Here’s some suggested lunchtime reading:
WSJ: Heard on the Street weighs in on China’s murky copper market.
Reuters: South Korea’s much-hyped household debt relief program, a key policy pledge from new President Park Geun-hye, launched today with far less money than planned. Meanwhile, Breaking views columnist John Foley argues that China’s shadow bank attack curbs symptoms but not the cause.
FT.com: Good news for Poland’s cash-strapped government on Friday: PKN Orlen, the state-controlled refiner, is to start paying dividends again after a five-year hiatus. Analysts at Societe Generale recommends defensive strategies in emerging markets. And in a big reversal, Ukraine is now starting to use its vast gas transit pipeline network to import less expensive gas from Europe to the West.
Rumors that Brazil’s credit rating would be cut caused its stocks and currency to plummet today, according to Bloomberg. The Bovespa stock index fell 1.4% today.
China could absorb Chile’s copper surplus this year, the head of Chile’s Center for Copper & Mining Studies told Bloomberg. Chile’s Santiago Stock Exchange IPSA Index fell 0.6 TK%.
Peru’s sol rose as companies sold dollars to pay taxes, Bloomberg reported. Peru’s Bolsa de Valores de Lima General Sector Index fell 2.1%.
Poland and Slovakia plan to make a joint pitch for the 2022 Winter Olympics, Reuters reported. Poland’s Warsaw Stock Exchange WIG Total Return Index fell 0.3%.
Standard & Poor’s kept South Africa’s credit rating at BBB with a negative outlook. The FTSE/JSE Africa Top40 Tradeable Index fell 0.1%.
Emerging Market Stocks on the Move
Suntech Power Holdings (STP) is unlikely to get bailed out by China’s government, even as it slid 24% to 83 cents a share on bankruptcy speculation. The Guggenheim Solar (TAN) exchange-traded fund plunged 5.1% to $17.38.
Yandex (YNDX) rose 4.6% to $24.08, a two days after announcing its founders were dumping shares in a secondary offering.
On a day that central banks in Indonesia and Malaysia held rates steady–and a day after Brazil did the same–Capital Economics fires off its latest report asking if investors should worry about the independence of emerging market central banks.
It’s a compelling question. Part of the transformation from global-basket cases in the 1990s to paragons of virtue has occurred because EM central bankers have worked hard to establish their credibility as inflation fighters. From Brazil to Russia–whose central bank has been instrumental in trying to convince investors to consider Putin’s plaything a safe(er) place to invest–its the monetary minions that who have stood above the fray and guided their countries toward a more sensible monetary policy, and prevented a repeat of past crises. They’ve also helped boost the case for emerging markets as safe places to invest.
Investors are now worried about whether those gains will be given back. In Indonesia, for instance, the president has appointed his finance minister as that country’s next central-bank head, while Hungary has appointed Gyorgy Matolcsy, its former economic minster. Politicians in Turkey, Thailand, Poland and Russia, meanwhile, have called for lower interest rates to boost growth.
Yet Capital Economics downplays the risks from these moves. For starters, finance ministers have been appointed central-bank heads before, with little damage done. Capital Economic’s William Jackson writes:
…Agustin Carstens, who moved from Mexico’s Ministry of Finance to the central bank in 2010, is widely respected in the markets. If anything, his appointment was seen as a blow for fiscal policy. The same appears to hold true for the nomination of Mr. Martowardojo in Indonesia.
And politicians publicly calling for lower rates? That may be a sign of how little sway they actually hold over central bankers these days. Jackson writes:
…one way of interpreting politicians’ demands for looser policy is that they are voicing their grievances in public because they have little direct influence over monetary policy decisions. This would actually be testament to the independence of EM central banks. As further evidence of this, the financial markets don’t appear to be too fazed by politicians’ calls for rate cuts. Such demands have tended to have little impact on the markets’ inflation expectations, proxied by the breakeven inflation rate derived from inflation-linked bonds.
Jackson’s one worry: Hungary. He writes: …
The controversial appointment of Gyorgy Matolcsy, a government loyalist and previous Economy Minister, at the helm of Hungary’s National Bank last Friday has raised the prospect that monetary policy will be eased further to support the government’s growth agenda with scant regard for the Bank’s inflation targeting mandate. This, in turn, would undermine the Bank’s independence and credibility.
