Archive for Emerging Markets

Emerging Markets were a long term “dog’. // Many new rail projects now “suspect”

Too little emerging market due diligence…

There is an excellent market recap analysis by Bloomberg — on Aug 5, 2015

Emerging markets and the BRICS nations were to be the darlings of investors as growth became slower in the developed world.

Massive new and expanded Railways and ports were to be built around the promoted high growth prospects.

Warnings that the prospects might not be as rosy as predicted were shrugged off. Too often it seems due diligence was overlooked. Now those high prospects require a Strategic Plan B.

“Today, after heady runs and abrupt reversals, most of the BRICs — as well as most emerging nations — look like big-time losers say many of those interviewed by Bloomberg.

The history of emerging markets is a history of booms and busts, but the immediate future may hold something more prosaic: a malaise.

Investors today confront what could turn out to be a lost decade of returns, with four or five more meager years ahead.

It was only 14 years ago Wall Street fell in love with the BRICs, the tidy acronym for four (5 with South Africa) large emerging economies that, to many, looked like sure winners. …

The MSCI Emerging Markets Index nearly quadrupled between 2002 and 2010 .

But now in 2015 that pattern looks to some like it was an anomaly.

“Very few emerging markets historically have ever been able to make it to the developed countries,” said Sharma, head of emerging markets at Morgan Stanley Investment Management Inc. “This is a return to normalcy.”

Currency Rout… “All told, developing-nation currencies have fallen to their lowest levels since 1999, and bonds denominated in those currencies have wiped out five years’ worth of gains.”

“Since 2009, the MSCI index has fallen 10 percent while developed markets have soared about 50 percent” reports Bloomberg.

Looking ahead, 14 of 23 major emerging-market currencies are forecast to decline against the dollar by the end of June 2016, according to data compiled by Bloomberg.

Forecast earnings for companies in the MSCI index have fallen to their lowest since the end of 2009.

Plans for massive new resource hauling freight railroads are ‘on hold across Africa and in Asia and Australia.

To read the entire article, please go to http://bloom.bg/1SPNlh1 Jim Blaze

The emerging nation financing organization have been unrealistic in their economic loan assumptions? // True or False?

A Bloomberg report shows that the organizations that finance these huge emerging nation loans have badly miscalculated the economic prospects.

Unrealistic due diligence is a part of the reasons for failures like with Greece.

The organizations that finance should have relied on others for growth projections.

Having the people that write the loan checks make the assumptions is probably a bad idea.

Lesson learned is that they need a Plan B due diligence approach.

What do you think?

For example, in 2010, as Greece signed a bailout deal with the International Monetary Fund, who projected ability to pay and how.  Many of these forecasts of supporting loan growth and the future ability to repay were made by the IMF and the European Commission.

Reports suggest that the projections assumed such things as Greece’s debt-to-GDP ratio would peak below 150 percent of gross domestic product in 2012. Their forecasts also projected that Greek GDP in 2015 would be 8 percent larger than in 2011. T

his optimistic vision of the future was based on underlying assumptions that Greece would go from having the lowest productivity growth in the euro zone to instead having an improvement to becoming among the highest. That means becoming relatively as strong in some metrics as the productivity of Germany!

That’s incredible. Greece probably never had a chance.

Are the new 2015 assumptions going forward any better? Are the same rosy colored economic improvement forecast being made for loans elsewhere from Mongolia to Africa?

To read the entire article, go to http://bloom.bg/1gnRs2x Sent from the Bloomberg iPhone application. Download the free application at http://itunes.apple.com/us/app/bloomberg/id281941097?mt=8

Commodity Global Surpluses Persists — means weak demand for rail services

A Bloomberg report on Jul 8, 2015

The analysis of the demand for port and rail freight always begins with an examination of the market supply/demand at the buyers level. China and India are the major demand markets. But the long term surplus of supply means tough times ahead for suppliers in the emerging nations.

According to a Bloomberg report, the world is still mired in a surplus of most commodities, which means tough years ahead for prices and shipments of added materials. The actual source is from analysts at Goldman Sachs Group Inc. led by Jeff Currie.

“Long-term surpluses in most commodity markets require prices to remain lower for longer,” the Currie team wrote. The markets are contending with declining costs, a strengthening dollar and slowing growth in emerging economies like China that use a lot of raw materials, the bank said.

Patrick Pouyanne, the chief executive officer at French oil giant Total SA, told a parliamentary commission in Paris that the oversupply of oil will last into 2016. A sustained long term recovery this year isn’t likely, Societe Generale said in a report today.

