Monthly Archives: May 2012

Wal-Mart Mexico fallout continues bubbling

David Agren has an illuminating article in the Toronto Star about the slow-burning influence Wal-Mart Mexico has had on local merchants. The short answer to why this matters from my standpoint comes in these two separate paragraphs:

Changing urban development patterns, the proliferation of cars and increasingly modern lifestyles are driving Mexicans from markets like Xochimilco’s to newly opened supermarkets and big box stores — many of them operated by Walmart, now the country’s biggest retailer and employer, and a company caught in a corruption scandal. Continue reading

Emerging & Frontier Markets Headlines 2012.05.30

Indonesia to offer dollar term deposits to aid rupiah — Reuters and the Jakarta Post
Yen-Yuan Direct Trading To Start June 1 — WSJ
The BRICs are over — Finance Addict
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Where public relations and journalism jobs collide

A picture is worth a thousand words:

Emerging & Frontier Markets Headlines 2012.05.29

The definitive Africa ETF Guide — Benzinga
The death blow to Value at Risk — FT
Global Economy Learns to Absorb Oil Price Hikes — IMF
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What Peru’s electricity market says about its economic prospects

During a project a few years ago in Ghana, a government official there told me that one of the unofficial ways his agency attempted to measure informal economic activity was by tracking electricity usage. At the time, I had previously heard that such–no pun intended–off-the-grid methods were on the rise for certain frontier markets as a supplement to more textbook approaches for tracking economic activity, but that was the first time I had actually met someone who was an active practitioner (Dr. Friedrich Schneider of Johannes Kepler University in Linz, Austria, whom I have never personally met, has a sizeable body of work in this niche, this presentation being one example; Hernando de Soto’s work of course goes without saying).

Two recent items have reminded me of that conversation. One is Continue reading

Emerging & Frontier Markets Headlines 2012.05.25

“When hard times come, you can look at opportunities in a very agile way. Europe is in a good moment.” — Carlos Slim Domit
South Africa Approves $8.8 Billion Clean Energy Plan — Bloomberg
Eike Batista profile — Economist
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Myanmar: Economy, Investment and a Business Traveler’s Guide

Aung San Suu Kyi continues attracting most of the headlines coming out of Myanmar—deservedly so—but no less significant are the few intrepid players who have begun establishing business relationships in the country. China has of course been there for some time, but then not much seems to deter China when it comes to foreign investment relationships. More recently, Hillary Clinton paid a visit, followed by George Soros, stock exchange officials from Japan and Korea, private equity titan David Bonderman, and most recently, General Electric and Caterpillar. The World Bank also plans to open a representative office there shortly.

It was a matter of time before someone came up with a Myanmar Business Traveler’s Guide, and that is now available from the British government. Continue reading

Emerging & Frontier Markets Headlines 2012.05.24

“Of the 101 World Cup projects Brazil has planned, which include everything from new stadiums to transport improvements, construction has still not begun on about 41 per cent of them.” — beyondbrics
Expatriates in drug violence-riddled Mexico: Stay or go? — David Agren, USA Today
The US dollar stronger than the Euro in Argentina’s parallel market — Mercopress
“What strikes is you most is how powerless the RBI feels. Its administrative measures are yet to show results, and while it admits that measures such as an NRI deposit scheme may help, it seems to lack conviction.” — Economic Times of India
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Colombia’s Ecopetrol = Brazil’s Petrobras means it’s time to sell

I’m in transit at the moment so I don’t have time for daily headlines today, but I do have a piece on Ecopetrol running on Emerging Money:

Last week’s announcement that Colombian oil company Ecopetrol passed Brazilian giant Petrobras to become Latin America’s largest company by market capitalization was a tribute to how far Colombia has come since the 1990s. It was also a nice complement to the effective start of the country’s free trade pact with the United States. And it was a sign that investors should think about selling Ecopetrol.

Petrobras is already back on top in the market cap rivalry. The Colombian economy may be a model, with 5% real GDP growth, low inflation, booming foreign direct investment and a successful dismantling of what was once the world’s largest black market for dollars.

Even emigres are returning home to this tiger that used to be better known for cocaine trafficking.

