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Emerging Markets Weekly

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China's manufacturing activity contracted for a second month

Mon, Oct 6 2008, 11:01 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina is seeking to ``bully creditors'' into accepting a new debt restructuring plan that offers ``considerably worse terms'' than the original exchange in 2005, said Elliott Associates LP, a New York-based hedge fund. The swap offer ``will not enable Argentina to remove the attachments on its assets that we have obtained,'' Jay Newman, a senior portfolio manager at Elliott, said in a statement. Elliott holds about $1 billion of defaulted Argentine debt, court filings show. That's about 5 percent of the $20 billion of defaulted debt that creditors held out of the 2005 settlement. Argentina is working with Citigroup Inc., Barclays Plc and Deutsche Bank AG on details of the exchange offer and expects to complete the transaction by year-end, Cabinet Chief Sergio Massa said last night. Massa revealed few details of the plan, only saying the government would offer just one new bond in the swap and require investors to put up cash for new bonds. Elliott called Argentina ``the poster child of rogue nations'' and urged the country to pursue ``good faith negotiations.'

Brazil

Brazilian policy makers signalled that consumer price inflation in Latin America's biggest economy may have peaked, cementing expectations that the central bank will end the current cycle of interest rate increases this year. The bank forecast that inflation will end 2008 at 6.1 percent and slow to 4.8 percent in 2009, according to its quarterly inflation report published. The forecasts are in line with economists' expectations that the bank will meet year-end inflation targets of 4.5 percent plus or minus 2 percentage points this year and next.
Brazil's industrial output rose 2.0 percent in August from the year-ago month, the national statistics agency said. The gain was less than the 2.5 percent median forecast in a Bloomberg survey of 26 economists.
Brazilian President Luiz Inacio Lula da Silva's party and allies won more than a dozen local elections as candidates capitalized on the president's record popularity two years before his term expires. Parties that are part of Lula's coalition won the race for mayor in at least 13 of the 26 state capitals, according to results released by the electoral court. The opposition won two capitals and the other 11 will hold run-off elections on Oct. 26, according to preliminary results, after no single candidate obtained more than 50 percent of the valid votes.

Chile

Chilean central bank policy makers voted unanimously to raise interest rates by half a percentage point at their September meeting. The bank lifted the target overnight lending rate by half a point for the fourth straight month on Sept. 5 as it fought the fastest inflation in 13 years.

Ecuador

Ecuadorean President Rafael Correa tightened his grip over the energy, telecommunications and banking industries as voters backed a new constitution that allows greater state control of the economy. Voters approved the new charter yesterday by a bigger-than-expected majority of more than 65 percent, according to exit polls. ``This was a clear political victory for President Correa over the traditional political establishment'' and will ``further consolidate his already tight grip on power,'' Alberto Ramos, an economist at Goldman Sachs Group Inc. in New York, said by e-mail. The result will help reduce social conflict that has made the country one of the most unstable in Latin America, he added. Correa won the presidency in late 2006 by promising a new constitution to help alleviate poverty and put an end to the country's cycle of collapsing governments. The charter gives Correa control of the central bank, allowing him to set interest rates, and reserves the right for the government to manage ``strategic sectors'' through state-owned companies.

Mexico

Mexican money transfers registered the biggest monthly decline on record in August as a deepening U.S. credit crisis and stricter law enforcement for undocumented residents put more laborers out of work. Workers' remittances fell 12.2 percent in August from the same month a year earlier, the biggest monthly decline since the central bank began tracking the data in 1995. Money sent from abroad fell to $1.94 billion from $2.2 billion in August 2007, according to data posted on Banco de Mexico's Web site. It was the fourth straight monthly decline. Mexico's economy may weaken in part because of slowing remittances, which accounted for almost 3 percent of gross domestic product last year, central bank Governor Guillermo Ortiz said Sept. 25.

Peru

Peru's economy will expand 7 percent in 2009, slowing from 9 percent this year as the government seeks to slow record consumer spending, Finance Minister Luis Valdivieso said. Inflation is ``under pressure'' from rising commodity prices and should end the year at 5.8 percent, Valdivieso said in a meeting with foreign journalists at his office in Lima.
Peru's consumer prices rose 0.57 percent in September from the previous month, the press office of the national statistics agency said. Economists had estimated monthly inflation at 0.47 percent in September, according to the median of 14 forecasts compiled by Bloomberg.

