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

In a Bloomberg analysis of the most attractive Emerging Markets economies based on a range of metrics including growth, yields, current-account position and asset valuations, Mexico and Turkey scored highest among 20 developing economies, bolstered by relatively lower REER levels. Asian economies occupied the five lowest-scoring positions, as growth is lower vs its 10-year average.

Of course, quality of growth is what China is now rightly seeking to achieve, but after a banner year where indices tracked a surge in profits, China stocks are now at risk of outpacing fundamentals. China’s “old economy”, especially real estate and infrastructure spending, have powered growth since early 2016. But both are expected to slow this year, as policymakers seek to restrain runaway house prices and excessive borrowing by local governments.

Meanwhile, in India, Prime Minister Narendra Modi’s clampdown on cash has been pushing investments into India’s stock market, “creating a big funnel of money coming from domestic savers into a small pipe of stocks according to Uday Kotak, billionaire managing director at Kotak Mahindra. Kotak urged caution on the small and mid-cap sectors within the Indian equity market which now have the risk of getting a little frothy.

In Korea, Kim Jong un has called for unification with South Korea in rare public announcement.

In Southeast AsiaMalaysia’s central bank has raised its benchmark interest rate for the first time since 2014, with economists guessing that it won’t need to tighten again this year.

In Latin America, a Brazilian Appeals court has upheld ex-president Luiz Inacio Lula da Silva’s conviction for corruption, dealing a body blow to his hopes of running for re-election this year, and triggering a rally in Brazilian equity markets. At Davos, President Michel Temer said that, after years of crisis and recession, Latin America’s largest economy is on a recovery path that won’t be derailed by elections.

In the Middle East, an advisory council to Saudi Arabia’s government has asked the Saudi regulator to study the local market impact of Aramco IPO amidst concerns in Saudi financial circles that the IPO could be too large for the local market to absorb.The government has said it plans to sell about 5 percent of Aramco, hoping to raise some $100 billion or more in what would likely be the world’s biggest initial public offering. The sale is expected in the second half of 2018.

In South Africa, the rand has regained its confidence around rumors president Jacob Zuma may step down before his term officially ends next year. The currency began to loosen up when businessman Cyril Ramaphosa was elected as ANC president in December. Ramaphosa’s insistence that corruption in state-owned enterprises like the national electricity supplier Eskom be weeded out has not only strengthened his pitch in Davos this week, it’s also restored confidence within South Africa. According to Goldman Sachs South Africa has the potential to be the big emerging market story of 2018.

Finally, in Russia, it is well known that the Kremlin is trying to steer Russia’s economy toward a more self-sufficient model by decreasing the country’s reliance on imports of food and manufactured goods. At the same time, the country is taking fledgling steps to wean itself off its dependence on the cash derived from energy exports, a volatile source of income that has sent the Russian economy on a rollercoaster ride over the years. The economic rebalancing efforts have met with mixed results so far, but as the process continues, the Russian economy that emerges will be significantly more self-sufficient than it has been in previous decade. Already, Russia’s economic growth over the last year is now driving foreign investor interest with FDI in Russia increasing by 25 percent in 2017 alone.

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