Latin America and Caribbean Outlook - Jan 2011
Diunggah oleh
jennifer4217Deskripsi Asli:
Hak Cipta
Format Tersedia
Bagikan dokumen Ini
Apakah menurut Anda dokumen ini bermanfaat?
Apakah konten ini tidak pantas?
Laporkan Dokumen IniHak Cipta:
Format Tersedia
Latin America and Caribbean Outlook - Jan 2011
Diunggah oleh
jennifer4217Hak Cipta:
Format Tersedia
Emerging Markets Research
January 2011
Latin America and Caribbean Outlook 2011
Latin America Research Team¹
1 Fabio Akira, Neeraj Arora, Iker Cabiedes, Julio Callegari, Carlos Carranza, Gabriel Casillas, Laura Karpuska, Luis OganesAC, Felipe Pianetti, Benjamin
Ramsey, Tejal Ray, Franco Uccelli, and Vladimir Werning
See end pages for analyst certification and important disclosures, including investment banking relationships. J.P. Morgan does and seeks
to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that
could affect the objectivity of this report. Investors should consider this report as a single factor in making their investment decision.
Agenda
Output gaps close as growth remains above potential 2
Inflation acceleration to trigger policy tightening in 2011 9
Risks to monitor: China growth, Europe contagion, and FX intervention 16
Central America & Caribbean: Consolidating the recovery 25
Country overview 32
2
While G-3 growth will pick up in 2011, unemployment rates will still remain elevated
and justify the maintenance of policy stimulus
Real GDP (%q/q, saar) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
Developed market economies 3.3 3.0 2.4 1.7 2.6 2.7 2.7 2.6
United States 3.7 1.7 2.6 2.9 4.0 4.0 3.5 3.0
Japan 6.8 3.0 4.5 -1.5 1.0 2.0 2.5 2.0
Euro area 1.5 4.1 1.4 1.5 1.5 1.5 1.8 2.0
OUTPUT GAPS CLOSE AS GROWTH REMAINS ABOVE POTENTIAL
10
4
1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11
3
EM growth will average a still high 5.9% in 2011, with Emerging Asia (7.4%) once
again leading the pack, followed by Latin America (4.5%)
G-7 Emerging Economies
8.1 8.4
7.5 7.1 7.0
5.7 5.5 5.9 6.0
2.8 2.3 2.6 2.2 2.8 2.6 2.5
1.8 1.3
-0.1
OUTPUT GAPS CLOSE AS GROWTH REMAINS ABOVE POTENTIAL
-3.8
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Latin America Emerging Asia Emerging Europe
11.9 11.0 10.9
7.4 8.1 9.4 8.7 7.9 7.8 8.5 7.4
6.9 6.3 6.2 6.4 5.7
5.1 4.9 4.5 4.1 4.4 4.2 4.5 4.2 4.6
2.9 4.0 3.3 3.1 2.6 3.6
2.3
-0.8
-3.1
-10.9
-13.6
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
4
Latin America’s growth will slow in 2011 relative to 2010’s high 6%, but will remain
above potential at 4.5%; Argentina, Chile and Peru will display growth of 5-7%
2010 2011 2012 Potential GDP
1Q 2Q 3Q 4Q %oya 1Q 2Q 3Q 4Q %oya %oya %oya
Argentina 13.4 11.2 1.6 2.0 8.5 6.0 8.0 8.0 6.0 5.5 5.0 3.5
Brazil 9.4 7.2 2.1 4.2 7.7 5.4 4.4 4.0 5.2 4.5 4.5 4.0
Chile -5.2 19.5 8.1 4.0 5.3 5.0 5.0 5.0 4.5 6.0 4.5 4.2
Colombia 5.5 3.5 0.9 5.0 4.0 6.0 5.0 4.5 4.7 4.5 4.0 4.5
Ecuador 2.0 7.7 6.5 3.0 3.0 3.0 2.5 2.5 2.0 3.5 3.0 3.0
Mexico -0.2 9.5 3.0 4.1 5.4 3.0 8.0 2.8 3.1 4.5 3.5 2.5
Peru 8.2 13.0 6.7 8.0 8.8 5.5 5.0 5.5 5.0 6.5 6.0 6.0
OUTPUT GAPS CLOSE AS GROWTH REMAINS ABOVE POTENTIAL
Venezuela -3.4 6.7 0.1 1.0 -1.5 1.0 1.5 1.5 1.5 1.5 3.0 3.0
Latin America 4.9 8.7 2.6 3.9 6.0 4.4 5.6 3.9 4.3 4.5 4.1 3.6
Central America and Caribbean - - - - 4.0 - - - - 4.4 4.9 -
5
Latin America’s growth will continue to be driven by domestic consumption and
investment in 2011, with net exports remaining a drag factor amid rising imports
OUTPUT GAPS CLOSE AS GROWTH REMAINS ABOVE POTENTIAL
