BRIC Capital Markets Monitor February 2011

Transcription

1 BRIC Capital Markets Contact: Markus Jaeger , Maria Arakelyan Global Risk Analysis BRIC Capital Markets Monitor February 211 Chartbook The economic growth outlook for the BRIC remains strong. Last year growth in China and India continued apace, reaching a very impressive 1.3% and 9.8%, respectively. We forecast real GDP growth to average 9% and 8.2%, respectively, during Brazil also registered impressive growth of an estimated 7.%, following a minor contraction the previous year. We forecast real GDP to decline to trend of % in Last but not least, Russia staged a relatively moderate recovery in 21 with real GDP reaching 4%, forecast to rise to.% over the next two years. A combination of economic growth and rising commodity prices has pushed up inflation in all BRIC. Above-potential growth and/or sharply rising commodity prices are the main drivers behind higher inflation. With the exception of Russia, BRIC central banks have started monetary tightening by hiking policy rates and/or raising minimum reserve requirements. We expect inflation to accelerate further in Brazil, China and Russia over the next quarter or so, and to decline in India from currently elevated levels. There is a risk that inflation will surprise to the upside in the near term, potentially forcing the BRIC into more aggressive monetary tightening. BRICs currencies have been appreciating in real terms. Within the last two years, the Russian ruble and Indian rupee have appreciated by more than 1% in real effective terms. The Chinese yuan has barely moved and the Brazilian real has strengthened by 4%, albeit from depressed post-crisis levels. The Brazilian real has also appreciated the most in nominal terms. It is not surprising therefore that the Brazilian authorities should have taken the most aggressive measures aimed at slowing capital inflows. Brazil, followed by India, remains the BRIC country most likely to take further measures, if necessary. BRIC FX reserve accumulation continues (apace). Pre-cautionary FX reserves are already way above safe levels in all BRIC countries. Continued FX reserve accumulation points towards a desire on the part of the authorities to prevent (further) nominal exchange rate appreciation. We expect this trend to continue, should currency appreciation, as is likely, persist. Gross capital inflows in dollar terms have been highest in Brazil and China. As a share of GDP, they are highest in Brazil. However, both China and Russia have been running larger balance-of-payments surpluses and have hence been registering larger increases in FX reserves. Capital flows to the BRIC are forecasted to remain strong, barring a significant revision of G3 inflation and interest rate outlook. Economic size BRICs rank among top-1 on PPP basis GDP, % of w orld Country at PPP at mkt exch. rates 1 United States China Japan India Germany Russia United Kingdom France Brazil Italy Mexico Korea Spain Canada Indonesia Source: IMF 21 estimates as of WEO October 21 Financial assets BRIC financial markets are less developed Bonds, equities and bank assets (% of GDP), as of Japan EU US Sources: IMF, WB, BIS, IIF, DB Research

2 Contents 1. Special section: Overheating risks 3 2. Market snapshot 4 3. Economics 4. Debt & demography 6. CDS & international bonds 7 6. Domestic bonds 8 7. Equity markets 9 8. Cross-border bank lending 1 9. Banking sector 11 DB BRIC Capital Markets Monitor 2

3 1. Special section: Overheating risks Inflation Rising inflation... Headline CPI inflation, % yoy Food weight in consumption basket Russia is leading Note: WPI inflation is used for India % food in CPI basket Russia China India Brazil Note: food weight in WPI is shown for India Source: National sources Money supply Stabilizing money supply M2, % yoy Food inflation... driven by food prices Food CPI inflation, % yoy Source: OECD Note: Food WPI inflation is used for India Real effective exchange rates Brazilian real stands out Real effecitve exchange rate, 2= Gross capital inflows Mixed picture % of GDP, 21 estimate BRA CHN IND RUS FDI Portfolio Other Memo: CA Source: DB Research 3

4 2. Market snapshot CDS spreads Remaining normal Y CDS sov. spreads, bp Source: DB Global Markets Brazil Russia China Equity markets Strong post-crisis rebound Net debt flows Continuing recovery Net debt flows, commercial banks and other private creditors, USD bn Source: IIF Portfolio equity flows Mixed picture Equity indices, index 2= Net equity flows, USD bn Brazil (BOVESPA) Russia (RTS) India (BSESN) China (SSEB) Source: Bloomberg -1-2 Source: IIF Central bank policy rates BRICs first in line to raise rates Policy rates, % * * 1-year base lending rate Source: National sources Exchange rates Currencies strengthening Exchange rates vs. USD, index Jan 2= Source: Bloomberg 4

5 3. Economics Economic growth China leading BRIC growth Real GDP, % change E Economic size China larger than all other BRICs combined GDP at PPP, % of global GDP Source: DB Research FX reserves China 3 times larger than other BRICs together FX reserves, USD bn E Source: IMF WEO as of October 21 Current account Sustained surpluses in China and Russia Current account, % of GDP E Source: DB Research Source: IMF WEO as of October 21 Capital account Chinese FDI inflows moderating FDI inflows, USD bn Source: IIF Capital account China dominates FDI outflows FDI outflows, USD bn Source: IIF

