World On The Mend: EMs Outperform, G7 Improving

Date: January 22, 2011
Pages: 55
US$ 580.00 US$ 490.00
Report type: Strategic Report
Delivery: E-mail Delivery (PDF), Download
ID: WA4469F1193EN

Download PDF Leaflet

World On The Mend: EMs Outperform, G7 Improving
World On The Mend

EMs Outperform, G7 Improving

The global economic healing process is gaining momentum, and while risks abound as ever, we expect 2011 to herald a broadening and deepening phase of the recovery. Emerging markets are again set to considerably outperform their developed state counterparts in terms of economic growth in 2011. However, one of our key themes for the coming year is that the growth differential between developed and emerging economies will to narrow substantially from 2010 as the United States recovery picks up pace and China slows down. We are forecasting real GDP growth of 5.2% in emerging markets and 2.1% in developed states in 2011 (a difference of 3.1 percentage points (pp), versus a 4.2pp gap in 2010).

The US economy is finally showing signs of a strong recovery, and we believe that the expansion in 2011 could exceed expectations, assisted by easy monetary policy and the recent payroll tax cuts. We have made a big upgrade to our US forecast, and now see growth of 2.8% in 2011, up from 2.0% in our previous set of projections, and matching the pace in 2010. However, growth will still be insufficient to make a significant dent in unemployment, and we consequently do not see the US Fed raising interest rates until 2012.
Executive Summary
World on the Mend
EMS Outperform, G7 Improving
  Table: Global Assumptions
Indicators: Real gdp Growth (%), Consumer Inflation (AVG), Interest Rates (EOP),
Exchange Rates (AVG), oil Prices (AVG)
Global Themes for 2011
An Improving Outlook
  Chart: The Recovery Continues in 2011... With Risks
Real GDP Growth (% CHG Y-O-Y)
Developed States Looking Healthier
    Table: Consensus Forecasts
Indicators: 2010 - Bloomberg Consensus, BMI 2011 - Bloomberg Consensus, BMI
Political Risks Never far From the Surface
Rebalancing Interrupted?
  Chart: not Exactly Rebalancing
China - Trade Account, US$bn
A Resolution to the Eurozone Schism
Monetary Policy Becomes Interesting Again
  Chart: upg Rade Coul d Porten d Upsi de Surprises
US - key Forecast Changes
The US Could Surprise
  Chart: Developed State Equities may Take Centre Stage
MSCI EM Versus World Relative Performance in 2010 (rebased 1 jan = 100)
Developed Over Emerging Market Equities
Commodities to Remain Elevated, but Selectivity Will be Key
  Chart: we Still Like Commo Dities
Reuters-jefferies crb Index
All Eyes on China
Global Assumptions
Global Outlook
Recovery is Gaining Ground
Developed States
  Table: Global Assumptions
Indicators: Real GDP Growth (%), Consumer Inflation (AVG), Interest Rates (EOP),
Exchange Rates (AVG), oil Prices (AVG)
Emerging Markets
  Table: Global & Regional Real GDP Growth
Indicators: World, Developed States, Asia Ex-japan, Latin America, Emerging Europe,
Sub-saharan Africa, Middle East & North Africa Developed Market Exchange Rates - Eurozone, Japan,
Switzerland , United Kingdom Emerging Market Exchange Rates - China , South Korea ,
India, Brazil, Mexico, Russia, Turkey, South Africa
  Table: Emerging Markets Real GDP Growth Forecasts
Indicators: Emerging Markets Aggregate Growth Latin America - Argentina, Brazil, Mexico
Middle East, Africa, South Africa, Nigeria, Saudi Arabia, Uae, Egypt Emerging Asia - China,
Hong Kong, India*, Indonesia, Malaysia, Singapore, South Korea, Taiwan, Thailand
