Latin America is top Emerging Markets performer

Emerging markets ended February virtually unchanged as investors remained concerned about Greece's high debt levels, China's tightening policies and the US Federal Reserve's 0.5 per cent increase in the short-term loan rate for banks.

The MSCI Emerging Markets (EM) index returned 0.4 per cent in dollar terms. Latin American markets were the top performers, benefiting from higher commodity prices and strong domestic currencies. Weak economic data from the Eurozone, concerns about Greece's high deficit levels and a weak euro led Eastern European markets to correct affect a period of out performance in January.

The Turkish market ended the month with a double-digit decline despite a credit rating upgrade by Standard & Poor's, due to recent arrests over allegations of a coup plot dating back to 2003, contagion from Greece and a weaker Lira.

Asia

Asian markets recorded mixed results in February with Thailand, the Philippines and Hong Kong outperforming their regional peers.

China also ended the month with positive returns despite the continuation of gradual tightening measures to curb excessive bank lending. The People's Bank of China (PBOC) raised its cash reserve ratio for banks for a second time in 2010.

The PBOC raised the reserve ratio for banks by 50 basis points (0.5 per cent) to 16.5 per cent for the country's largest banks and 14.5 per cent for the smaller banks.

The measure is aimed at curbing excessive bank lending. Consumer prices eased to 1.5 per cent year-on-year in January after reaching a 13-month high of 1.9 per cent year-on-year in December 2009.

Imports surged in January, leading the trade surplus for the month to decline to $14.2 billion (Dh52.1bn) from $18.5bn in December 2009.

Imports jumped 85.5 per cent year-on-year due to a recovery in domestic demand, greater demand for raw materials for export products and a low comparison base.

Exports also continued to improve with a 21.0 per cent year-on-year increase, compared to a growth of 17.7 per cent year-on-year in December.

The Indian Government unveiled its budget for fiscal year 2010-11 with a deficit of 5.5 per cent of GDP, lower than the targeted 6.9 per cent for the current fiscal year and 7.8 per cent for the previous year.

The government took back some of the concessions by increasing excise duties marginally, while the oil sector duty increases could result in more inflation.

Latin America

Private consumption in Brazil remained robust with retail sales increasing 9.1 per cent year-on-year in December. This compared to growth of 8.6 per cent year-on-year in November.

Key drivers included strong sales of construction materials, motor vehicles and furniture. Inflation reached its highest in seven months with consumer prices increasing 4.6 per cent year-on-year.

This was mainly due to higher food and transport costs. Politically, Brazil's ruling Partido dos Trabalhadores (PT) disclosed Dilma Rousseff as its presidential candidate for the upcoming elections in October 2010.

President Lula's civil chief of staff, Rousseff was widely expected to be his successor. If elected, Rousseff is expected to continue the government's current macroeconomic policies.

Africa

Growing at its fastest pace in more than a year, GDP growth in South Africa accelerated to 3.2 per cent year-on-year in the final quarter of 2009 from 0.9 per cent year-on-year in the third quarter.

This strength is expected to continue as greater demand for commodities and a recovery in domestic demand should support the economy. A key contributor to economy growth, the manufacturing sector continued to improve with value-added output increasing 10.1 per cent year-on-year in the fourth quarter.

This compared to an increase of 7.6 per cent year-on-year in the third quarter. While retail sales were still down when compared to a year earlier, the pace of decline, eased to 3.7 per cent year-on-year from 6.6 per cent year-on-year in November.

Europe

Russia's economy contracted 7.9 per cent year-on-year in 2009, better than government forecasts for an 8.5 per cent year-on-year decline. This followed growth of 5.6 per cent year-on-year in 2008. The decline in GDP was the result of lower investment, consumption and oil exports.

The government expects the economy to grow 3.1 per cent year-on-year in 2010. Capital inflows turned positive in the later part of 2009 after significant outflows in the first nine months of the year.

Inflows totalled $11.6bn in the final quarter of 2009, compared to outflows of $64bn in the first three quarters of 2009. Inflationary pressures continued to ease in Russia with consumer prices increasing 8.0 per cent year-on-year in January 2010.

This allowed the Central Bank to maintain an expansionary monetary policy as part of efforts to stimulate the domestic economy.

The bank cut the key benchmark interest rate by 25 basis points (0.25 per cent) to 8.5 per cent.

International ratings agency, Standard & Poor's raised Turkey's credit ratings in February.

The country's long-term foreign and local currency sovereign credit ratings were upgraded to BB and BB+, respectively.

- The author is Executive Chairman of Templeton Asset Management. He writes exclusively to these pages

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