Nomura International Plc, citing the surprise outbreak recently of protests in Brazil and Turkey (XU100), said 11 other countries--including China, India and Russia as well as commodity exporters Argentina and Venezuela--face the risk of market-moving civil unrest in the short to medium term.
Frustration with corruption by a middle class that swelled during the past decade is partly fueling the angst, according to its June 27 report.
“If you lift your people out of extreme poverty, it’s not like they’re going to say ‘Great, now we’re all set, we don’t want anything else,’” said Jim Yong Kim, president of the World Bank, in a June 30 interview in Lima, Peru.
“Investors can ride out the volatility by betting on governments that resist populist pressures for more spending and instead shore up long-term financial stability,” said Ruchir Sharma, who helps manage $25 billion in emerging-market stocks at Morgan Stanley Investment Management in New York.
He said his group is underweight China, Brazil and Russia and overweight Mexico and the Philippines.
Mexico is benefiting from a stronger US economy and first-year President Enrique Pena Nieto is trying to open up the state-run oil industry. The Philippines is forecast to grow 6.2 percent this year, according to a Bloomberg survey of economists, on the back of a recent tax overhaul.
“There are positive stories as well,” said Sharma in a telephone interview from New Delhi. “The selloff has been indiscriminate, but once the dust settles, the attention will turn back.”
The MSCI Emerging Markets Index has fallen about 9 percent since May 21, the day before Fed Chairman Ben S. Bernanke said the central bank could scale back its $85 billion in monthly bond purchases if the US job market keeps improving.
In Brazil, stocks have slid 14 percent since then, while the real has fallen to a four-year low. Stocks in Turkey and China also have posted double-digit declines. In contrast, the MSCI World Index of advanced nations is little changed.
“Officials still have the ability to defuse underlying social tensions, having strengthened their finances since the last spate of emerging-markets crises toppled governments from Indonesia to Argentina starting in the late 1990s,” said Alastair Newton, the London-based Nomura political analyst who wrote the bank’s report.
“Only now they’ll need to balance the mood in the streets with the discipline demanded by markets in the context of slowing expansions and tighter budgets.”
The International Monetary Fund cut its global growth forecast on July 9 for the fifth consecutive time, saying a leveling off in China and the risk of capital outflows present new challenges to nations that have propelled the world economy. Developing countries will expand 5 percent this year, down from a 5.3-percent forecast in April and an annual average of 6.6 percent during the past decade, according to the IMF.
Finance Minister Lou Jiwei has signaled China’s economy may expand less than the government’s target of 7.5 percent. At a July 11 press briefing in Washington, Lou said he’s confident 7 percent can be achieved this year and growth as low as 6.5 percent may be tolerable in the future.
One country already feeling the squeeze is Indonesia, where President Susilo Bambang Yudhoyono last month stared down demonstrations and ordered cuts to fuel subsidies.
The move, which raised gasoline prices by 44 percent, recalled austerity pledges that fueled protests and led to the collapse in 1998 of Suharto’s three-decade regime.
Fifteen years later, under democratic rule and with an economy still forecast to grow about 6 percent this year, reaction has been more muted even as investors have pushed the rupiah down near a four-year low.
“This is a very good example of how you don’t need to spend more money to reallocate resources better,” said Gurria in the interview on the sidelines of a Group of 20 finance-ministers meeting.
Like Indonesia, the world’s largest producer of palm oil, Brazil is another commodity exporter that stands to lose from China’s slowdown. Both countries are raising interest rates to fight inflation, which could damp growth even further.
S. Korea’s Trade Terms Improve
South Korea’s terms of trade improved last month as import costs fell at a steeper pace than export prices amid lower commodity prices, central bank data showed on Tuesday.
The net terms-of-trade index for goods, a gauge of trade terms, rose 5.4 percent in June from a year earlier after gaining 6.1 percent in the prior month, according to the Bank of Korea (BOK). The index is calculated by dividing export prices by import prices, Xinhua reported.
The continued rise came amid faster fall in import costs than export prices caused by a decline in prices for crude oil and steel products.
The import price index tumbled 5.5 percent last month, while the export price index slid 0.4 percent.
The income terms-of-trade index, which measures how much can be imported with money earned via exports, rose 4 percent in June from a year ago after jumping 16.1 percent in the previous month.
The slower growth was attributable to a fall in export volume, which declined 1.4 percent on-year in June on weak demand for oil products and primary steel products.
Bangladesh Sets $30.5b Export Target
After achieving double-digit export growth in the last 2012-13 fiscal year, the Bangladesh government has surged its export target by over 11 percent to $30.05 billion for the current fiscal year 2013-14, an official said.
According to the official from the Ministry of Commerce, ready made garments, including knitwear and woven, would be given a special priority to achieve export target in the 2013-14 fiscal year, which is from July 2013 to June 2014, EastDay.com reported.