Emerging Europe - Russia, Turkey, Czech Republic, Hungary, Poland
  Table: Consensus Forecasts
Indicators: 2010 - Bloomberg Consensus, BMI 2011 - Bloomberg Consensus, BMI
United States
Tax Cuts Change the Game for 2011 Growth a Boost to Private Consumption
  Chart: buy Now, Pay Later
US - key Forecast Changes
  Chart: sigh of Relief for the Consumer
US - key Provisions of tax Bill
Still not a Strong Recovery, and no Rate Hikes Until 2012
  Chart: Consumption imp Roving ... but 2011 Still won ’t be That Great
US - Real Private Consumption % CHG Q-O-Q ANN., Top; Ann. % CHG, Bottom
  Chart: he Dging Bets on Supe R-eas y Monetary Policy
December 2011 Eurodollar Futures Contract
Big Fiscal Cost
  Chart: a fiscal MESS
US - Current Expenditures & Receipts (us$bn)
Risks to Outlook
Regional EM Themes
Key Themes for 2011: Macro/asset Strategies
Key Macro Strategies
Growth Will Slow Across the Board
  Chart: a Lower Growt h Profile
Asia - Real GDP Growth, %
  Chart: Private Consumption on the Rise
Asia - Percentage Growth Contribution From Private Consumption
Domestic Demand Back in Vogue
Inflation to Intensify in the Near Term but Fade by H211
Mild Hiking Cycles, Unconventional Monetary Policy on the Rise
Key Financial Market Strategies
  Chart: Priced for Perfection
Indonesia - JCI Equity Index
  Chart: Long -term Potential
Vietnam - HO CHI MINH Stock Index
  Chart: TWD, SGD Over IDR ,INR
Asia - Equally Weighted Basket of TWD & SGD Over IDR & INR
Fixed Income
  Chart: Time for a Breat Her
Indonesia - 10-year Local Bond, %
Macro Themes for 2011 and key Implications
1. Mismatch Between ecb Monetary Policy and German Economic Growth
  Chart: HEA Ding hig her Still
Germany - Ifo Business Climate Index
key Implications
  Chart: Firm UPT rend
Germany - DAX Equity Index
2. Growing Policy Risks as Austerity Bites
  Chart: Major Scope to Rally
Exchange Rate - Rub/basket (us$ & Eur)
Key Implications
  Chart: Investors Still Waiting to be Convinced
Hungary - 10-year (top) & 3-year Government Bond Yields
3. Domestic Demand Plays to Remain Regional Outperformers
Key Implications
  Chart: Strong Outlook for 2011
Poland - Wig20 Equity Index
Latin America
2011 Macro Themes, and how to Play Them
1. Monetary Policy - an end to Inflation Targeting?
How to Play It?
2. Stock Market Volatility - Here to Stay
How to Play It?
3. Sovereign Credibility - in Better Shape Than a Decade Ago
  Chart:sta Cking up Well Against Eurozone
Benchmark 5-year CDS Spreads, Selected Europe (top) and key Latam Sovereigns, BPS
How to Play It?
4. Asian Demand - Latin America’s Future
How to Play It?
Our Record in 2010
  Chart: the State of Mexico’s Consumer
Stock of Consumer Credit, MXNMN
Middle East
Key Themes of 2011
  Chart: Dollar weakness Should Prove Supportive to recovery
US Dollar Index
Global Backdrop Supportive for oil Exporters
...But not so Much for oil Importers
  Chart: Lending Still weak
Mena - Banking Sector Loan Growth, % Y-o-y
Inflation Will Remain Benign (for Most)
  Chart: Bumper years Well Behind us
Mena - Average Real GDP Growth, % Y-o-y
Regional Political Tensions Mounting
  Chart: hea Ding to Us$100.00/BBL?
Front-month Brent Crude, US$/BBL
Key Currency Policy Debates Back on the Agenda
  Chart: How far can the Rally run?
Qatar - QSI Equity Index
Frontier Markets to Attract Increased Interest
SSA: 11 Themes for 2011
1) Ghana to Outperform, Economically
  Chart: Picking the Winners
Africa - Real GDP Growth in 2011, %
2) The Return of Political Risk
  Chart: Gains Across the Complex
Commodities Prices
3) QE2
4) High Commodity Prices
  Chart: Loo King East