The lack of concern is also showing itself in some equity markets. The iShares MSCI Indonesia Investable Market Index (EIDO) exchange-traded fund, for instance, has gained 13.6% this year, while the iShares MSCI Thailand Capped Investable Market Index ETF (THD) has gained 10.6%. The iShares MSCI Turkey Investable Market Index ETF (TUR) has returned 2.8%.
Multinationals are reluctant to adopt China’s yuan, Reuters reports. China accused Google (GOOG) of using its Android smartphone operating system to discriminate against its local companies. China’s Shanghai Composite stock index rose 0.9% today.
The Bank of Korea raised its gold holdings to 104.4 tons in February, in a bid to diversify its holdings. Investors, meanwhile, increased their investments in Korea by 3.53 trillion won last month, the the largest increase since 2010. South Korea’s benchmark Kospi stock index rose 0.2%.
Indonesia’s finance minister Agus Martowardojo has moved one step closer to becoming the head of its central bank. Indonesia’s Jakarta Stock Exchange Composite Index rose 1.5%.
The Atlantic says invest in eastern Poland; Slate’s Matthew Yglesias says don’t. Poland’s central bank cut rates by 0.25 percentage points, less than the 0.5 percentage points the market had expected. Poland’s Warsaw Stock Exchange WIG Total Return Index has risen 0.4%.
Workers at a South African platinum mine stopped working yesterday. The FTSE/JSE Africa Top40 Tradeable Index has dropped 0.3%.
Brazil’s President Dilma Rousseff said that Latin America’s largest economy must cut business costs to become more competitive. The Bovespa stock index rose 0.6% today.
Mexico arrested the head of its teacher’s union for embezzling about $160 million from the union. Mexico’s IPC stock index rose 0.65%.
Villagers in Peru ended a blockade of a Barrick Gold (ABX) mine in that country. Peru’s Bolsa de Valores de Lima General Sector Index fell 0.2%.
Vladimir Putin plans to spend some 23 trillion rubles narrow the U.S. military advantage over Russia. Russia’s Micex stock index rose 0.1%
Poland made it easier for its consumers to get credit in an attempt to boost its economic growth. Poland’s Warsaw Stock Exchange WIG Total Return Index rose 0.8%.
South Africa’s finance minister presented the nation’s budget today, one that didn’t thrill investors. The FTSE/JSE Africa Top40 Tradeable Index fell 0.8%.
U.S. investors dumped emerging market stocks after Italian voters couldn’t decide who should run the country in today’s election. The iShares Emerging Markets Index (EEM) exchange-traded fund fell 1.3% to $42.70, while the iShares FTSE China 25 Index ETF (FXI) dropped 1.3%.
Brazil’s central bank said its goal is to fight inflation, not create economic growth. The Bovespa stock index fell 0.1% today.
Mexico reported a current account deficit of $6.59 billion during the fourth quarter of 2012, above economist forecasts for a deficit of $4.35 billion, Bloomberg said. Mexico’s IPC stock index fell 0.9%.
Peru’s central bank bought $10 million to weaken its sol. Peru’s Bolsa de Valores de Lima General Sector Index fell 0.3%.
Poland’s unemployment rate rose to 14.2% in January, up from 13.4% in December. Poland’s Warsaw Stock Exchange WIG Total Return Index rose 0.7%.
Among the day’s biggest ADR winners, according to FactSet: Sibanye Gold (SBGL), which rose 3.4% to $6.06 after dropping nearly 20% last week, and Chinese online retailer Vipshop Holdings (VIPS) rose 16.5% to $28.45 after beating earnings.
Chinese stocks traded in the U.S. were among the worst performers. Internet companies SINA (SINA) and SouFun Fun Holdings (SFUN) dropped 5.1% and 4.9%, respectively, while solar companies Yingli Green Energy Holding (YGE) and Trina Solar (TSL) fell 6.9% and 4.3%. NOt to be left out, Carlos Slim’s America Movil (AMX) dropped 3.3% to continue its post-earnings slump.
Brazil’s retail sales rose just 0.5% in December, below analyst expectations for an 0.8% increase. The Bovespa stock index fell 0.5% today.