Despite the long term slide in prices and the lowered market demand, most emerging nations have still not adjusted their strategic plans for rail,and port growth. Their current tactics seem to be “damn the torpedoes, and full speed ahead”. That kind of thinking over the past decade resulted in Greece’s economic headache.

Who will step up and change investment strategy first? Who is going to be that leader?

To read the entire article, go to http://bloom.bg/1Hbu7HR Sent from my iPad

IMF cuts global growth forecast again. Does it miss the real mark?

Focusing on the US GDP growth change!

Is that the right mark given other global changes this past month, like in China?

The IMF has cut its global growth forecast by blaming a slowdown in the US!  It has ored the market melt down signs in China!

Looks like a poor analysis to me as an economist.

The IMF now says the global economy will expand only by about 3.3% in 2015. It points out its lowered forecast for US growth to 2.5% in 2015 from an earlier estimate of 3.1%. But I believe that this may be a misplaced analysis by the IMF economists. China’s economic issues will have a greater impact then the US hiccups.

The IMF also beliefs that despite all of the hype around the Greece crisis… …the Greece crisis was having a only a marginal effect on the global economy.  That sounds true. IMF left its entire eurozone growth forecast for 2015 unchanged at 1.5%. It predicts that Germany will grow by 1.6%

INCREDIBLY… … the IMF has left its forecast for growth in China unchanged at 6.8%, despite the recent stock market volatility. It’s only comment about China is that: “The bubble has burst,” according to Olivier Blanchard, director of the Research Department at the IMF.

That is hardly an in depth analysis. What do you think?

There was no report cited by the BBC story as to changes in economic growth in South Africa, Brazil, Australia, or other sub markets that rely heavily upon selling resources to China.

See: http://www.bbc.com/news/uk-33464099 for more on their take of this news.

** Disclaimer ** The BBC always makes a point of saying that it is not responsible for the content of its e-mail, and anything written in its e-mail does not necessarily reflect the BBC’s views…

One expert sees possible Iron Ore Price drop into $30s range — This Year

From Bloomberg, Jul 8, 2015, 7:00 pm

The iron ore rout isn’t done yet… …”the raw material will extend declines into the $30s a metric ton this year”, according to Andy Xie, an independent economist…

To read the entire article, go to http://bloom.bg/1CpJtLZ

Steel demand in China is shrinking while iron ore supplies are still rising, says Xie, a former Asia-Pacific chief economist at Morgan Stanley. “China’s steel production is actually declining, that’s the reality,” Xie said…

“All the high-cost guys have to shut down for this market to stop falling. It’s not going to stabilize because Chinese demand is coming back, that’s not going to happen in the foreseeable future.” —————

This is another bad sign for mine and rail projects on the books to be built to add more ore and met coal supply that won’t be needed for quite a while.

Are you doing your due diligence strategic plan reviews?

Is China stock market intervention a loss of confidence?

From Bloomberg, Jul 8, 2015, 6:56 pm

Templeton Emerging Markets Group calls it an act of “desperation.” UBS Wealth Management labels it “extreme.” And Wells Fargo Funds Management says it just “postpones the inevitable.” What do you think?

Regardless, the drop in value marks a significant economic “hurt” for China. And a signal of tough times for those nations that depend on China for trade.

Are we paying attention? What is the strategic plan now? For all of us.

The old plans are trash.

To read the entire article, go to http://bloom.bg/1J5dUUQ

Excerpts include: “The (reported) measure can be effective in the short term because you are not going to allow people to trade,” said Jorge Mariscal.

As the record-breaking boom goes bust, President Xi Jinping is intervening in an attempt to prevent the rout from eroding confidence in his leadership. The moves have cast doubt on the Communist Party’s pledge less than two years ago to give market forces a bigger role in the economy, which is part of its largest reform drive since the 1990s.

China isn’t the only market with a history of state intervention. During the 1998 Asian financial crisis, Hong Kong bought shares worth $15 billion to prop up the market. In the U.S., the Securities and Exchange Commission temporarily banned short selling on some shares during the global financial crisis in 2008.

WHAT HAPPENS NEXT?

Supporting the droping stock market is going to put a crimp in the Chinese government plans to finance infrastructure in emerging nations.

Emerging nation curse? Too long to EXECUTE economic growth program loans

Story headline reads: China’s infrastructure for minerals’ deal gets reality – check in DRC Congo.

 

When it was signed in 2007, the China’s $6-billion ‘minerals for infrastructure’ deal in Congo brought hopes of prosperity from export trade. But it did not happen.

Eight years on, as Sicomines prepares to produce its first copper after long delays, the main lesson from the giant project is that investing in one of Africa’s most chaotic countries is a messy and frustrating business, no matter who you are.

