In This Week’s Issue…
by Alexander Kalis Managing Partner & Head of Investments at Milltrust International

China’s decision to follow the Federal Reserve with a five basis point increase in borrowing costs shows the central bank is seeking to balance the need to tighten monetary policy with avoiding jolting its markets, according to analysts.

In other news, China was set to debut the world’s largest carbon market that will begin by covering coal- and natural-gas-based power production. Vice-Premier Ma Kai explains that the aim is to encourage businesses to reduce greenhouse gases by using market incentives. The program will eventually expand to a variety of manufacturing and industrial sectors.

In India, after years of putting their money in unproductive assets like gold and less tax-efficient instruments, including bank deposits, small-town Indian investors are now aggressively chasing the stock market boom. Global brokerages are not yet raising any alarm bells and still expect the Sensex to touch fresh record highs in the next calendar year. Credit-Suisse argues that the domestic Indian market is not expensive compared to its global peers, given the robust corporates earnings in the second quarter that was one of the best in three years. We continue to see a number of key industries presenting strong opportunities in India such as automobiles. India is becoming a global hub for small car manufacturing with Suzuki, Nissan, Hyundai manufacturing there to cater for both the local market and other markets around the world. By 2020, India could potentially overtake both Japan and Germany, the 3rd and 4th largest manufacturers in the world, respectively.

In Latin America, Scott Piper, four star Morningstar rated manager of our Milltrust Latin America Fund, explains that politics continue to drive the most relevant Latin American equity markets. In Chile the results of the first round of presidential elections frustrated investors as their favorite candidate, Sebastian Piñera, took the lead by a much lower than expected margin. The current base-case scenario is still of Piñera´s victory, but this can no longer be taken for granted, so investors attribute more risk for Chilean equities. The team has been slowly decreasing the underweight exposure to Chile in the last few months on the expectation of more orthodox macroeconomic policies being implemented by Mr. Piñera, if elected, but have not moved to neutral, much less to overweight because valuations were expensive.

In Brazil the political scenario is of little visibility for the short term. Investors demand the approval of a reform in the social security system in order to sustain optimism with the country. The deficit in the social security system is only growing and it has been the core of the fiscal deficit. The federal government is trying to conquer votes in congress to approve a softer version of the initial social security reform bill, but it is a political sensitive matter and a race against time, since congress enters into recess in mid-December.

Recently, the Mexican equity market has fallen much less than in the previous couple of months, partially because politics influenced the market, with the expectations that the PRI, the market friendly party currently in power, nominates a candidate able to form a coalition with other market friendly parties, in order to face the more populist candidate.

In the Middle East, Saudi Arabia was expected to inject SR72 billion ($19.2 billion) into the private sector of the economy in a bid to stimulate activity in the non-oil sector, which has been hit by the slowdown in government spending as a result of oil revenue weakness. Housing and small business would be the major beneficiaries of this stimulus package.

Saudi Arabia also gave an insight into what investors will be getting if they buy into a planned initial public offering of its state-owned oil company Saudi Aramco, announcing an almost 25% increase in the business’s capital spending over the next decade including a significant allocation to non-oil projects. Saudi Aramco will spend $414 billion on drilling and infrastructure projects, including renewable energy operations and chemical processing plants.

In Africa, South Africa’s ruling African National Congress is choosing a new leader to succeed Jacob Zuma this weekend. Jacob Zuma’s presidency has been mired in allegations of corruption. For the first time in more than 20 years, there is a possibility that South Africans might turn their backs on the party that many see as having led them to liberation.

And finally, Russian President Vladimir Putin says he will seek to modernize the Russian economy if he’s re-elected to another term next March. Speaking at an annual news conference Thursday, Putin said that he wants to see Russia “aimed into the future,” make its economy more flexible and increase its efficiency.

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