I’m sure a number of you have been keenly following the World Cup matches as they play out across South Africa. For me, even though I was sitting far away, the opening match in the awe-inspiring Johannesburg venue felt especially close to home, since we have an office in this city originally called the “Place of Gold”
We have been coming to South Africa for several years, and we also have a number of South African companies in our portfolios, so we rejoice along with the South Africans that they are hosts of the FIFA World Cup 2010. In our opinion, the country has many world-class companies that present good investing opportunities. These companies have capable management teams and many are expanding their international market share. Higher global demand for commodities, a recovery in domestic demand and the hosting of the World Cup should further support South Africa’s economic resurgence this year.
A number of sectors could benefit from the World Cup, most notably those related to infrastructure, tourism, retailing, media and telecommunications. This is the first time the World Cup has ever been held on the African continent. The fact that the World Cup occurs in South Africa could enhance the country’s image and improve the world’s perception of South Africa, as well as potentially attract more tourists and investors to the region.
Following the recent Greece crisis, there have been several concerns raised about the debt situation in Hungary.
The Hungarian market was one of the top performers in Eastern Europe with the MSCI Hungary Index returning 78% in US Dollar terms in 2009. The market significantly outperformed its regional peers – Poland and the Czech Republic. In the first five months of 2010, however, the market was down 12% in US Dollar terms, mainly due to a 23% decline in May alone on concerns that Hungary could face similar financial problems as Greece.
Although the ratio of government debt to GDP is relatively high at 78.2% when compared to other emerging markets, it is not as high as levels reached by some developed nations recently. Greece, for example, has a public debt to GDP ratio of about 117% and recorded a public deficit of 14% of GDP last year. This compares to a deficit of 4% of GDP for Hungary.
Investors’ concerns have risen after seeing news of political unrest in Thailand, tensions in the Korean peninsula and sovereign debt issues in parts of Europe. I’d like to share with you some of the questions that our investors have been asking and responses to them from my emerging markets team.
With all the news coming from Europe and Asia, there are renewed talks of a double-dip scenario. Do you think this is likely?
We believe a double-dip scenario is not likely right now since we have seen tremendous efforts on the part of governments globally to avoid another downturn, by keeping money supply high and interest rates relatively low. Now, there is a tradeoff between loose monetary policy and the possibility of inflation, and so in some cases authorities are allowing yields and interest rates to creep up slightly. But generally speaking, the mode of operation in Europe and the U.S. is to ensure high liquidity.
Southeast Asia, which comprises mainly of the 10 member countries in ASEAN (Association of Southeast Asian Nations) and a few others, is an often overlooked region in Asia, as a result of being overshadowed by the Asian giants, China and India. The GDP of Southeast Asia is about the same size as India, and within two decades, it is expected that the region will have a larger and younger population than Europe. It is also a major exporter of soft commodities like palm oil, rice, tapioca, coconut oil, and rubber.
Vietnam is one of the key frontier markets in Southeast Asia that I like and our experience with Vietnam goes back as early as 1994.