6
On the supply side, IP has been moderating across Latin America since mid-2010
along with global manufacturing, but signs of reacceleration emerged in November
Brazil Chile Colombia Mexico Peru*
Jan -17.5 -9.0 -9.9 -10.5 -0.5 15
Feb -16.8 -11.5 -12.4 -12.1 -6.7
Mar -9.7 -7.1 0.4 -5.4 -5.5
10
Apr -14.8 -11.1 -14.7 -12.1 -13.6
May -11.2 -10.5 -6.9 -11.1 -8.0
Jun -10.9 -8.3 -7.1 -9.4 -13.1 5
Jul -9.9 -7.4 -6.6 -6.2 -12.2
OUTPUT GAPS CLOSE AS GROWTH REMAINS ABOVE POTENTIAL
Aug -7.1 -3.8 -3.9 -7.9 -10.4
0
Sep -7.6 -5.2 -4.0 -5.6 -8.3
Oct -3.1 -6.6 -3.6 -6.0 -5.9
Nov 5.3 1.0 1.8 -2.1 -2.6
-5
Dec 19.0 -0.3 2.1 0.9 1.6
2010
-1.1 1.6 3.4 0.7 -10
Jan 16.1
Feb 18.2 0.5 3.5 4.5 7.0
Mar 20.2 -17.4 6.7 7.6 15.6 -15
Apr 17.4 -1.3 7.5 6.7 16.0
May 14.8 4.2 7.9 8.5 14.2
June 11.1 2.9 8.6 8.4 22.1 -20
July 8.7 3.3 0.6 4.8 17.8 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10
Aug 8.6 6.9 4.7 7.6 19.5
Sep 6.6 3.0 2.8 6.6 16.7
Oct 1.8 1.7 2.7 3.5 14.7
Nov 5.3 2.5 4.5 5.3 14.4
7
On the demand side, retail sales continue to grow strongly in Brazil, Chile and Peru,
with Colombia catching up and Mexico still lagging
Latin America: Industrial production Latin America: Retail sales
Index level, January 2007 = 100, sa Index level, January 2007 = 100, sa
130 145
Brazil Chile Colombia Brazil Chile Colombia
Mexico Peru* Mexico Peru
140
120
135
130
110
OUTPUT GAPS CLOSE AS GROWTH REMAINS ABOVE POTENTIAL
125
100 120
115
90
110
105
80
100
70 95
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
*The manufacturing index from INEI serves as a proxy for Peru IP.
Source: J.P. Morgan
8
Agenda
Output gaps close as growth remains above potential 2
Inflation acceleration to trigger policy tightening in 2011 9
Risks to monitor: China growth, Europe contagion, and FX intervention 16
Central America & Caribbean: Consolidating the recovery 25
Country overview 32
9
Core inflation is joining the ride up across Latin America, as headline inflation has
risen to or above the mid-points of target
Latin America: Headline CPI (%oya) Latin America: Core CPI (%oya)
12 Brazil Chile Colombia 10
Brazil Chile Colombia
Mexico Peru
Mexico Peru Latin America
10
8
8
INFLATION ACCELERATION TO TRIGGER POLICY TIGHTENING IN 2011
6 6
4
4
2
0 2
-2
0
-4
-6 -2
Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10
10
The global commodity price rally is no longer being offset by currency appreciation,
so higher agricultural prices measured in local currency is pushing food prices up
Latin America: Agriculture & energy prices in LACI terms Latin America: Food inflation
Index level, Jan 2008 = 100 %oya
150 25
Brazil Chile Colombia
Agriculture Energy Mexico Peru
140
20
INFLATION ACCELERATION TO TRIGGER POLICY TIGHTENING IN 2011
130
120 15
110
10
100
90 5
80
0
70
60 -5
Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10
11
Although inflation targeters are expected to meet targets in 2011, inflation will stay
close to the upper bound of target ranges in most countries, with risks to the upside
2010 2011
Dec (%m/m) %Dec/Dec 4Q 1Q 2Q 3Q 4Q %Dec/Dec Inflation Target (%)
Argentina1 0.84 10.5 10.5 10.5 11.0 11.5 12.0 12.0 …
Brazil 0.63 5.9 5.6 5.8 5.9 6.4 5.6 5.4 4.5 ( 2)
Chile 0.12 3.0 3.2 3.4 4.0 4.9 5.5 5.5 3.0 ( 1)
Colombia 0.65 3.2 2.7 3.4 3.1 3.4 3.6 3.2 3.0 (+1)
0.51
INFLATION ACCELERATION TO TRIGGER POLICY TIGHTENING IN 2011
Ecuador 3.1 3.3 3.0 3.5 3.6 3.8 3.7 …
Mexico 0.5 4.4 4.2 3.6 3.6 3.7 3.7 3.7 3.0 ( 1)
Peru 0.18 2.1 2.1 2.4 2.5 2.0 2.4 2.5 2.0 ( 1)
