- Teilweise auch aufgrund von Wechselkursschwankungen haben sich die globalen Emerging Markets im Mai in US-Dollar schwach entwickelt.
- Der Monat Mai war charakterisiert von der Risikoaversion der Investoren aufgrund der Euro-Krise und den Befürchtungen, dass die veröffentlichten Zahlen über den Zustand der US-Wirtschaft die globale Wirtschaft in Mitleidenschaft ziehen könnte.
- Die Besorgnisse über eine globale Verlangsamung der Wirtschaft wurden auch von der Geldpolitik Chinas beeinflusst.
- Die Konjunkturdaten aus Lateinamerika, Asien-Pazifik und Teilen von MENA sind robust und auch einige der Zentraleuropäischen Länder profitieren von der Wirtschaftskraft der Kernmärkte der Euroländer.
Highlights of the month
- In US dollar terms, emerging markets performed poorly in May – although this was partly due to currency movements
- The month was characterised by general risk aversion on the part of investors – which was unhelpful for emerging markets. This was partly the result of the ongoing sovereign debt crisis in Europe
- Investors were also concerned about signs that the global economy may be losing momentum with data releases calling into question the robustness of the US economic recovery
- Worries about a global slowdown were also partly influenced by developments in China, where the central bank moved once again to curb lending by banks
- However, much of the latest economic data continued to point to solid economic growth in Latin America, the Asia-Pacific region, and parts of the Middle East & North Africa
- Particular countries in Central and Eastern Europe – such as Poland – continue to benefit from the robust growth of ‘core’ Euro area countries
Statistical summary
Global emerging markets in May
May was not a rewarding month for emerging markets assets with national stock market indices largely moving either sideways or downwards in local currency terms. Meanwhile, the US dollar rose (strongly) against virtually all other currencies – and, in particular, a number of currencies in Central and Eastern Europe that had made gains in April.
Investors focused on two issues. One was the potential for a default by the government of Greece, whose benchmark bonds fell sharply in price over the month. Concerns over a Greek default also caused Irish and Spanish government bonds to drop as well, although, Portuguese government bonds rose sharply in price after the International Monetary Fund (IMF) approved a €26bn loan, part of a much larger bail-out arrangement that the IMF and European Union has put in place for Portugal.
Investors were also unsettled by signs that the global economy may be losing momentum. In the USA, for instance, the latest round of statistics pointed to a gentle rise in the number of initial claims for joblessness, softness in durable goods orders, and uninspiring results from three different surveys of regional economic conditions. Furthermore, consumer spending appears to be less strong than previously thought. Immediately after the end of May, the Purchasing Manager’s Index (PMI) that was released by the Institute of Supply Management (ISM) came in at 53.5. Although this result indicates that the US manufacturing sector is continuing to expand, it was far less than the 60.4 recorded for April and below consensus expectations. There were also signs of a deceleration in growth across ‘core’ Euro area countries such as France and Germany.
Elsewhere, there were also a number of developments that caused investors to focus on the potential for a slow-down in China. In this regard, various PMIs slipped slightly in May relative to April, suggesting that growth is now at a nine month low.
May also saw further tightening of monetary policy by the People’s Bank of China, which lifted the required reserves ratio (i.e. the percentage of deposits that cannot be on-lent to nonbank customers) for large banks to 21%; for smaller institutions, to 19%. The central bank has been looking to sterilise inflows of capital from overseas, in order to constrain the growth in credit and to fight inflationary pressures. In this regard, consumer price index (CPI) inflation in China fell from 5.4% in March to 5.3% in April.
In India, HSBC’s PMI eased slightly from 58 in April to 57.5. This suggests that India’s manufacturers may be responding to tighter monetary conditions, after nine successive rises in the key policy interest rate (to 7.35%). Headline inflation in India fell from 9.0% in March to 8.7% although this remains some way above the Reserve Bank of India’s medium-term target of 4.5%.
Official data indicated that the Indian economy expanded at an annual rate of 7.8% in Q1 11: this was the slowest pace for five quarters. The deceleration was mainly a result of a slow down in the manufacturing sector: farm output, which is a key driver of India’s economy, has been growing strongly.
The general themes in Latin America remained broadly unchanged during May. Thanks in part to the growth of China and high real prices for exported commodities, central banks have had to contend with mounting inflationary pressures and/or unwanted speculative inflows of capital. During the month, the central bank of Chile, for instance, lifted its key policy rate by a larger-than-expected 0.50% to 5.00%, while its counterpart in Uruguay announced a sharp increase in the required reserves ratios.
Region in focus: Eastern Europe and the Middle East & North Africa
As the table on the front page of this Review indicates, the stock markets of Central and Eastern Europe and the Middle East & North Africa (MENA) region were unable to avoid the effects of investor aversion to risk in May, a month where there were widespread fears about the financial problems of the government of Greece and, to a lesser extent, certain other ‘peripheral’ euro area countries. Turkey’s stock market was a relative laggard: this was partly because investors were fretting about the deterioration in the current account (which is currently running at about 7.7% of GDP) and partly because of fears that elevated inflationary pressures will cause a tightening in monetary and/or fiscal policy after the election in mid-June.