Venezuela

Venezuelan President Hugo Chavez said the U.S. financial crisis may cause economic growth in Latin America to slow and oil prices to fall. Oil prices should stabilize between $80 and $95 a barrel, Chavez said in comments broadcast by state television. He said that the credit crisis in the U.S. will likely make it more difficult to obtain financing in Latin America.

AFRICA & MIDDLE EAST

Iran

Privatisations and increased company profits have helped to push up Iran's stock market, its head said on Tuesday, despite global financial turmoil and international sanctions imposed on the Islamic Republic. Ali Rahmani, managing director of the Tehran Stock Exchange, said the market's total capitalisation had jumped to $70 billion in August from $40 billion in January last year. "A lack of international relations here is actually a strong point for our stock exchange," Rahmani told Reuters in an interview when asked how Iranian shares so far had escaped the panic gripping many other markets. The all-share TEPIX index is up by around 20 percent this year, while still down from a 2004 high, according to the Tehran Stock Exchange website, www.tse.ir. Analysts have said Iranians with cash abroad, fearing having assets frozen because of tightening sanctions on Iran, have repatriated some of their capital from Western markets and invested in property and other assets, fuelling price rises. Rahmani said a drive to speed up the sale of state-owned companies, which he said got under way in 2007 with the part-privatisation of Mobarakeh Steel Co and National Iranian Copper Co, had boosted interest in shares. The sales coincided with rising commodity prices internationally, pushing up corporate profits. "People rushed to buy shares of those companies," he said. Rahmani also said the stock exchange wanted to encourage foreign investment and planned to hold road shows, "if the international political atmosphere gets better regarding Iran." Iran, the world's fourth-largest oil exporter, tried to shake up its lumbering economy four years ago by overturning Article 44 of the constitution which decreed core infrastructure should remain state-run.

Kenya

Kenya's central bank left its benchmark interest rate unchanged for a second consecutive meeting, after forecasting that inflation will slow. The Central Bank Rate was kept at 9 percent, Governor Njuguna Ndung'u said in an e-mailed statement from Nairobi. The bank last raised the rate by a quarter of a point on June 5. Inflation, which surged above 30 percent in May after post-election violence disrupted food production, may slow to 20 percent by January, the central bank said on Sept. 9.

Nigeria

Nigeria's foreign currency reserves rose 3 percent to $61.9 billion in September, the central bank said. The reserves increased from $60.1 billion a month earlier, the Central Bank of Nigeria in Abuja said on its Web site. The reserves peaked on Sept. 18 when central bank Governor Chukwuma Soludo said they stood at $63 billion, enough to cover 16 months of import requirements.

South Africa

South Africa's trade deficit narrowed last month as oil and machinery imports declined and exports of precious stones, metals, vehicles and machinery rose. The deficit narrowed to 5.1 billion rand ($615 million) from 14.3 billion rand the month before, the South African Revenue Service said in an e-mail. The shortfall was bigger than the 4.9 billion rand median estimate of 12 economists surveyed by Bloomberg.
The African National Congress, which led an eight-decade fight to bring democratic rule to South Africa, is on the verge of splitting as an internal power struggle that forced President Thabo Mbeki to resign deepens. Former party chairman Mosiuoa Lekota accused his colleagues in an open letter published in Johannesburg's Star newspaper of ignoring attacks on the judiciary and threats of violence by party members and backing ``policies that are dangerous to democracy.'' That prompted a riposte from Transport Minister Jeff Radebe, accusing Lekota of fostering an ANC split. ``Put bluntly, you and those who share your views are giving notice to leave the ANC,'' said Radebe, an ANC executive committee member. ``Remember that the ANC as an institution will stay forever while individuals like yourselves will go.'' The ANC fractured in 2005 when Mbeki dismissed his vice president, Jacob Zuma, amid allegations of corruption. It widened last December when Zuma wrested control of Africa's oldest political movement and won nomination as the ruling party's presidential candidate in next year's elections.

ASIA

China

China's manufacturing activity contracted for a second month, a CLSA Asia-Pacific Markets survey of purchasing managers showed. The CLSA China Purchasing Managers' Index fell to a seasonally adjusted 47.7 in September from 49.2 in August, CLSA said in an e-mailed statement. That was the lowest reading since the survey started in April 2004.

