Analysis round-up

07/07/2006 | Duncan Hooper

Credit Suisse sees market rebound; Dresdner cautious on central Europe; BCP warns over Mexican elections

Credit Suisse says emerging markets could bounce back in the third quarter while Dresdner Kleinwort Wasserstein cautions that it’s too early to call a rebound in central Europe. Standard Chartered sees a shift in the drivers of equity markets and BCP is worried about disorderly elections in Mexico.

A seasonal trend towards declines in emerging markets equities in the third quarter has shifted forward to the second, Credit Suisse reports, indicating that the months to come could see a rebound similar to that seen in 2003 and 2004. Emerging market equities declined in the third quarter for eight years until 2004, when the pattern was broken. “This year’s correction is is now following the same pattern as those of both 2004 and 2005 – namely a sharp four to six week stback midway through Q2 followed by gains during the summer months,” the bank’s research team wrote.

In a separate report Credit Suisse predicted growth in 36 emerging economies will accelerate to 6.4% in 2006 from 6.3% last year. Non-Japan Asia will be the fastest growing region, posting a 7.9% performance this year and 7.5% in 2007. Latin America will also see a pickup this year and deceleration next while emerging Europe, the middle east and Africa can expect two years of slowdown. EMEA and Asia will likely suffer mild inflation spikes next year, while Latin American price growth is on a downward trend, according to the report.

Global emerging equity markets are finding a greater degree of stability and becoming more sensitive to interest-rates, rather than growth, Standard Chartered claimed. This could spell trouble for Asian economies, suggesting the region’s currencies may depreciate in 2007, the bank said, while maintaining it remains positive on Asia in the short term.

BCP Securities analyst Walter Molano identifies similiarities between the current tensions over the Mexican elections and the run up to the 1994 Tequila crisis. The stand-off between AMLO and Calderon is a return to a traditional pattern of election confusion and could have spill-over effects on the rest of Latin America, Molano warns. “It is no time to be looking for [investment] bargains,” he concludes.

It’s too early to deduce from signs of buying in central Europe that bond markets in Poland, Hungary and the Czech Republic are poised to rebound, according to Dresdner Kleinwort Wasserstein. Nevertheless, Polish debt could be a target for investors looking to rebuild holdings in the coming weeks and the Czech Republic should overcome “near-term political noise” to preserve its status as a safe haven, the bank said. As for Hungary, money managers may continue to abandon the market on concerns about the government’s fiscal programme, analysts Jon Harrison and Arnab Das wrote.

Volatility in external markets has offset the impact of Russian deregulation of foreign exchange markets and the removal of capital controls, according to Renaissance Capital. The broker recommends clients stick to short-dated rouble paper with durations under three years as rising US treasury yields put pressure on local bond markets.

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