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East Capital's latest Newsletter is now published. This month the topics are:
Due to the market turmoil we also have an Extra market comment insert. Read more.
When we labeled the summit “Navigating through turbulent times” we did not believe that they would be so turbulent as they have been in the last couple of months. Even though the topic for our Summit are the markets of the East Capital Universe the turbulence in the Western markets have cast its shadow on the discussion.
If anything, the case for investing in our region is stronger than ever, but that has yet to be fully reflected in the markets. We are certain it will, and for the long term investor there are plenty of buying opportunities; in Turkey, with its young population, China with its booming domestic demand, Eastern Europe with its low debt to GDP ratio and a lot of convergence still to be done. The prominent Turkish business man Ishak Alaton of Alarko started his presentation by giving the advice: Enjoy life. It is easy to do in Istanbul where the weather has been beautiful and the mood, overall, positive.
See www.eastcapital.com for news and reports from the Summit including the voice of the Minister of Finance of Turkey, Mehmet Simsek.
To download speaker presentations, see www.eastcapital.com/summit/presentations.
East Capital's latest Newsletter is now published. This month the topics are:
Read the Newsletter here: www.eastcapital.com/newsletter
East Capital's latest Newsletter is now published with articles written by Peter Elam Håkansson, Chairman and Head of Portfolio Management team and by Gustav Rhenman, Portfolio Manager.
This month the topics are;
Read the Newsletter here: www.eastcapital.com/newsletter
East Capital's latest Newsletter is now published with articles written by Peter Elam Håkansson, Chairman and Head of Portfolio Management team and by Gustav Rhenman, Portfolio Manager.
This month the topics are;
Read the Newsletter here: www.eastcapital.com/en/news/newsletter
Gustav Rhenman, Portfolio Manager, and Kristina Sandklef, Macro Economist Asia, came together to discuss the prospects for investors in China and the economic and political outlook for 2011.
Kristina described the events of the National People’s Congress (NPC) where China’s plans for economic growth were set out in the next Five Year Plan. We will now see economic development focused on the West and central areas of the country. Energy efficiency and waste in production were highlighted as key challenges to this growth, since environmental policies in manufacturing are difficult to implement at the local government level.
Consumer led growth
The main theme of the Five Year Plan was a shift from export orientated growth to consumer led. During the NPC the currency issue was not discussed because, according to Kristina, China’s leaders already decided the renminbi will appreciate slowly, at around 5-6% a year in real appreciation as associated wage increases will help generate a consumer driven market.
Agriculture to benefit from inflation initiatives
Inflation has been a hot topic in China, the largest cause of which is food, fresh fruit and vegetables at 70% of the total inflation figure, according to Kristina. Drought has been responsible for pushing food prices up, so the government will invest 400 billion renminbi in water conservation projects over the next five years.
Gustav identified agricultural companies, such as Chaoda and China Minzhong, as standing to benefit from inflation initiatives. Investment will enable them to build irrigation systems to facilitate effective crop rotation.
Strong urbanisation trend
When discussing the property boom in China, Kristina highlighted that 20 million Chinese citizens are migrating to cities each year, and buy new houses using cash, rather than using loans. New regulations are being introduced to put a cap on the number of properties people can buy in big cities to avoid property speculation.
Discussion moved on to China’s political future. Kristina said that the Five Year Plan indicated both leaders must pull together to satisfy different factions within the Communist Party. Gustav predicted that investors should not be concerned about forthcoming political change. We will likely see the country open up to international business to build on existing economic growth.
Understanding China
Western economies remain divided in the way they perceive China. To alleviate trepidation, Kristina suggested other nations should learn more about China. They will see there is little to fear; rather the country presents many opportunities. Gustav concluded, as China moves towards a more liberal economic model to encourage growth, international investors will see their prospects in the country continue to improve.
I also welcome you to send us your comments/feedback to liveqa [at] eastcapital [dot] com.
Today we held the East Capital quarterly live Q&A with Peter Elam Håkansson, Head of the Portfolio Management team, and Marcus Svedberg, Chief Economist, to discuss the situation, outlook and opportunities in Russia that we are expecting to witness in 2011.
Assessing inflows into Russia, Peter highlighted how inflows of money have already increased this year. Contradicting the widespread assertion that investors are turning to the developed markets, Peter forecast a healthy outlook for emerging markets in 2011 and Russia in particular. The number of IPOs forecast will definitely broaden the opportunity for investors looking to move in to Russia. Peter acknowledged that pricing expectations of companies coming to market are looking aggressive at the moment, but he is expecting better pricing moving forward.
Focussing on the impact of a potential slow down of the China economy, Marcus explained that any change in China is bound to have an impact on sentiment concerning all emerging market economies, Russia amongst them. This is due to China now being such an important economy in global terms.
When queried on the inflation outlook for 2011, Marcus acknowledged that rates are currently high, due to the long lasting impact of 2010 summer droughts and wild fires affecting commodity prices. This will likely cause inflation to rise in the first half of the year, but it will drop down to single figures towards the end of 2011. Russia is used to dealing with high inflation, and since we are currently in a low inflationary environment, any rise in the coming months will not be enough to push Russia off track.