At its meeting on 25 May, the Monetary Policy Committee of the Central Bank of the Republic of Turkey (CBRT) kept the key one-week repo rate unchanged at 6.25%. The Committee’s comments in the press release which explained the decision had a fairly hawkish tone – even though they alluded to the fact that Turkey’s economy is not yet operating at anything like full capacity: ‘The Committee notes that inflation may exceed the year-end target of 5.5% in May, due to base effects arising from unprocessed food prices, and follow a volatile path thereafter.’ The Committee also indicated that ‘both elevated levels of energy and other commodity prices, and a weaker external demand outlook, [will] postpone the improvement of the current account.’
The Committee has also had to deal with another problem – inflows of ‘hot’ money which have the capacity to destabilise Turkey’s economy. The Committee has been increasing the required reserve ratios (i.e. the percentages of deposits that commercial banks are not allowed to on-lend to non-banks), most recently in April. As of early June 2011, the ratios stood at 11-12% for foreign currency deposits, 13% for deposits from one-month to three months maturity, and 16% for deposits of up to one-month maturity (including demand deposits).
Taking a longer-term view, we remain confident that investors will again focus on the attractive valuations of Turkey’s stock market after the election, and will see benefits from the central bank’s two-pronged approach to monetary policy, which has kept the cost of money quite low (in terms of interest rates) but which has sought to restrict the availability of credit through increases to the required reserves ratios. For portfolios that invest across the MENA region and Central and Eastern Europe, Turkey represents a useful hedge against the impact of any sustained weakness in the prices of energy, of which Turkey is a substantial importer.
Most crucially, there remains huge potential for structural reform and growth in Turkey. This is partly because the government has done less than its peers in other large developing countries to encourage improvements in productivity. It is also because the demographic profile of Turkey – like many countries in the MENA region – is such that consumption spending should increase steadily over the medium-to-long term. Thanks in part to the lifting in the required reserves ratio, but also the underdevelopment of the financial system in a country which has traditionally had a long history of fiscal problems and (very) high inflation, Turkish banks have not lent aggressively. This means that households, which are not, by most standards, carrying much debt on their balance sheets, have the ability to borrow in order to increase consumption.
The civil protests in Tunisia and Egypt at the beginning of the year, together with the more recent unrest in Bahrain and the continuing strife in Libya, Syria and Yemen have prompted intense scrutiny of the political risks associated with other countries in and around the MENA region. Turkey, which has similar geo-political importance to Saudi Arabia or Egypt, appears to be something of a winner in this context, being a large country in the region where democracy already works.
The MENA region continues to be overshadowed by ongoing geo-political the political issues and the outlook is uncertain. However, there is a possibility that a new administration in Egypt, for example, will undertake essential steps to liberalise the economy and to encourage job creation: indeed, widespread unemployment was one of the reasons for the unrest in Cairo and elsewhere earlier in the year. We continue to find particular companies that offer attractive valuations and that have the potential to deliver positive earnings surprises – notably in the United Arab Emirates and Qatar, as well as in Turkey.
Fears about a potential slowdown in the global economy caused Russian oil and gas stocks to underperform in May. As the case with Turkey, we think that many of these fears are overdone.
Given the current price of oil, at around US$100 per barrel, the Russian government’s fiscal position is very strong: the government should, therefore, have substantial scope to increase spending and, we see this as being positive for economic growth. This is particularly relevant in 2011, which is an election year. If, as we anticipate, the government lifts its spending on social security and infrastructure, the beneficiaries should include a wide range of economic sectors that are well represented on the Russian stockmarket. Examples include retailers, construction firms, real estate developers and banks. Meanwhile, although inflation in Russia has been quite high – running at around 8% per annum – we do not see monetary policy as a threat to the growth of the overall economy.
As is the case in Turkey, we are able to identify a number of attractively valued stocks in Russia. Through our holdings in Russian banks, we can take advantage of the likely strong growth in loans, as well as a likely reduction in non-performing loans. We also hold companies that should be able to benefit from the recent award to Russia by FIFA of the right to hold the 2018 World Cup. The government has allocated US$10bn from its budget for new infrastructure that will be needed. Aside from this, Prime Minister Vladimir Putin has made it clear that the private sector will also be expected to contribute funding towards the development of hotels, stadiums and transport links.
While a lack of transparency has discouraged some investors from participating in the Russian growth story, we believe that FIFA’s decision presents an opportunity for key actors in the corporate and political spheres to raise standards. Russia’s business and political leaders now have an opportunity to come up with a sustainable plan for development. If they are able to do this, the World Cup could be very positive for the economy as a whole.
On a more general level, the latest weakness in emerging markets has not caused us to change our view that there remain attractive investment opportunities in Central and Eastern Europe. Although particular governments in the region are wrestling with financial problems, there are countries that have clearly benefited from the growth in Germany and other ‘core’ Euro area countries. In late May, for instance, the Central Statistical Office of Poland reported that that economy grew by 4.4% year-on-year in Q1 11, having expanded by 4.5% year-onyear in the fourth quarter of 2010. The latest growth has been achieved despite recent rises in official interest rates, as the National Bank of Poland has taken steps to counter inflationary pressures.
