28 August 2017

FROM THE CEO OF EMIS

Back in 2013, a group of emerging markets were identified by a Morgan Stanley analyst as being overly dependent on foreign investment and therefore particularly susceptible to any changes in fiscal policy in developed markets that might divert capital away from them. The so-called “Fragile Five” at the time were Turkey, Brazil, India, South Africa and Indonesia. In 2015, the “Fragile Five” were replaced by the “Troubled Ten”, a different mix of economies that omitted India, Indonesia and Turkey but included Russia and Colombia among others.

The prospect of further tightening of monetary policy by the US and European central banks would normally set alarm bells ringing for these particular emerging markets. But last week saw emerging market equities hit a three-year high and sentiment around developing economies continues to be positive despite the likelihood of further Fed rate increases. So what has changed in the last few years? Many of those countries have reduced their current account deficits making them less vulnerable and some have been able to implement reforms that have made their economies more balanced. Equally, while noises continue to be made about scrapping trade agreements like NAFTA, many believe that much of this is bluster rather than a real danger.

There are some countries like Turkey that remain very much at risk from policy tightening due to political instability and inadequate economic reform. But it looks unlikely that we will see a repeat of 2013 when the taper tantrum led to a massive emerging market sell-off. For me, that’s another sign that the fundamentals of growth markets continue to improve and the road ahead may be much smoother.

Guy Dunn

P.S. Here are a few articles on the “Fragile Five” from the EMIS platform last week.

INDONESIA C.BANK SURPRISES WITH A RATE CUT IN BID TO LIFT GROWTH
Indonesia's central bank surprised most economists on Tuesday by lowering interest rates, reflecting its relative comfort with the currency and inflation outlook.

TEMER´S VICTORY: CONGRESS APPROVES NEW INTEREST-RATE BILL
Brazil's lower house of congress approved a bill to phase out the subsidised loans issued by the state development bank, BNDES, to some of the country's largest companies.

PHILIPPINES, INDONESIA AND INDIA HAVE GOT A FED PROBLEM
The problem the three nations face is that, unlike China, they lack the industrial, export and domestic savings bases needed to fund their plans.

INFOGRAPHIC OF THE WEEK

MEXICO ICT SECTOR REPORT 2016/2017

Mexico is home to the second-largest ICT sector in Latin America (after Brazil) in terms of subscriber numbers. Nevertheless, the country presents relatively low penetration rates in the main ICT products and services – such as mobile telephony, fixed-line telephony, broadband internet and pay TV. This is largely explained by the high level of income inequality prevailing in the country – Mexico had the second-worst performance on this indicator among OECD countries in 2015.

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CEIC DATA POINT OF THE WEEK

CEIC Data is a sister company of EMIS and part of the Euromoney Data Division

THAI GDP GROWS AT FASTEST PACE IN 4 YEARS
Thailand’s real GDP grew by 3.7% YoY in the second quarter, recording the highest quarterly pace in more than 4 years. Thailand's economy in Q2-2017 was mainly driven by higher consumption expenditure (both private and government) as well as sound external sector, as exports recorded a record-high pace of growth in May.

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WEEKLY NEWS SUMMARY

Below are the most read articles in the past week on EMIS Perspectives, our daily blog of emerging market news and insights.

ASIA

MOBILE OPERATORS IN THAILAND SEE REVENUE RISE IN THE SECOND QUARTER OF 2017
Three major mobile operators in Thailand have seen an increase in revenue in the first half of 2017 as more consumers are using data for over-the-top (OTT) services, especially for live streaming and video-on-demand, the Bangkok Post reported.

LG ELECTRONICS TO SET UP A NEW PLANT IN DETROIT
LG Electronics, a South Korean multinational electronics company, is planning to expand its presence in the United States’ electronic-vehicle (EV) parts market by investing $25 million to build a manufacturing plant for EV parts in Hazel Park, Detroit. The construction is expected to be completed in early 2018.

CHINA TAKES ON AIR POLLUTION IN THE BEIJING REGION
China’s Ministry of Environmental Protection has outlined new steps to address the air pollution issue in the Beijing-Tianjin-Hebei region and neighbouring provinces this coming autumn and winter, China Daily reports.

LATIN AMERICA

BRAZIL MAY STRUGGLE TO MEET PARIS ACCORD BIOFUELS TARGETS
The Brazilian agricultural research corporation Embrapa Agroenergia suggests, in a study, that Brazil will struggle to meet Paris Accord biofuels targets, in which was agreed an 18% increment in biofuels in the country´s energetic grid by 2030.

VEHICLE LOAN IN ARGENTINA JUMPS 57% Y/Y IN H1
A total of 233.333 new vehicles were sold via loans in Argentina in the first half of 2017, which represents a 57% increase compared to the same period last year, M-Brain news agency reported.

VENEZUELA'S GDP TO FALL BETWEEN 7% AND 10% IN 2017: FEDECAMARAS
Venezuela's Gross Domestic Product (GDP) will decline between 7% and 10% in 2017, the president of the local Federation of Chambers of Commerce (Fedecamaras) Carlos Larrazabal was quoted as saying by daily El Nacional.

EMERGING EUROPE

RUSSIAN OIL GIANT LUKOIL WILL RECEIVE SHARES IN SERBIAN HIP PETROHEMIJA
Russian Lukoil will acquire a stake in Serbian petrochemical producer HIP Petrohemija due to the company's restructuring, Prime cited a statement of the Serbian firm.

NEW US SANCTIONS WILL NOT AFFECT NORD STREAM 2 AND TURKISH STREAM
The new US sanctions against Russia will not affect the construction of Gazprom’s big pipeline projects- Nord Stream 2 and Turkish Stream, but at a higher price, Energy Minister Novak told CEEMarketWatch.

ROMANIA REACHES RECORD WHEAT PRODUCTION IN 2017
Romania reached a record high wheat production this year, an average of 4,836kg per ha, by almost 1 ton higher than last year, Agerpres reported.

MIDDLE EAST & AFRICA

NEW INCIDENT SHUTS DOWN LIBYA'S LARGEST OILFIELD SHARARA
A fresh incident has shut down on Tuesday Libya's largest oilfield Sharara, Gulf Times reported. This is the second incident in less than a week after an unnamed group managed to close a valve leading from Sharara to Zawiya from Saturday until Tuesday morning.

MORE THAN 3,000 UGANDANS LOSE MONEY IN GLOBAL FINANCE PYRAMID SCHEME
More than 3,000 people has lost their money in Global Finance pyramid scheme in Uganda, The Daily Monitor Uganda reported.

DUBAI AEROSPACE ENTERPRISE COMPLETES TAKEOVER OF IRISH AWAS
Dubai government-controlled aircraft leasing and maintenance firm Dubai Aerospace Enterprise (DAE) has completed the takeover of its Irish rival and the 10th biggest industry agent AWAS, Gulf News reported.

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