring against losses on debt of 15 governments last month reached an all-time high.

‘Cloud’ Over Outlook

“Recent turbulence in financial markets — reflecting a drop in confidence about fiscal sustainability, policy responses, and future growth prospects — has cast a cloud over the outlook,” the IMF report said. Fiscal woes in advanced economies may curtail the flow of capital to emerging markets, Olivier Blanchard, the IMF’s chief economist, said at a press briefing today in Hong Kong. Blanchard said the reversal will prove “temporary” in the aftermath of the European crisis, with a resumption of flows over time. European Union regulators are carrying out stress tests on 91 banks to examine whether they can withstand a shrinking economy and a drop in government bond values. Regulators are counting on the tests on firms including Madrid-based Banco Santander SA and Frankfurt-based Deutsche Bank AG to reassure investors that banks have enough capital to withstand a debt default by a European country.  

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INTERVIEW – Emerging market money will bypass London – RenCap

Reuters | Sat Jun 26, 2010 | 4:50am IST

Russian, Indian and Chinese companies snap up African natural resource assets. Kazakh and African companies seek capital in Asia. Middle Eastern money eyes opportunities in Russia. The way Russia’s top investment bank sees the world, Europe and North America are fading into the background as emerging markets increasingly invest in each other and bypass the traditional centres of banking in London and New York. "The big theme is the huge movement of capital towards these regions and away from the West," Renaissance Capital CEO Stephen Jennings told Reuters in an interview. "We see an enormous amount of M&A happening now between and within those (emerging) countries. On the financial side, we very much believe the capital markets are going to move into the emerging markets and away from London in particular."

Jennings points out that Hong Kong last year had more IPOs than London or New York and rattles off a string of deals that RenCap has done across Africa and the former Soviet Union. The $955 million sale last year of Congolese copper miner CAMEC to Kazakhstan’s ENRC, Rwanda’s first-ever IPO, a Brazilian iron ore sector transaction in Guinea and Russian aluminium giant RUSAL’s IPO in Hong Kong are among recent RenCap deals. Jennings sees Africa as the hottest investment destination now for companies looking to build natural resource assets quickly. He says Renaissance has multiple mandates from Indian and Russian investors who want more exposure there. "Three-quarters of the meetings I’m having with oligarchs and state companies have an African element," he said. "In terms of being able to get big resources very quickly, African is in a class of its own at the moment."

Speaking from the bank’s headquarters on the 48th floor of a sleek, newly built tower in Moscow’s emerging financial district, Jennings was critical of higher taxation and tighter regulation in London, saying this will only accelerate the City’s inevitable demise as a financial centre. "At the end of the day, the majority of savings and  

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Bigger role seen for emerging financial centres like Mumbai

Reuters | Wed Jul 7, 2010 | 12:32pm IST

London and New York are not about to lose their spots as the world’s leading financial centres but they are being challenged by emerging market upstarts in a potentially lucrative area: the management of funds moving between developing economies. With developed economies struggling and emerging markets thriving, more and more financial deals are being cut well away from the traditional centres. Rising trade between emerging economies, cross-border mergers, acquisitions by Indian and Chinese companies and moves by developing world businesses to raise capital in each other’s markets will spur growth of financial centres in the fastest growing economies, according to industry experts who addressed the Reuters Emerging Markets Summit in Sao Paulo last week. For the bankers clustering in cities like Sao Paulo and Mumbai, the intra-emerging markets movement of funds represents an alluring chance to make money.

"We see flows between Africa and India, India and China, India and Korea being much bigger," said Neeraj Swaroop, CEO of Standard Chartered’s India business. "Not just big companies but also small- and medium-sized companies are making outbound investments. For banks like Standard Chartered, these are immense opportunities to pursue." Stephen Jennings, CEO of Renaissance Capital, a Moscow-based investment bank focused on developing economies, said he is already seeing a rapid integration of capital flows in emerging markets. "In our M&A practice, 80 percent of our deals don’t have a Western face. And the same thing will happen with financial flows," he told the Reuters summit. "London cannot possibly retain its role as a primary capital markets centre for emerging markets … I think it will be displaced totally over the next two to three years," he said, adding that high taxes, intensifying regulation and unfavourable immigration policies all work against the City.   

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Global Manufacturing Shows Weakening From China to Europe

Bloomberg | Jul 1, 2010

Manufacturing slows Manufacturing growth from China to the euro-region slowed in June, suggesting the global export-led recovery is losing strength. In China, manufacturing growth slowed more than economists forecast, and a gauge of factory output in the 16-member euro region weakened for a second month, two surveys showed. The U.S. Institute for Supply Management’s manufacturing index due today probably also declined, according to the median forecast of 79 economists in a Bloomberg News survey. Asian and European stocks fell on concern that a Chinese economic slowdown combined with deepening budget cuts from Spain to the U.K. may undermine the global recovery. While the Organization for Economic Cooperation and Development on May 26 raised its global growth forecast for this year, it said that a “boom-bust scenario cannot be ruled out” in some countries. “We expect data to soften from here,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “It’s going to raise some question marks about the outlook, about a double dip. It’s an environment with significant downside risks.”

Stocks Fall

The MSCI Asia Pacific Index dropped 1 percent today. The Euro STOXX 50 Index was down 0.7 percent at 2:04 p.m. in London. The Standard & Poor’s 500 Index has shed 3.7 percent over the past month, bringing its year-to-date decline to 7.6 percent. The economy of the OECD’s 30 members will grow 2.7 percent this year instead of a previously projected 1.9 percent, the Paris-based group said on May 26. China may expand more than 11 percent this year compared with growth of 3.2 percent in the U.S. and 3 percent in Japan, according to the OECD. The euro- region economy may expand 1.2 percent, it said. Limited demand in advanced economies has left the world reliant on emerging markets, led by China, to drive a recovery that Group of 20 leaders this week described as “uneven and fragile.” Signs of a slowdown as the Chinese government clamps down on property speculation and the effects of its stimulus package fade have unsettled investors.  

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Developing nations can help global recovery – World Bank

Reuters | Fri Jun 4, 2010 | 9:51am IST

Giving developing countries a bigger say in global economic governance could help the world economy recover more quickly from the crisis, the World Bank said on Friday. The Group of 20, bringing together the world’s top developed and emerging economies has emerged as the leading global forum, representing over 80 percent of the world’s economic activity, but over 170 poorer countries feel left out. Strong growth, forecast by the World Bank at 6 percent this year in emerging countries, twice the rate of mature economies, should be recognised, Ngozi Okonjo-Iweala, World Bank managing director, told Reuters. "What this immediately tells you is that they can help a lot in making up for some of the demand that is missing from the developed countries and that’s the point, that the G20 cannot afford to ignore them," she said on the sidelines of a forum.

High growth in non-G20 countries could be crucial just as Greece’s debt problems threaten to spill over to other euro zone countries. "Just when we thought we had turned the corner there are clouds on the horizon," Okonjo-Iweala said, referring to problems in Greece and elsewhere in Europe. Developing countries need access to overseas markets to grow faster and the G20 must give development the central place it deserves on its agenda, she added. "We can envision not just Asian tigers but African lionesses," Okonjo-Iweala said. "There is money to be made. Companies investing in low income countries are reaping disproportionately higher returns."  

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