* Die Börsen in Russland und Brasilien waren die Nutznießer des hohen Öl- und Gaspreises.
* Die fiskalischen Probleme Griechenlands, Portugals und Irlands hatten geringe Auswirkungen auf die Börsen Zentraleuropas, die im großen und ganzen sich gut entwickelten.
* Erwähnenswert ist das starke Abschneiden des indischen Marktes der ja zu Jahresbeginn schwächelte.
* In vielen Emerging Markets haben die Zentralbanken die Zügel angezogen um die Inflation zu mäßigen, wobei sich erste Effekte in China bemerkbar machen.
Highlights of the month
* Collectively, emerging markets performed well during March. This was in spite of events in Japan, the Middle East and North Africa (MENA) region and the European periphery
* Investors in the MENA region were unsettled by events in Yemen, Libya and Bahrain. However, regional stockmarkets remained fairly resilient
* Particular stockmarkets, such as Russia and Brazil, were clear beneficiaries of higher prices for oil and gas
* The widely publicised fiscal problems of Greece, Portugal and Ireland had little effect on the stockmarkets of nearby Central and Eastern Europe, which generally performed well
* In Asia-Pacific, the strength of the Indian stockmarket – after a difficult start to 2011 – was particularly noteworthy
* In many emerging markets, central banks continue to tighten monetary policy in order to combat mounting inflationary pressures. There are signs that China’s tightening measures are now having an effect
Statistical summary
Global emerging markets in March
Economics took something of a back seat in March as the massive earthquake and tsunami that struck the Tohoku region of Japan’s main island of Honshu on 11 March, and the subsequent crisis at the Fukushima Daiichi nuclear power complex, caused investors to fret about the impact of disruptions to supply chains in Japan on the global economy. By the end of the month, the general consensus was that the Japanese economy would be significantly weaker than it would otherwise have been in the short-term, but stronger in the second half of 2011.
There was no direct impact on emerging markets, some of which are suppliers of raw materials to Japan and others of which are home to offshore manufacturing facilities that are owned by Japanese multi-national companies. As of the beginning of April, it seems that the consensus is that the disasters in Japan are consistent with central banks in developed countries moving more slowly than they otherwise would have done to tighten policy. At the margin, emerging markets should be beneficiaries of this.
Elsewhere, unrest continued in particular countries in the Middle East & North Africa (MENA). Despite this, regional markets were, for the most part, little changed over March as a whole. The implication is that most investors took the view that the sharp sell-down in the stockmarkets of the MENA region in January and February were sufficient to discount the additional risks associated with the conflicts in Libya and Yemen, and the rioting in Bahrain. The main risk is not that of a spike in the price of oil, given that Libya is a relatively minor supplier in the global context (if a large one in absolute terms). We believe that the most important issue is the possibility of a regional sectarian conflict (i.e. between Sunni and Shi’ite Muslims) that engulfs Saudi Arabia and certain other countries: we stress, though, that we currently regard this as a low probability outcome.
As had been the case in February, the volatile political situations of several countries in the MENA region helped particular emerging stockmarkets that are dominated by large capitalisation energy companies. Brazil and Russia are cases in point here.
Another key feature of the month was the generally strong performance of the stockmarkets of Central and Eastern Europe. This was in spite of widespread concerns relating to public sector debt and fiscal deficits in a number of ‘peripheral’ Euro area countries – particularly, Portugal, Greece and Ireland – which resulted in sharp rises in yields on benchmark government bonds. The implication is that investors placed far more importance on the ability of listed companies in Central and Eastern Europe to benefit from robust economic growth in Germany and other ‘core’ European countries than on the possibility of contagion of financial problems.
The general trends that have dominated the emerging markets of the Asia-Pacific for months now remain intact. Virtually all economies in the region are enjoying strong growth – whether as a result of expanding net exports or burgeoning domestic demand. Corporate profits are, for the most part, growing nicely. Thanks in part to rising prices for food and energy – but also often to rapid expansion of credit – inflation is a concern for many central banks. On 5 April, the People’s Bank of China announced 0.25% increases in the benchmark one-year deposit and lending rates to 3.25% and 6.31% respectively: interestingly, there had already been signs that the central bank’s tightening of monetary policy over the preceding months was having an impact on China’s financial system.