Pakistan

Ratings agency Standard & Poor's cut Pakistan's sovereign rating further into junk territory, saying the country's worsening external liquidity may imperil its ability to meet about $3 billion in upcoming debt obligations. S&P lowered on Monday its foreign currency rating on the country to CCC-plus from B, with a negative outlook. Pakistan's local currency debt rating was lowered to B-minus from BB-minus. The ratings agency noted Pakistan will require external assistance in meeting its debt obligations, but expressed concern about whether the help would be enough or whether it would come in time. S&P also expressed its worries about whether necessary policy measures would be implemented in time given what it called a "fractious and unstable domestic political scene, and rising social tension."

Philippines

The Philippines may sell as much as $750 million of bonds overseas to help fund an increase in spending designed to counter the effects of a global economic slowdown, Finance Secretary Gary Teves said. ``We plan to spend more, especially under the worst-case scenario,'' which would see the economy grow as little as 3.8 percent this year and 3 percent next year, Teves said in a Bloomberg Television interview from Manila.
The Philippine government cut its growth forecasts a second time this week, saying exports and remittances from overseas workers will falter amid a U.S. economic slowdown. The economy may expand 4.4 percent to 4.9 percent this year and 4.1 percent to 5.1 percent in 2009, Economic Planning Secretary Ralph Recto said in Manila.

EMERGING EUROPE & CIS

Baltic States

Ratings agency Fitch said on Friday it downgraded the ratings of Baltic states Estonia, Latvia and Lithuania and kept their outlooks on negative, citing worries about the countries' current account deficits. Fitch downgraded Estonia's foreign currency rating to A- from A, Latvia to BBB from BBB+ and Lithuania to A- from A. "The downgrade of the Baltic states reflects the risk that the deterioration in the European economic and financial environment will impose a more costly macroeconomic adjustment in the Baltic countries, given their large bankfinanced current account deficits," Edward Parker, head of emerging Europe sovereigns at Fitch, said in a statement. Fitch added in the statement that "the risk of a prolonged and deep recession cannot be wholly discounted, increasing the potential for adverse economic and fiscal shocks".

Hungary

Hungary revised up its July trade deficit, and while this was mainly due to a one-off rise in natural gas imports, analysts said the export and economic growth outlook remained bleak. The trade deficit was 365.1 million euros in July according to revised data, revised from the 238.6 million euros reported previously, the Central Statistics Office (KSH) said on Friday. The deficit follows a 89.7 million euro surplus in June, while in July 2007, the deficit was much lower, at 115.4 million euros. The KSH said natural gas imports surged 26 percent in July in annual terms, while crude imports rose 13 percent.

Kazakhstan

AO Kazkommertsbank, Kazakhstan's second-largest lender, is allowing builder AO Corporation Kuat to delay repaying part of about $220 million in debt, the bank's Managing Director Magzhan Auezov said in Almaty. Kazkommertsbank in March said it hired Bureau Veritas, the world's second-largest goods-inspection company, to audit stalled projects undertaken by Kuat, one of Kazakhstan's largest construction companies. The lender's ``total gross loan portfolio'' shrank by 1 percent to 2.48 trillion tenge ($20.7 billion) as of June 30 from 2.51 trillion at the end of 2007, it said on Sept. 24.
The liquidity crisis does not threaten Kazakh banks anymore, Kazakh Finance Minister Bolat Zhamishev told a briefing, a correspondent of the Kazakhstan Today news agency has said. "At the moment we can state that interbank lending rates have returned to the level of early 2007. This means that the liquidity crisis does not threaten our banks anymore," Zhamishev said.

Romania

Romania's central bank appears to have intervened in the foreign exchange market by indirectly selling euros to prop up the leu , dealers said on Monday. "Other than indirect intervention I don't see another explanation for the rise. Clearly, it's the central bank," said a dealer with a foreign bank in Bucharest. The leu firmed to 3.9480 per euro following the moves, after it lost around 2 percent to hit an almost four year low of 3.9830 earlier in the session. "A big local bank is consistently selling euros. It looks like an indirect intervention," said another dealer. An adviser to the central bank declined comment. "On this subject we don't say anything. We don't say yes, we don't say no, we don't say maybe," Adrian Vasilescu, an adviser of central bank governor Mugur Isarescu, told Reuters. In January, dealers said there were rumours of central bank intervention to prop up the leu on currency markets, but the monetary authority declined to comment.

Russia

Russia's government pledged to provide a further $50 billion to increase liquidity in the banking system and fight ``contagion'' that has spread from the U.S., Prime Minister Vladimir Putin said. The money will be made available to banks and companies to help them pay foreign loans taken before Sept. 25 and will be transferred from Russia's international reserves to the state-run development bank, Deputy Economy Minister Andrei Klepach said today on Vesti-24. ``American authorities have not managed to handle the economic problems and obvious financial crisis'' in the U.S., Putin told government officials, according to the government's Web site.