Chile’s peso fell for a fourth consecutive day, the longest losing streak in three months, as fretted that policymakers will act to prevent the currency from rising, Bloomberg reported. Chile’s Santiago Stock Exchange IPSA Index rose 0.2%.
Peru’s central bank bought $10 million to weaken its currency. Peru’s Bolsa de Valores de Lima General Sector Index fell 0.4%.
Poland will adopt the euro when its absolutely safe to do so, its prime minister said today. Poland’s Warsaw Stock Exchange WIG Total Return Index fell 0.04%.
South Africa’s Anglo American Platinum, aka Amplats, expects it’s mines to reopen on Wednesday following a one-day closure caused by violence on Monday. The FTSE/JSE Africa Top40 Tradeable Index rose 0.65%.
Among ADR’s trading more than 100,000 shares a day and above $5 a share, according FactSet, Russian search-engine Yandex (YNDX) was the biggest loser after dropping 10.1% following disappointing earnings. Brazilian chemical company Braskem (BAK) rose 7.4% after the company’s president said demand would improve in 2013 and Credit Suisse told investors to buy the stock.
CVS Caremark (CVS) beat earnings today–and bought Brazil’s Drogaria Onofre as it begins to enter emerging markets. The Bovespa stock index fell 0.8% today. The iShares MSCI Brazil Index (EWZ) exchange-traded fund fell 0.2%.
Shares of Mexican stock-exchange Bolsa Mexicana de Valores plunged after Credit Suisse cut the company’s stock to a hold from a buy–becoming the fifth bank to do so this year. Mexico’s IPC stock index fell 0.3%. The iShares MSCI Mexico Investable Market Index ETF (EWW) fell 0.5%.
Poland’s central bank cut its benchmark interest rate 0.25 percentage point to 3.75%, the fourth straight month of cuts. Poland’s Warsaw Stock Exchange top 20 Index fell 1.2%. The iShares MSCI Poland Investable Market Index ETF (EPOL) fell 0.85%.
Brazil has weighed in on Venezuela’s political uncertainty–and wants new elections if President Hugo Chavez should die. Brazil’s Bovespa stock index rose 0.95% today.
Mexico supports new gun-control measures in the U.S. Mexico’s IPC stock index fell 0.3%.
Poland plans to sell a state-owned property company, beyondbrics reports. Poland’s WIG stock index rose 0.1%.
South Africa’s protests have started showing up in the balance sheets of its mining companies–including Anglo American Platinum, which said it would miss profit forecasts. The FTSE/JSE 40 index fell 0.3%.
Proof there’s a bond bubble? Ecuador may offer debt–four years after defaulting because it just didn’t feel like paying.
China’s state-owned media has changed its tune on Beijing’s pollution–by acknowledging there is one.
Emerging markets aren’t always a growth driver for U.S. companies abroad. PPG Industries (PPG) reported lower architectural coatings volumes in emerging regions, MarketWatch said.
beyondbrics looks at Mexico’s falling borrowing costs–its 30-year bond sold at a record-low yield of 4.19% on Monday. Mexico’s IPC stock indexrose 0.65%.
Russia called for Cambodia to be fair in its investigation of a Russian real-estate magnate held on assault charges. Russia’s Micex stock index rise 0.01%.
South Africa was hit by a new wave of strikes on Wednesday, as 1,500 farm workers stopped worked today to demand more pay. The FTSE/JSE 40 index rose 0.5%.
PriceSmart (PSMT), the discount store operator with warehouse clubs throughout Latin America, jumped more than 6% in after-hours trading after reporting earnings of $0.66 a share, above forecasts for $0.62 per share.
Poland’s central bank said it expects rate cuts to end soon after lowering its benchmark interest rate to 4% today. Poland’s WIG stock index rose 0.1%.
The head of Brazil’s energy planning agency said the country will not have to ration energy, despite recent concerns. Brazil’s Bovespa stock index rose 0.7% today.
Emerging markets are expected to power 60 percent of the world’s economic activity by 2030 and have become synonymous with growth. But the near-term outlook is murky, at best. Countries like Brazil, India and China that have arguably emerged now face a host of issues –from infrastructure bottlenecks to worries about credit expansion.
Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of these markets, pokes holes in conventional wisdom and helps readers navigate the investment landscape from China to Colombia.
The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.
Write to Ben at Ben.Levisohn@barrons.com.