Discussion turned to the increasingly active consumer, since Russia has seen a 64% increase in retail and consumer spending in recent months. Peter explained that since few in Russia have a mortgage, the accessibility of affordable mortgages has triggered an increase in consumer spending. Peter identified the primary beneficiaries of this rise as the real estate development along with construction and materials industries. Russia should continue to benefit from the ever expanding active middle class with their increased spending ability.
Looking ahead to the 2012 elections, Marcus forecast a continuation in the current ruling elite despite ongoing speculation on the outcome. This spells political stability for the country, which is good news for the extensive privatisation program currently being implemented. Heightened privatisation will be a key attraction to investors outside Russia, bringing in more capital flows.
All signals point to a positive outlook for Russia in 2011. Peter believes that people place too much risk on Russia, but already we are starting to see this opinion change. As ever with the country, the journey is complex but Russia is certainly moving in the right direction.
The next Q&A will take place on the 29th March, and will focus on China. We encourage you to put this date in your diary and look forward to updating you on yet another exciting investment region.
At the East Capital quarterly live Q&A, Peter Elam Håkansson, Chairman and Head of the Portfolio Management team, and Marcus Svedberg, Chief Economist, discussed the strong outlook for Eastern Europe in 2011 as a result of the ever increasing investor interest in emerging markets.
Preparing for the broadcast
Focussing on our East Capital Universe throughout the conversation, Marcus highlighted how the Baltics have emerged strongly from the financial crisis. We all recognise that this has not been an easy ride - the suffering that these countries have endured over the past few years, combined with the structural reform that has taken place, has increased the appetite for the region. The re-election of the Latvian government and its promise for more cuts in order to align itself with Estonia into the Eurozone bodes well. That said, we hope to see more development within the domestic markets, particularly the stock market and significant pension reform. Privatisation of large firms within energy and telecommunications would further increase international interest.
Looking forward on the Turkish market, in spite of strong growth in 2010- 2011, we think that the Turkish market may not perform as well as in 2009 and 2010, mainly due to lack of earnings growth on top of two extraordinarily strong years. Inflation has been an issue in the past and inflation targets are rarely met in Turkey, but the overly ambitious inflation target could be seen as a policy anchor. Inflation has been coming down to more normal levels lately and should stay deep in single digits albeit higher than the 5.3% target in 2011."
As a key component to the East Capital Universe and home to our best performing fund, we continue to focus on the exciting prospects for Russia as its outlook remains strong, with large American multinational companies such as Pepsi committing considerable amounts of money to the country. It is the rise of the middle-class and the consumption play in Russia that has sparked this interest. With more people getting access to consumer credits, following the lower interest rates, both the retail and construction markets are likely to feel the impact, and this is the basis for much investor excitement when it comes to the region.
The next Q&A will take place in February, and we welcome any questions from the public to ensure our experts cover those topics most important to you.
As I listened to the presentations it struck me that the speakers couldn’t help mentioning China when talking about Eastern Europe. “If China does ok the rest of the world will do ok, not least Russia,” Jacob Grapengiesser said when the focus was investment opportunities in East Capital’s traditional investment universe.
Later, Karine Hirn shared some fascinating images from her first two months in China, images showing how striking the infrastructure boom really is. Just in the last few years Shanghai has built what is now the longest metro network in the world. “We believe understanding more what is happening in China will help us do even better investments in other markets,” Karine said.
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| Morning exercise on Nanjing Road |
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| Lost in translation... | One among many examples of brilliant infrastructure |
East Capital’s Advisor, Johan Björkstén, gave his three reasons for China being successful going forward:
Some fascinating facts that came up:
I was at the East Capital Awards seminar today. It’s the seventh year we have had this event and it still amazes how much Eastern Europe has changed in only a couple of decades, and how much there is still left to do.
Peter Elam Håkansson started off by illustrating it with showing a couple pictures. The first of an empty street with a couple of cars, and the second of street buzzing with traffic. They both showed rush hour in Moscow, and only two decades separate them.
Peter used the French retailer Auchan as a case in point. “It is one of the great success stories of Russia. You see the purchasing power of the Russian middle class before your eyes. The largest store in the world is in Moscow with 130 checkout lines”, he said comparing it with the early nineties when there was virtually nothing.
A concrete example of the fact that “Not all quiet on the Eastern front”, which was the headline of the first segment of the seminar. East Capital Chief Economist Marcus Svedberg followed up by describing the past couple of years, and the dramatic changes that have occurred. And how well the regions have handled the challenges, with the Baltics being a good example.
Estonia for instance managed to reach the eurozone criteria, which is quite an achievement. The Latvian economy lost one quarter of its economy in the crisis, but still you haven’t seen protests and riots in the streets. “The Baltics have shown an impressive ability to adapt their economies in the past couple of years”, Svedberg said.
Swedbank CEO Michael Wolf added to that, giving an insight into the Baltic recovery from Swanbank’s horizon. He expressed commitment to the market by saying it is one of its home markets and that Swedbank will be there forever, saying that “One of the biggest lesson learned here is that banks should not grow more than GDP plus”.
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Founding partner and Chief Representative, Shanghai office. Karine blogs about East Capital, its investment products and gives direct reports from Shanghai.
As East Capital's Chief Economist Marcus will focus on macro-economic issues, market events, research and political issues affecting the region.
As Head of Communications Vesna will focus on East Capital's business as well as the latest media topics.
Kristina, Macro Economist Asia, will share her experience and report trends and issues within politics and economics affecting China.
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