Other central banks which increased interest rates during March included those of India, South Korea, the Philippines and Thailand. A noteworthy feature of March was the very strong performance of India’s stockmarkets – after some months during which investors had fretted about the impact on corporate profits of rising raw material costs.
Region in focus: Latin America
Like its counterparts in China and India, Banco Central do Brasil has had to contend with strong economic growth and mounting inflationary pressures. Inflation in Brazil rose to 6.13% in mid-March, the fastest pace since November 2008, and is now near the top of the central bank’s target range of 2.50%- 6.50%. At its meeting in the beginning of March, the central bank’s monetary policy committee (Copom) voted to lift the benchmark Selic rate by 0.25% to 11.75%. The decision to tighten monetary policy was made in spite of the strength of the Real vis-à-vis other major currencies (but, most particularly, the US Dollar) over the last two years.
The relative strength of Latin America’s stockmarkets in March – and over the last year – highlights how the region is undergoing structural changes that are profund and positive. Although there are some challenges yet to be resolved – which we discuss briefly below – the changes are generally of a nature that render them increasingly insulated from the effects of developments in the rest of the world.
As a region, Latin America is highly competitive in the production of both hard and soft commodities. Thanks to the development of China and India, global demand for foodstuffs, minerals and energy is growing in line with, or slightly ahead of, global supply. This means that, in real terms, commodity prices should increase over the medium term.
However, the likelihood of higher commodity prices is only one part of the story. Thanks to the discovery of new resources, many companies have increased their long-term forecasts of production levels. For instance, the discovery and/or reinterpretation of massive offshore oilfields has transformed the entire medium-term economic outlook for Brazil.
Equally important, economic growth across the region is being boosted, by robust domestic demand and rising investment. Due to its proximity to the USA, Mexico is the regional economy that is likely to grow most slowly: even so, we anticipate that GDP growth will come in at around 4% in both 2011 and 2012. We are looking for expansion of about 5% - in both years – in Colombia and Brazil and of approximately 6% in Peru and Chile. In the meantime, inflation remains at levels that are acceptably low – in a historical context and by the standards of emerging markets – in most countries in Latin America with the exception of Venezuela.
Investment is growing in part because of the development of extractive industries. Consumption is rising because of improvements in regional labour markets. Unemployment is falling, and real wages are rising. In Brazil, for example, real wage growth was running at about 2% at the beginning of 2010: by the end of the year, that figure had risen to 8%. Consumption is also rising because households have the ability to borrow. The past financial problems in Latin America mean that, in many of the countries across the region, financial services are underdeveloped. Five years ago, the total stock of household debt in Brazil, for instance, amounted to just over one-fifth of total household income. Since then it has risen steadily, but is still about 40% of annual household income. Because interest rates have fallen steadily over the last half decade, monthly debt service (i.e. the interest payments that the typical household has to make) has remained constant about 22% of the average monthly wage.
In our Latin American portfolios, the largest sectoral weightings are to materials, financials and energy, which collectively account for approximately two-thirds of assets. Blue chip companies such as Petrobras and Vale (respectively the leading energy and iron ore producers of Brazil), are among the largest positions. We also like the major private sector banking and financial services giants in Brazil, such as Bradesco and Itaú. Another major holding is América Móvil, the Mexican telecommunications giant that has a presence throughout Latin America. In addition, we have a position in AmBev, the Brazil based beverages group.
Although we remain optimistic about on prospects for the region in general (and Brazil – which typically accounts for about twothirds of our regional portfolios – in particular), we note that there are some challenges that need to be overcome if Latin America is to sustain superior growth rates beyond 2012. In many countries, there is a lack of skilled workers as a result of the deficiencies of the education system. In some, the tax system imposes overly onerous burdens on companies. Not all the infrastructure bottlenecks have yet been removed – notwithstanding that fixed investment has been booming. In Brazil and Mexico, and also some other countries across the region, the public sector is a lot less efficient than in emerging markets outside Latin America (and in the developed world). Finally, it is often difficult for companies and promoters of major investment projects to obtain long-term funding in local currency. This is because past economic and financial problems have prevented the development of local yield curves that include liquid markets for long-dated government bonds.