But virtue cannot put hydrocarbons in the ground. Brazil’s proven oil reserves are estimated at six times the size of Colombia’s, according to the CIA Factbook. That means Petrobras is virtually destined to be a much bigger oil company that Ecopetrol.

Ecopetrol could not have managed its recent rapid growth much better than it has. It has better efficiencies of scale than Petrobras, but that efficiency is at least close to being fully priced in.

The company has quadrupled in price since the end of 2008.

Ecopetrol’s drawing even with the mighty Petrobras also reflects a Colombian peso that is stronger – or should we say less weak – than the Brazilian real. But that situation also cannot last forever, given how integrated both countries are in trade with the US, trade with China, and global commodities markets.

Colombia cannot afford to have the peso/dollar relationship diverge significantly from the real/dollar; its exports will become too expensive.

The Colombian central bank may not be anywhere near as vocal (desperate?) as its Brazilian counterpart in what is effectively a managed currency devaluation, but the Colombian peso is approaching its maximum appreciation limit. The higher it goes from here, the sooner we should expect monetary authorities to intervene to weaken it.

Nor can Ecopetrol buck a global macro “risk-off” environment forever. If the result of the current queasy market mood is not a weaker peso, it may be lower oil prices, which would imply a stronger US dollar, which leads to a weaker peso.

If it’s not slower growth at home, it’s slower growth elsewhere, which lowers demand for exports. Colombia’s trade is already more US-dependent and less diversified than Brazil’s, and the implementation of the free trade pact is only going to make it more so.

This does not mean that Ecopetrol shares are due to crash. They may even have a bit more room to run, as Colombia continues to meet its challenges and investors overcome past stereotypes and realize what the country has achieved. But the end of the upside for this stock cannot be far away.
This article was originally published here.

The Rupee Has More Room To Fall, But At Least It’s Not Infosys

By now the cat’s out of the bag: The Reserve Bank of India cannot fight the run on the rupee.

From a macro standpoint, India’s prognosis is a pretty difficult one to put a positive spin on, except perhaps that it’s probably not too late for a shorting opportunity. The rupee is at historical lows, foreign portfolio flows are low and going lower, and retail inflation at more than 10 percent handcuffs the central bank’s ability to cut interest rates further. And so a cycle has begun of rupee weakness driving higher inflation, which will drive further rupee selling.

Click here for more.

Emerging & Frontier Markets Headlines 2012.05.22

“We stick to our 1.15 end year target for EURUSD” — UBS
“We’re going to hit BRL2.05 very soon” — WSJ
Nigeria central bank sells $150 million — Bloomberg
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Linking economic development and infant mortality in Africa

That’s not the most popular headline for this story, but it’s what I think of when I see this graph, sourced from the World Bank via the Economist, detailing falling child mortality rates in the past five years across a range of African countries:

Is it any coincidence that Ethiopia, Ghana, Uganda and Rwanda are have averaged annual GDP growth of more than 6.5% over this same time period?

Here’s another interesting data point: the top two, Senegal and Rwanda, now have child mortality rates equal to India, which took 25 years to achieve its current level.

Original article here.

Emerging & Frontier Markets Headlines 2012.05.21

The coming storm in China’s credit market — Patrick Chovanec
MTN Ghana seals landmark $300m loan syndication deal — Ghana News Agency
“Right now, there’s an international trend of dollar appreciation, [and] nobody knows where that’s going to stop,” he said. “Today, our view is that what has already happened will have a moderate impact on inflation.” — Brazil Central Bank via WSJ
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20 things besides Facebook worth $100 billion

“A billion here, a billion there, pretty soon you’re talking real money.” –- Everett Dirksen

  1. China’s total defense budget –- The Hindu
  2. Apple’s cash reserves in the first quarter of this year — Technorati
  3. The amount of American student loan debt taken out last year –- NY Daily News
  4. The face value of fake US government bonds seized in a 2009 northern Italy raid –- Bloomberg

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Hans Rosling is a genius

This video is totally worth five minutes of your time:

