- Standard Chartered analyses Turkey’s economic prospects in view of the upcoming general election on July 22nd. Politically, it predicts a return (though weakened) of the ruling Justice and Development (AKP) government and argue this would be beneficial for the markets. But: “with uncertainty a constant feature of the political landscape, markets should remain cautious ahead of the upcoming vote. But only in the very unlikely event that the AKP return to government in an even stronger position would military intervention become possible, and even then the probability of physical action would be small.” A coalition election is highly undesirable, Standard Chartered argues. “A coalition government headed by the AKP, would find it increasingly difficult to push through much needed but politically divisive reforms such tax and social security, and raise some (likely unfounded) concerns over the EU accession process and the IMF programme. Markets would clearly look less favourably on such a result, though with interest rate differentials so attractive and wider global liquidity ample, that might be only temporary.”
Economically, it cautions: “Turkey’s still-large current account deficit means that the currency will remain susceptible to swings in global investor appetite, and the domestic economy will need to be resilient to such moves”. It argues the central bank’s monetary tightening stance will continue and that “the Bank’s inflation target of 4 +/- 2% looks unlikely to be met this year at least, and with budgetary developments under any future government highly uncertain, it is unsurprising that doubt persists as to whether the inflation target will remain credible over the medium term.”
- Dresdner Kleinwort talks up Argentina as their preferred high yield credit destination and maintain an overweight position on GDP warrants. Dresdner argues that investor risk aversion will be offset by the positive effect of strong GDP growth, forecasting the economy to grow by 7.2% in 2008. They argue that the current market price of US$14.9 is highly competitive and even with a “reduction of 2008 GDP growth assumption to 5.8% as well as a further 50bp rise in the discount yield it still only decreases the fair value to US$16.9”. They also argue that as the country seeks to develop its capital markets, it may buy back the warrants. Their new fair value estimates for EUR and ARS warrants are 16.9 and 14.6 respectively.
- Deutsche Bank argues that the economic outlook for South Africa is less benign in light of the fact: “Inflation has surprised to the upside, and policy rates appear set to go higher. Oil prices have surged, gold and platinum prices have eased, and the introduction of the National Credit Act (NCA) appears to be putting pressure on credit growth.” It forecasts CPIX inflation will be on the upside in the next nine months triggering a rate hike of 10.0% to 10.5%. But they note positively that investment growth is booming forecasting 15 % in 2007 and 10% in 2008. But it cautions that there is uncertainty about how the current account, which it predicts will be 7% this year and will widen to 8% in 2008, will be financed. But they: “expect capital inflows to continue while domestic growth, commodity prices remain robust and we expect GDP growth of 4.8% in both 2007 and 2008.”