Bangladesh’s earnings from garment exports, which make up more than three-fourths of the country’s annual incomes since the beginning of this decade, surged to $21.52 billion in 2012- 13 fiscal year, said the official who preferred to be unnamed.
He said the export growth in 2012-13 fiscal year attributed to demand for its readymade garments in key global markets which remained unaltered despite April’s worst ever industrial tragedy in which a total of 1,130 people, mostly garment workers, were confirmed dead when an eight-story building collapsed outside Dhaka.
Bank of Thailand Cuts GDP Forecast
The Bank of Thailand (BoT) has lowered its 2013 Gross Domestic Product (GDP) growth projection by 0.9 percent to 4.2 percent from the 5.1 percent given in the previous projection.
The BoT lowered the 2013 GDP projection to make it in line with the delayed global recovery and moderate domestic demand, WSJ reported.
Paiboon Kittisrikangwan, BoT assistant to the governor and secretary of the Monetary Policy Committee (MPC), said that given the slow growth registered in China and Asia, Thailand’s export recovery is expected to be delayed.
The 2014 GDP is projected to grow at 5 percent as earlier projected.
He said that 2013 exports are projected to grow 4 percent, down from the previously forecast 7.5 percent. 2014 exports are expected to grow at 8 percent, instead of the earlier projected 10 percent.
Inflation readings will likely remain low. Both demand and cost pressures have subsided in line with a moderate demand outlook and the lower projected path of global oil and commodity prices, coupled with the increase in domestic prices of liquefied petroleum gas that has been postponed for another two months, the BoT statement said.
Machinery, Cement for Iraq
The fourth consignment of machineries manufactured by Meshkin-Shahr’s Ghezel Gol Company, Ardebil province, was exported to Iraq.
Announcing this, Ali Safari, managing director of the company, said the exported products include paper napkin packing machines worth 2 billion rials, IRNA reported.
“Three convoys of Ghezel Gol machineries have been sent to neighboring nations,” he said.
Moreover, agreements have been signed with Russia, Armenia, and Tajikistan for machinery exports.
“The fifth consignment of the company’s products will be dispatched to Kyrgyzstan in the near future,” he said.
“Ghezel Gol Company produces disposable napkin machineries and sewing machines.”
Also, an Iraqi merchant said, “After many online studies, I found that machines produced in Meshkin-Shahr are sold at more affordable prices compared to foreign brands.”
In another development, Sarab Cement Company exported 45,000 tons of products to Iraq during March 21-June 21, said the deputy head of the company.
Morteza Seyyed Salehi added that the company plans to export 200,000 tons during the current financial year (to end March 214), Bourse News reported.
“Given Sarab Company’s plan to export via sea, its export capacity will increase to 250,000 tons,” he added.
Seyyed Salehi mentioned that currently the cement price rate is lower than regional prices.
“Each ton of cement imported from other countries to Iraq, is priced at $120,” he said. “This is while, each ton of Iranian cement is sold at $100 to Iraqi consumers.”
Seyyed Salehi said this indicates the necessity of increasing the cement price for exports.
Cement industry in Iran provides raw materials for development, dam-building, housing, employment and social welfare projects.
According to the latest estimates by the Ministry of Industries, Mines and Trade, given the fast-growing population and the ever-increasing demand for construction and development projects, Iran will need 70 million tons of cement per annum by 2021.
Iran ranks fourth worldwide in terms of cement production. It has the capacity to produce 76 million tons of cement as its real production rate has reached 66 million tons, IRIB reported.
The country has the highest cement production rate across the region and exports 14 million tons of the product annually. Iraq and Afghanistan are top destinations for Iranian cement.
Yazd Exports Earn $132m
Yazd province exported 310,000 tons of commodities worth $132 million in the first quarter of the current Iranian year (started March 21).
The weight and value of exports marked a growth of 24 percent and 32 percent in the period respectively compared with the corresponding figure of last year.
Yazd Customs Department ranked 14th among 112 customs departments operating across the nation in the period.
About 137 items, including tiles and ceramic, cement, solid tar and pistachios, were among major exports.
The commodities were dispatched to 41 countries, among which Iraq, Afghanistan, Pakistan, Turkey and the Netherlands, with a share of 50 percent, 12 percent, 9 percent, 8 percent and 3 percent respectively constituted major markets in the period.
Also, the province imported 7,630 tons of goods worth 823.48 billion rials in the period.
The weight of imports experienced a decline of 3 percent whereas the value of imports rose by 17 percent from a year ago.
The benchmark index of the Indian equities market opened higher on Tuesday with the 30-scrip sensitive index of the Bombay Stock Exchange, Sensex, standing at 20,249.98 points.