Emerging & Frontier Markets Headlines 2012.05.18

“Lebanon’s borrowing costs dropped to close to a record low as investors dismiss the effect of Syria’s crisis on banks in the most indebted Arab nation.” — Bloomberg via The Daily Star
A Tale of Two Regions: Southern Investment, Northern Insecurity in Nigeria — Frontier Strategy Group
Korea Ex-Im Bank sells record 100 billion yen in Samurai bonds — Bloomberg
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How to think about China-Africa Trade

A friend of mine recently asked me, “How long do you continue reading something after you see the phrase, ‘Washington Consensus’?” And it’s a valid question, but when I see either the phrase “China Latin America” or “China Africa”, I’m pretty much automatically bought in. And so it continues with a recent opinion article in China Daily, “Confronting some of the major criticisms of contemporary Sino-African ties.” It’s quite long, as opinions these days go, and frankly I found the graphs and charts much more telling so let’s look at those first:

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Emerging & Frontier Markets Headlines 2012.05.17

Reserve Bank of India announces $2 billion currency swap arrangement for South Asia region — domain-b
Colombia’s Ecopetrol Tops Petrobras As Biggest Latin Company — Dow Jones
Breakdown of Latin America infrastructure projects —
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Avoiding Brazil FX volatility with domestic ETF plays

Brazil’s policy of weakening its currency to make exports more competitive has worked – maybe too well.

The real has lost 13% of its value against the dollar since March 1 to trade at just about 2:1. The Bovespa stock index has slid by almost exactly the same amount during that time, making the currency’s future an all-important indicator for equity and ETF investors, but one subject to contradictory forces.

Even the president of the Brazilian Exporters Association said last week he prefers a stronger real in the 1.80-1.85 range. Yet unnamed currency speculators told Forbes they see a further nosedive to 2.2.

What’s driving bearish sentiment on the real is President Dilma Rousseff’s determination to push domestic interest rates lower. Earlier this month, she issued a decree removing the floor on interest paid by a popular form of savings account, although this controversial move requires congressional approval within 120 days.

This should allow the Brazilian central bank (BCB) to continue cutting its prime rate for commercial lending, known as the SELIC rate, currently at 9%.

Several reports indicate the BCB is seeking a real savings rate of 2%, which is equivalent to the SELIC rate minus inflation. With inflation over the past 12 months averaging 5.25%, that implies a desired Selic of around 7.5%. This will broadly drive real-related investments toward further depreciation.

But other factors point to the real holding at current levels if not strengthening. The inflation rate remains above the BCB’s stated target of 4.5%, though it is down from a seven-year high of 6.5% at the end of 2011.

The central bank, after buying dollars through most of March and April to fuel the real’s decline, has gone comparatively quiet in the currency markets this month. The closer inflation comes to breaching 6.5% again, the more likely the BCB is to re-intervene in the opposite direction to stem continued BRL weakening.

Brazil also has two looming public events: the soccer World Cup in 2014 and Olympic Games in 2016, that will require massive investment, including probably some from abroad. Foreign direct investment into Brazil has become more difficult to define in recent years, as inflows have to evade the obstacle of capital controls.

But to the extent that event-related spending comes from overseas, this is a force for a strengthening the real.

What is for sure is that the World Cup and Olympics will drive sustained infrastructure spending, most of which will stimulate domestic manufacturers and contractors. Meanwhile cheaper money and abiding inflation will drive consumer spending, while much of the benefit the devalued real brings to exporters is offset by weaker global commodity prices.

That means the best way to bet on a Brazilian equities rebound is to stay away from all things exposed to currency volatility or commodities and stick with anything inwardly focused on Brazil. Retail investors can access the domestic sectors through four different ETFs: Global X Brazil Consumer (BRAQ) , Global X Brazil Mid-Cap (BRAZ), EG Shares Brazil Infrastructure (BRXX), or Market Vectors Small Cap (BRF).

This article was originally published at Emerging Money.

Emerging & Frontier Markets Headlines 2012.05.16

Why are westerners softer on Chávez than on Putin? — Francisco Toro
China real estate unravels — Patrick Chovanec
Indian rupee at record low of 54.44 vs. US Dollar — India Today
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