Sicomines was meant to have an immediate economic impact. The government claims that the China deal has produced at least $800-million in infrastructure investment. But that is way below the potential.

CHINA AID as Cash for resources

Chinese firms Sinohydro Corp and China Railway Group Limited are building roads and hospitals in exchange for a 68% stake in the Sicomines copper and cobalt mine…

China’s state-run Exim Bank and smaller Chinese banks are coughing up a reported $3-billion for infrastructure plus a further $3-billion to develop Sicomines.

LOANS — not grants

All of the loans are to be repaid with mining profits. HOWEVER, production from the mine has been delayed and targets scaled back. …”the project has underscored the deterrents to investment, from crippling power shortages to asphyxiating bureaucracy and corruption” says Johanna Malm, a researcher at Roskilde University in Denmark and expert on the contract.

The DRC Congo is an impoverished country that ranks 184th of 189 countries on the World Bank’s “Ease of doing business” index, and second from bottom in the UN Human Development Index. The southeastern province of Katanga is the focus of the copper industry. It receives only about half the electric power it needs from the national grid. Therefore, the mine companies need to generate their own power.

Economic cost of the BLOWN OPPORTUNITY

In 2013, the Africa Progress Panel reported that Congo had missed out on at least $1.36-billion in revenues between 2010 and 2012 by selling state mining assets below their value. Add to that the revenue lost because they could not produce and export as planned. Seems to be the definition of an emerging nation curse. ————–

For the full story as written by the author, go to: http://www.miningweekly.com/article/chinas-infrastructure-for-minerals-deal-gets-reality-check-in-drc-2015-07-08

BRICS Hail $100 Billion Reserves Pool! Realistic? Or a fools assumption?

The BRICS group of nations represent more than a fifth of the global economy.

The news sources issued by their public relations people are tonight talking up closer financial ties.

They are off to a summit in Russia on the subject.

A grand concept? But who will write the checks?

Most of the BRICS actually qualify for World Bank aid for a reason.

Is the new BRICS institution going to “borrow from Peter to pay Paul, so to speak.

Of Brazil, India, Russia, China, and South Africa, only China may have sufficient “reserves” in these troubled times to send money to the others.

Funding trillions of dollars in global rail and port and highway projects from this group “seems to be a streatch”

What do you think?

To read the entire Bloomberg article, go to http://bloom.bg/1KPJWsp

Alarming Monday economic stock market news out of China on 6 July 2015

The Greek Sunday austerity vote may be “peanuts” compared to the market news impact out of China.

There is an Interesting graphic comparison by Bloomberg between the historical changes in Wall Street during 1929 and China in 2015. (see the Bloomberg graphic)

Perhaps the Chinese government may be more successful in intervening today then was the limited private game plan during 1929.

Clearly, there does appear to be a significant confidence sell off in today’s market. The parallels look interesting but need to be tested by time in the year to come before we will know. Here are some interesting statistics. The two graphic stock price trends are separated by 86 years and 7,300 miles, but Chinese financiers are turning to the same playbook according to Bloomberg that were used by their American counterparts to fight a crash that’s wiping out stock-market fortunes on an unprecedented scale.

Investors in China are hoping it works out a lot better this time around.

IN 1929|

“When five of America’s most-powerful financiers met at the House of Morgan at 23 Wall Street on Oct. 24, 1929, the immediate impact of their plan to pool resources and prop up the market was encouraging: the panic of Black Thursday gave way to a recovery and the New York Times lauded the bankers for putting a floor under share prices.” “The boost to confidence didn’t last long. The 1929 price rout resumed by the following Monday, with the Dow Jones Industrial Average losing 13 percent.

The gauge would go on to drop another 34 percent over the next three weeks, as the attached chart shows.”

IN 2015

How long will the recent support measures in China last?  The measures might have a fleeting impact according to Hao Hong, a strategist at Bocom International Holdings Co. in Hong Kong. A group of 21 Chinese brokerages pledged on Saturday to commit 120 billion yuan ($19.3 billion) to a large-cap stock fund, designed to stabilize shares.

This action plan comes on the heels of a three-week rout in the Shanghai Composite Index — the biggest drop since 1992. The brokerage move coincides with a “flurry of other market-boosting measures including a halt to initial public offerings and regulatory moves to discourage short sellers.

 

IPOs Suspended in China as another intervention game plan

Over the weekend, the China government suspended initial public offerings and the central bank said it would provide liquidity for margin trading.

Stemming the loss pattern? These actions come after the Shanghai Composite has tumbled 29 percent in the past three weeks.

That has already erased a whopping $3.2 trillion of value. Yes, TRILLIONS.

A major concern is that “leveraged traders may be liquidating their previous equity bets”.