Turkey

Turkey needs to decide whether it will sign a new deal with the International Monetary Fund and remove a key uncertainty, Central Bank Governor Durmus Yilmaz told NTV broadcaster on Monday. Yilmaz said Turkey did not need IMF credit but did require some sort of anchor to underpin its economy, which has seen growth slow over the past two years, and investor confidence in it. Turkey's three-year $10 billion loan deal with the IMF expired in May. Prime Minister Tayyip Erdogan said last month talks on a follow-up agreement had reached the final stage and a decision was expected in October or November. "What matters the most with regard to the IMF is to remove uncertainty. It should be clear whether there will be an agreement or not," Yilmaz said. Economists have questioned the government's reluctance to push ahead with a new deal given the worsening economic outlook in Turkey and abroad. Erdogan has resisted a new deal because he wanted to show voters in municipal elections next March that his government has strengthened the economy to the point that it no longer needed the aid of the IMF, economists say. The market favours a precautionary stand-by deal due to Turkey's vulnerability to shifts in global liquidity because of its huge current account deficit, largely funded by foreign investment and government borrowing. Turkey has to agree to some form of agreement because it still owes the fund some $6 billion. The Turkish Central Bank would continue to inject the liquidity the market needs, and it will move fast if a liquidity shortage emerges, Yilmaz said.

Ukraine

The Kremlin has struck a tactical alliance with its former foe Ukrainian Prime Minister Yulia Tymoshenko designed to help her become the next president and help Russia rein in Ukraine's drive to embrace the West. Tymoshenko and the Kremlin have put aside years of mutual suspicion to unite against Ukrainian President Viktor Yushchenko, the driving force behind Kiev's ambitions to join NATO and Tymoshenko's rival in a bitter struggle for power. The new warmth was on show on Thursday when Tymoshenko -- who two years ago accused Russia of extorting cash from Ukraine in a row over gas -- had a cordial meeting with her Russian counterpart Vladimir Putin followed by unscheduled, late-night talks with President Dmitry Medvedev. "The tactical interests of Moscow and Tymoshenko have coincided. They have the same main opponent and that is Yushchenko," said Fyodor Lukyanov, editor of the journal Russia in Global Affairs. The calculations of both sides are focused on the next presidential vote, which must take place no later than January 2010. The field could include Yushchenko, Tymoshenko and Viktor Yanukovich, a former prime minister. The Kremlin backed Yanukovich's failed bid to win a 2004 presidential election, but opinion polls suggest he does not have enough support outside the Russian-speaking areas of the country to win the presidency now.

INDUSTRIAL COUNTRIES

Iceland

Credit-rating companies are turning negative on Iceland after the government bailed out the island nation's thirdbiggest bank amid a growing global financial crisis. Within a 24-hour span, Standard & Poor's and Fitch Ratings lowered the country's rating and Moody's Investors Service put its Aa1 rating on review for a potential downgrade. Fitch lowered the country's long-term foreign currency rating to A- from A+, and said the rating remains on review for another cut. On Sept. 29, S&P reduced Iceland's foreign-currency debt rating one level to A- and also said it may lower it further. Iceland said on Sept. 29 it will take a 75 percent stake in 104-year-old Glitnir Bank hf by investing 600 million euros ($859 million) after the firm's short-term funding dried up. The rescue followed a string of bailouts in Europe in the wake of a worldwide credit squeeze that's caused banks more than $550 billion in losses and writedowns.
Iceland's government, scrambling to avert a full-fledged market meltdown, planned further talks on Monday after working through the weekend to produce a package of financial stability measures. The country's prime minster told state television late Sunday night the country's authorities had not agreed any specific crisis measures "at this time". He said banks had agreed to sell off overseas assets and the government would meet with pension funds on Monday. The country's banking minister told state radio on Monday that the drafting of a plan to help the financial system was "well under way". Commerce and Banking Minister Bjorgvin Sigurdsson said it was impossible to give further information. The chief executive of Iceland's stock exchange said the bourse would open on Monday, Icelandic radio reported. But Thordur Fridjonsson said the exchange was holding a meeting to decide if shares in the island's banking groups would be traded.

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Published on  Mon, Oct 6 2008, 11:10 GMT