- Credit Suisse argues that the “Turkish banking sector now appears as the last value play within regional banks”. Its exceptional performance is due to low PEG ratios, high ROE/dividend yields compared to EMEA average. CS notes primary risks as high deposit costs, price competition between banks, decrease in loans after Basel II implementation and interest rate increases. Such investment in growth is promising, however, the report notes the overall macro climate needs much improvement as Turkey suffers from the highest current account deficit in MSCI emerging markets and the second highest foreign debt to GDP ratio after Hungary.
- Dresdner believes Russia’s 4.8% budget surplus target and fiscal integrity is easily attainable despite oil prices lower than the official US$61/b assumption. The Stabilization Fund’s growth would not be damaged due to the “the non-linear relationship between oil prices and fiscal revenues, our calculations reveal that the budget would be balanced at US$36/b, abstracting from the SF”. Subsequently, the risk of credit default is not on the cards, Dresdner argues.
- Standard Chartered argues against the consensus that South Africa Reserve Bank will not raise the inflation rate and predicts a further 100 bps rise this cycle. This judgment is based upon January’s data as a more accurate picture of demand and inflationary pressures compared to December. Additionally, lower oil prices will not reduce such pressures as “we still expect the trade balance to be pressured, and oil prices are no panacea for inflation. Food prices - a more significant 26% of the CPIX basket - remain a concern.”
- HSBC predicts that abundant global liquidity will not dry up in the near term, in its tri-annual Emerging Markets research report. It notes that since the Fed is likely to cut rates this year and EM central banks will keep their monetary policies, EM assets have never been more promising. Risks noted are 1. US/world consumer saving 2. US banks stop lending 3. EM central banks failing to stop currency appreciation/change of FX reserves/tightening of policy. - ABN-AMRO recommends holding onto the BRL’ 16 and Brl’22 Brazilian bonds. Despite the expensive BRL curve they maintain “the tight repo rates show no signs of abating, which implies potentially higher prices on the capitulation of short covering for the significant carrying cost.” ABN adopt this contrarian view on the basis that only when repo rate eases at higher prices should investors re-consider their exposure to these offshore bonds.