“Excluding banks, the Shanghai Composite Index was trading at about 31 times trailing earnings.”

On Wall Street in 1929, it was the great banking houses of J.P. Morgan and Guaranty Trust Company that tried to stem the economic tidal wave.

To read the entire article, go to http://bloom.bg/1fe0PSb

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As you have your Monday morning coffee…

Early July 6th and late July 5th news reports indicate that the Hong Kong Exchanges & Clearing Ltd. Had dropped a noticeable 12 percent as of about 1:30 p.m. That would be its biggest decline since October 2008.

A Double Dip recession? Probably.

The Bloomberg Commodity Index fell as much as 1.8 percent to 100.0574, — the biggest intraday loss since May 26th. This gauge is down 4.1 percent this year in tracking declines of base metals and crops.

The MSCI Emerging Markets Index lost 2.5 percent to 940.52 at 1:35 p.m. in Hong Kong. That has wiping out this year’s 2015 advance.

South Korean shares appeared to be headed for the steepest loss since 2012.

Trading houses like Goldman Sachs Group, JPMorgan, Chase & Co. and Bank of America Corp. appear from news reports to have advised their clients to sell shares on the China perceived rallies.

Most reporting in the USA media seems meanwhile to be focuses on the Greece austerity referendum vote rather than these economic events in China.

Clearly, global resource driven railway projects from Mongolia to South Africa and Senegal to Brazil are now even more threatened as to economic feasibility.

Rail Planners may now need to develop Plan C and drop their earlier small Plan B changes as the global economy undergoes another series of “economic body blows”.

It is possible that the market in China may stabilize. But the trend and economic cycles of history are a cause for investor concern. Markets react poorly to circumstances shown in the above reports.

The six year global struggle to come out of the 2007/2008 recession is clearly not yet over. A further three to six year recovery period may be the pattern out towards 2021. Events and data in the coming six to twelve months should tell us all more.

Mongolia premier pledges to end Tavan Tolgoi coal mine & railroad delays

From the Financial Times news report comes this upbeat news from Mongolia.

The headline:

Is this just more public relations political hype? Another “junk” rated bond issue to please voters? Is this necessary? Probably a bad idea. Again.

More long delayed plans for the east-west low margin financial feasibility railroad towards Japan? These sound more like a belief in Santa Clause than a sound strategic recovery for the nation.

I would wish more then this for my many Mongolian friends I have worked with.

The good news is that there is a way to make Mongolians strategic winners” if they pull together on tactics and engineering that are sound best practices.

Cheers!

For the FT report, log onto: http://www.ft.com/intl/cms/s/6e7a241a-20c7-11e5-ab0f-6bb9974f25d0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F6e7a241a-20c7-11e5-ab0f-6bb9974f25d0.html%3Fsiteedition%3Dintl&siteedition=intl&_i_referer=#axzz3erCpC6bE

Here are a few of the reported public relations statements in the news report. ——- Saikhanbileg Chimed indicated that “Mongolia planned to launch another sovereign bond as the country seeks to get “back to business” following two years of slowing growth in gross domestic product, plummeting foreign direct investment and rating agency downgrades of its junk-rated “Chinggis” bonds.”

“Official approval for investors to start work on the Tavan Tolgoi (TT) coking coal mine in the Gobi desert should follow soon after a review of the investor agreement in parliament this month, Mr Saikhanbileg told the Financial Times in an interview.”

Investors in the project include China’s Shenhua Energy and Japan’s Sumitomo Corp. “TT will be unlocked in the very near future,” he said.

HOWEVER—

“Several members of Mongolia’s parliament have raised objections to financial and legal aspects of the TT investor agreement, raising the possibility that the mine… …could suffer a similar fate to that of Oyu Tolgoi, a $5bn copper mine, where an expansion project was unblocked in May only after two years of wrangling. This year, Mongolia resorted to a mobile phone referendum to shore up public support for the project…

The minister still believes in 220km rail line from the mine into China — delayed now for more than three years.

Mr Saikhanbileg also told the FT reporters that he also believes in a second potential rail project that would run east-west about 1,300km to reach coal markets in Japan and the US, a Mr Saikhanbileg said.

BEWARE:

This E-W rail line is a much higher investment risk according to my due diligence research on Mongolia rail options dating back to 2006.

Investors need to carefully reexamine these projects with updated due diligence.  Mongolia needs a real heavy haul big train design to make their expectations a reality.  That means trashing most of their prior rail designs.

It also means a fresh due diligence review of the feasibility options. In particular, it is a bad idea to depend upon a due diligence feasibility report that is prepared by the builders.  They are not exactly Independant.