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Archive for July, 2010

Readers’ Questions Answered Part IV

July 20, 2010 Leave a comment

Here are my responses to recent questions from readers.

Can you comment on Brazil? Where do you see Brazil 10 years from now?

–          James, United States

Brazil is a key producer and exporter of commodities. Strong commodity prices associated with a solid domestic demand for goods and services have been key drivers of its economic growth. Hence, it is likely to benefit from rising global demand, including demand from China, for energy, metals and other commodities.

Brazil is also a country with a large, growing consumer base. Brazil’s economy is diversified and largely domestically driven, with exports accounting for less than a quarter of GDP. This domestic strength is one of the reasons for the Brazilian economy’s relatively faster recovery compared to most other globally-exposed economies. Its big consumer market creates opportunities for a wide range of firms, including financial services providers, health care firms, cosmetics companies and beverage manufacturers. In addition, Brazil will be hosting the FIFA World Cup in 2014 and the Olympics in 2016, hence, it is expected to invest significantly in infrastructure that should help drive economic growth in the coming years as well as improve the basis for stronger sustainable growth in the long-term.

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Categories: History

The Pride of Slovenia

July 10, 2010 Leave a comment

I once asked a group what the difference between Slovenia and Slovakia is. Many were stumped. The former, famous for subterranean caves and the latter, for its impressive mountain ranges, couldn’t be more vastly different, despite the similar sounding names. This would prove to be even more evident when we recently landed at Ljubljana, the capital city of Slovenia.

Slovenia’s location is quite advantageous, bordering Austria, Italy, Croatia, Hungary and the Adriatic Sea on the southwest. The majority of its population is made up of ethnic Slovenians but there are minorities of Hungarians, Italians, Serbians and others.  The South Slavic language, Slovene, is the official language but German and Italian are widely spoken along the Austrian and Italian borders.

Slovenia has a population of about two million and is relatively wealthy, with a GDP per capita of over US $27,000. A former republic under Yugoslavia, Slovenia was declared independent in 1991. In 2004, the country joined the North Atlantic Treaty Organization (NATO) and the European Union (EU), and in 2007, joined the Euro currency union. Just like other countries in Europe, Slovenia’s economy was recently hit by the market crisis. The country’s GDP contracted by 8% in 2009 after having risen 4% in 2008 and almost 7% in 2007.  However, things are looking up this year, and we are expecting a modest recovery of a 1% increase.  Inflation has been on the downtrend, falling from a 2000 high of 9% to a little over 1% this year.  Trade equals about 120% of GDP (exports and imports combined) with about two-thirds of Slovenia’s trade with other EU members.[1] During the last decade, privatizations have been carried out in the banking, telecommunications and public utility sectors.

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Categories: Perspective

Focus on China: the Renminbi, Commodities and Real Estate

July 2, 2010 Leave a comment

Developments over the last few weeks have once again brought China into focus. China recently announced that it would increase the flexibility of its currency, the renminbi (RMB). I recently said that an impending renminbi appreciation should not have a dramatic impact on Chinese stock markets since the exchange rate change was likely to be gradual. Indeed, from our observations since the announcement, the currency’s rise is likely to be gentle and controlled as the Chinese authorities carefully monitor its movement.

Since we expect the exchange rate change to be gradual, this move does not dramatically change our overall outlook on Chinese stocks, which we think should perform well in the medium term. We are still able to selectively find some attractive stocks on an individual basis, with companies related to the commodities and the consumer products and services sectors seeming to offer more interesting opportunities.

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Categories: Perspective