6 4. Debt & demography Demography & economic size Enduring growth in economic weight BRICs as % of world GDP at PPP and population GDP Source: IMF WEO October 21 Population Population growth Slowdown in BRIC population expansion Population growth, annual % Dependency ratio India in the most favourable position Dependency ratio, i.e. sum of the population aged -14 and that aged 6+ to the population aged 1-64, medium variant Source: UN Public debt No near-term sustainability concerns Total public debt, % of GDP Source: UN Population Division Source: DB Research Fiscal balance Shrinking deficits Fiscal balance, % of GDP Source: DB Research Cyclically adjusted balance India stands out General government cyclically adjusted balance, % of GDP Source: IMF 211 6

7 . CDS & international bonds CDS spreads Remaining normal Y CDS sov. spreads, bp International debt securities BRICs continue playing minor role By nationality of issuer as of Sep 21, USD bn outstanding United States; 6,999 BRIC; Rest of the World; 2,17 Brazil Russia China Source: DB Global Markets International debt securities FIs are generally the dominant issuer International debt securities as of September 21, USD bn International debt securities - private sector Upward trend except for Russia and India Corporates and financial institutions, stock in USD bn Financial institutions Corporate issuers Governments Gross international bond issuance Continued high levels Net international debt securities issuance Stark differences USD bn Brazil Russia India China Note: Dealogic and BIS data may vary Source: Dealogic USD bn Brazil India China H1 7

8 6. Domestic bonds ELMI+ vs EMBI+ Local vs external bond returns Index, Jun 2= Domestic debt securities Government plays the dominating role Domestic debt securities as of June 21, share of total in % EM Local Index Source: DB Global Markets Brazil India China Corporates Financial institutions Governments Central bank policy rates G3 versus BRICs Remark: Data for Russia n.a. Current Forecasts,% interest Country rate, % 1M 12M United States.2.2. EM U Japan Brazil Russia India China* * 1-year deposit rate Sources: GM Research, Bloomberg EMBI Global Composite Domestic debt securities outstanding China in a class of its own By residence of issuer as of June 21, USD bn Brazil; 1,184 India; 6 Domestic debt securities Rapid growth in China vs slowdown in the rest Stock, all issuers, USD bn Rest of the world; 8, Domestic debt securities - private sector China dominates growth Change in stocks, USD bn Brazil India China Russia, 48 China; 2, H1 8

9 7. Equity markets Equity market performance Strong post-crisis rebound Equity indices, index 2= Global equity market cap Increasingly important players By residence of issuer, USD bn as of January 211 Rest of the world; 27,22 Brazil; 1,46 Russia; 736 India; 1,497 China; 3,97 Hong Kong; 2,99 Source: Bloomberg Brazil (BOVESPA) India (BSESN) Russia (RTS) China (SSEB) BRIC vs DM BRICs outperform G7 by wide margin Source: Bloomberg P/E ratios Mixed picture United States; 1,978 MSCI BRIC vs G7, Jan 2= Source: MSCI BRIC Standard Core IPOs Continuing recovery Quarterly, USD bn Brazil Russia India China G7 INDEX Standard Core Source: Dealogic Price-earnings ratio, as of January S&P HK Source: Bloomberg M&A volumes Below 26-8 highs Quarterly, USD bn Brazil Russia India China Source: Dealogic 9

10 8. Cross-border bank lending Cross-border bank lending BRIC role remains very limited Stock, external loans of reporting banks vis-à-vis all sectors, USD bn Brazil; 117 as of Jun. 21 Russia; 17 Cross-border bank-to-bank lending Decline in Russia vs growth in other BRICs Stock, external loans of reporting banks vis-à-vis banks only, USD bn Rest of the world; 2,48 India; 129 China; 182 Cross-border bank lending Sharp growth except for Russia Stock, external loans of reporting banks vis-à-vis all sectors, USD bn Cross-border bank lending forecasts Mixed picture Net bank lending, USD bn Source: IIF F 212F Signed int l syndicated loan facilities Below pre-crisis levels Quarterly, USD bn Signed int l syndicated loan facilities Mixed picture USD bn Q1-Q3 29 Q1-Q3 21 1

11 9. Banking sector Ownership structure in banking sector Government s role crucial in all countries % of banking assets 1 Stock of credit to the private sector China vs the rest % of GDP Brazil China India Russia Public Private Foreign Sources: Fitch, DB Research Growth of real credit to private sector Synchronized movement except for China Real credit to private sector growth, % yoy Real deposits growth Decline in all BRICs CPI deflated deposits, % yoy M2 Financialisation much higher in China & India M2 % of GDP, as of December Banking sector claims on government Brazil & India vs China & Russia % of total assets

12 Abbreviations Abbreviations BIS = Bank for International Settlements IIF = Institute of International Finance IMF = International Monetary Fund IFS = International Financial Statistics (IMF) WEO = World Economic Outlook (IMF) UN = United Nations MSCI = Morgan Stanley Capital International Copyright 211. Deutsche Bank AG, DB Research, D-6262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite Deutsche Bank Research. The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made. In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht. In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange regulated by the Financial Services Authority for the conduct of investment business in the UK. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Limited, Tokyo Branch. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. DB BRIC Capital Markets Monitor 12