Africa - Merchandise Exports by Destination, US$BN
5) Increasing Offshore Interest
6) Push to Orient Trade Towards Asia
  Chart: Shifting Sentiment
Ghana - 1-year Treasury Bond Yield, % (top) & Ghana All-share Index (bottom)
7) Fiscal Slippage
8) Equities Over Fixed Income
  Chart: Underban KED
Africa - Banking Branches per 100,000 Adults
9) Hard Bargaining With Foreign Investors
10) Deepening Financial Markets
Business Monitor International Ltd
Special Report
11) Formalisation of Economic Activity
key Themes for 2011: a Preview
Constructive Outlook... With Risks
  Chart: Grains Outperforming in 2010
Relative Performance of Commodity Groups* S&PGS Sub-indices
Theme 1: Commodities Will Head Higher, but Risks Remain
  Chart: Commodity Prices to Remain elevated in 2011
Reuters-jefferies CRB Index
Theme 2: Inflation, FX & Monetary Dynamics Could Result in Trade Policy Risks
  Chart: Back to More Normal Levels?
Correlation Between Copper & the dow (2000-2010 = LHS, 2008-2010 = RHS)
Theme 3: Correlations to Weaken
  Chart: Many Metals to be in Deficit
Market Balance for Several Metals (KT)
Theme 4: Looking for Relative Value, Metals to Outperform
Theme 5: Precious Metals to Remain Bid
  Chart: Greater SupplY...except for corn
Grains Stocks-to-use Ratios (%)
  Chart: Softs Loosening Slightly in 2011
Stocks-to-use Ratios for Sugar, Cocoa & Coffee
Theme 6: Agriculture Could Underperform, but Huge Upside Risks Exist
Global Industry Outlook
Playing EM Outperformance via Developed States
Seeking Relative Value
  Chart: Global Underperforming recent Historic Average
P/E Ratio (12mth Forward-earnings); MSCI World Index Top; MSCI EM Index Bottom
Developed State Assets Cheaper and Safer
  Chart: Valuation Difference Being Eroded
Emerging Markets P/E Ratio Discount to Developed State Assets
1. Food & Drink
2. Shipping
  Chart: OOCL Boosted by INT Ra-asia Exposure
Relative Share Price Performance (6/1/2009 = 100)
3. Infrastructure
4. Pharmaceuticals
  Chart: Dominated by Bric-MT
Leading Developed and Emerging Pharmaceutical Markets According to US Dollar 5-year Compound
Annual Growth Rates (CAGRS)
Global Politics
What to Expect in 2011 The Outlook
Global Theme 1: Fiscal Cutbacks
Global Theme 2: Inflation Risks in Emerging Markets
Global Hotspots: Iran, Korea, and Afghanistan
United States: Split Congress Puts tax Hikes on Backburner
Latin America: More of the Same
Europe: Growing Policy Risks as Austerity Bites
Western Europe
Central and South-East Europe
    Table: 2011 Election Timetable
Indicators: January - Sudan, Central African Republic, Portugal, Niger, Cape Verde, Vietnam
February - Uganda, Chad, Cape Verde March - Estonia, Germany, Laos April - Nigeria, Peru,
Madagascar, Finland, Yemen, Djibouti may - United Kingdom (scotland), United Kingdom (wales),
United Kingdom (n Ireland), United Kingdom, Chad, Latvia, Cyprus, Spain July - Turkey, sao Tome &
Principle August - Kazakhstan September - Egypt October - Liberia, Argentina, Switzerland,
Bulgaria, Cameroon, Ireland, Kyrgyzstan, Poland, Canada November - Nicaragua, Democratic
Republic of Congo, Croatia, Denmark, Mauritania December - Gabon, Russia to be Announced -
Gambia, Rwanda, Zambia, Zimbabwe, new Zealand, Thailand
Russia and the Former Soviet Union
Middle East: Still Plenty of Risks
Sub-Saharan Africa: Definitive Elections Pending
Asia: China Begins a Transition
Wild Cards to Watch
Skip to top

Ask Your Question

World On The Mend: EMs Outperform, G7 Improving
Company name*:
Contact person*:
Request invoice
Your enquiry:
Please click on a Check Box below to confirm you are not a robot: