11 for 2011

A post on Russia has brought to a conclusion the beyondbrics series on the 11 key questions for emerging markets investors in 2011.

Some of these questions may be answered fairly quickly. It already seems clear that the Bangladesh market may be over-valued as Ifty Islam suggested two weeks ago. Other issues may take decades to resolve – who can say for sure whether or not India can overtake China in economic growth? Read more

By Alexey Zabotkin of VTB Capital

The Russian stock market finished 2010 on a stronger note than many expected in the middle of the year. Having trailed the broader EM universe in the wake of a May-June sell-off, the benchmark indices managed to scale fresh post-2008 highs toward the end of the year. This put the MSCI Russia index’s gains for the year at about 15 per cent in US dollar terms, better than the three other Bric countries and a 13 per cent rise in the MSCI EM index.

But in spite of this outperformance, the Russian stock market remains at an abnormally wide discount to EM equities at large. It is not entirely impossible that Russia’s multiple will converge with MSCI EM in 2011 (it happened in the second half of 2006), but it is not fundamentally justified. Read more

By Antony Goldman of PM Consulting

It is a very Nigerian paradox. Everyone knows the oil and gas sector, the cornerstone of sub-Saharan Africa’s second largest economy, has underperformed for a generation. But while there is much common ground among most stakeholders on the severity of the illness, there is no such consensus on the cure.

In 2008, the Federal Executive Council approved a radical blueprint for the overhaul of Nigeria’s oil industry. This became the Petroleum Industry Bill (PIB) presented to the National Assembly in January 2009 – and there it has remained, growing ever longer and more complex, despite repeated assurances from ministers and senior officials that its passage is imminent. In 2011 this could change. Read more

By Wellian Wiranto of HSBC

Indonesian stocks suffered a dramatic 4 per cent tumble on Monday amid rising concern over inflation, but that should not distract attention from the underlying strength of southeast Asia’s largest economy.

Since the world financial crisis, Indonesia has become a mainstream destination for more and more investors – and its improved profile is reflected in discussions over the country’s possible return to investment grade. It used to be a matter of ‘if’ the credit rating agencies would put the country back in the top league. Now it’s a question of ‘when’. Read more

By Chetan Ahya of Morgan Stanley

India is catching up with China. Over the next two years, as long as we are spared another global financial crisis, India should start matching China’s economic growth of around 9 per cent. Then, by 2013-15, we think India will start outpacing China’s GDP growth notably.

We expect Chinese growth to slow marginally to a more sustainable rate of 8 per cent by 2013-15, following the remarkable 10 per cent average over the past 30 years. Meanwhile India’s growth will accelerate to a sustainable 9-10 per cent, after an average of 7.3 per cent over the past 10 years. What’s more, we expect India’s per capita income to reach China’s 2009 levels of $3,750 over the next 10-11 years. But what exactly will drive India’s growth rates higher? Read more

During the last four years Mexico has suffered a new and worrying wave of violence. True, the murder rate continues to be well below that of other nations in the region such as Colombia, Venezuela and Brazil. Read more

This post by Marios Maratheftis of Standard Chartered Bank is part of a beyondbrics series on the big questions in emerging markets in 2011.

Last year was a relatively good one for Dubai – especially when compared to the volatile 2009. The economy began to recover and, more importantly, Dubai World reached an agreement with its lenders to restructure part of its debt. These were positive developments. But one needs to remember that a significant amount of Dubai’s debt will mature in 2011.

I expect Dubai to address the maturing of this debt in three ways: first, by tapping the markets to refinance part of it; second, by selling assets; and third, by going ahead with further debt restructuring. To be sure, there are challenges ahead. But the good news is that Dubai and its lenders are adopting a pragmatic approach to deal with the emirate’s debt. Read more

By Andy Rothman of CLSA Asia-Pacific Markets

Inflation has the potential to become a serious economic and political problem in China. Not only does it raise living costs for ordinary people, it can also leave them earning negative returns on the very high level of savings (about 30 per cent of disposable income) in deposit accounts. That’s why it’s so important to assess just how high inflation will be this year, and how China’s political leaders will respond.

In my view the problem is not very serious, and the policy response will be moderate. Yes, China will have to become accustomed to a slightly higher level of structural inflation in the coming years. But rapid growth in income and GDP means a crisis in the consumer price index is not looming. Read more

By Michael Power of Investec Asset Management

South Africa often portrays itself as “Africa’s locomotive”, but this metaphor is starting to ring hollow. While the rest of Africa is likely to see its 2011 GDP grow at 7 per cent, South Africa will probably expand by just 3.5 per cent. How can the wagons consistently travel at twice the speed of their supposed locomotive? They can’t.

One of South Africa’s biggest problems, identified by former president Thabo Mbeki, is that its economy is divided between a developed world component and an emerging market component. 2011 will be the year when it decides which part of the two defines its future. Read more

By Ifty Islam of AT Capital

Bangladesh remains a paradox among frontier markets: its GDP growth trend is one of the most stable in the region, but it has high levels of asset price volatility. It proved to be one of the economies least affected by the global financial crisis, with GDP growth only slowing from 6.3 per cent in 2008 to 5.9 per cent in 2009 as the country benefited from the so-called “Walmart Effect” of increased demand for cut price garments in recession-hit economies.

While this was a source of some comfort and relief to policymakers, it also helped to inflate an asset price bubble. Managing this may be the biggest macro challenge for the country in 2011. Read more

By Tony Volpon of Nomura

The recent performance of Brazil’s outgoing government, led by President Luiz Inácio Lula da Silva, does not suggest that his chosen successor, Dilma Rousseff, will tighten fiscal policy.

Ignoring the highly distorted fiscal surplus figures, and looking at spending, we see that the central government’s expenditures in the last twelve months came to R$616bn, a huge 44 per cent increase from 2008. As Lula is leaving office with record-breaking popularity, would Rousseff dare change anything? Read more

This post by John-Paul Smith of Deutsche Bank is the first of 11 that beyondbrics will publish in the next two weeks addressing the big questions about emerging markets in 2011.

We are pretty optimistic that emerging market equity returns will be positive over 2011, but we expect them to underperform developed market equities. The attractions of global equity markets next year are underpinned by a relatively high risk premium against fixed income instruments and by the improving prospects for the US economy, driven by QE2 and by the ongoing improvements in productivity. Read more