Venezuela 1.67 27.5 27.3 30.4 29.0 30.6 33.8 35.0 …
Latin America 0.65 6.9 6.7 6.9 6.9 7.3 7.3 7.3
Inflation targeters2 0.54 4.9 4.6 4.6 4.6 5.0 4.7 4.5
1. Forecast is for official inflation measure.
2. Inflation targeters include Brazil, Chile, Colombia, Mexico and Peru
12
Tightening in Latin America of 125bp during 2011 will be highest among EM regions,
but cumulative hikes in 2010-2011 will only reverse 50% of cuts since Lehman
INFLATION ACCELERATION TO TRIGGER POLICY TIGHTENING IN 2011
13
Latin America is reversing the fiscal stimulus adopted in response to the crisis only
gradually, so the task of containing inflation will rest mostly on monetary policy
INFLATION ACCELERATION TO TRIGGER POLICY TIGHTENING IN 2011
14
Although fiscal policy will not be tightened aggressively in Latin America during 2011,
external borrowing needs will be lower than in 2010; net issuance will be negative
INFLATION ACCELERATION TO TRIGGER POLICY TIGHTENING IN 2011
15
Agenda
Output gaps close as growth remains above potential 2
Inflation acceleration to trigger policy tightening in 2011 9
Risks to monitor: China growth, Europe contagion, and FX intervention 16
Central America & Caribbean: Consolidating the recovery 25
Country overview 32
16
Risk to monitor #1: China growth: Latin America’s terms of trade and exports are
heavily driven by commodity prices, which in turn are driven by China’s growth cycle
Latin America: Export growth and commodity prices China growth cycle closely related to commodity demand
%oya %oya, 3mma %oya
CHINA GROWTH, EUROPE CONTAGION, AND FX INTERVENTION
60 25 60
China IP
Export growth Commodity prices J.P. Morgan commodity price index (rhs)
50
40
40 20
30
20
20 15
10 0
0 10
-20
-10
-20 5
-40
-30
-40 0 -60
1999 2000 2002 2004 2006 2008 2010 1994 1996 1998 2000 2002 2004 2006 2008 2010
RISKS TO MONITOR:
Source: J.P. Morgan Source: CEIC and J.P. Morgan estimates
17
Indeed, China is among the top destinations for exports from Brazil, Chile and Peru,
with trade links between China and other Latin American countries also growing fast
CHINA GROWTH, EUROPE CONTAGION, AND FX INTERVENTION
2005 2009
23.1
15.8
13.2
10.9 11.4
7.9 7.5
7.1
RISKS TO MONITOR:
5.8
2.9
2.2
0.9 0.5 1.0 1.1
0.1
Ecuador Mexico Colombia Argentina Venezuela Brazil Peru Chile
18
Resilient terms of trade are particularly important for Latin America because export
volume growth is relatively low and current account deficits will widen further in 2011
Latin America export volume behind other EM regions Latin America (ex Mex): current account is back in deficit
2000=100; export volume % of GDP
CHINA GROWTH, EUROPE CONTAGION, AND FX INTERVENTION
300 2
Latin America
Emerging Asia
1
Central and Eastern Europe
250
0
-1
200
-2
150
-3
-4
100
-5
50 -6
2000 2003 2006 2009 1998 2000 2002 2004 2006 2008 2010 2012
RISKS TO MONITOR:
Source: J.P. Morgan Source: J.P. Morgan
19
The good news is that FDI will continue to finance current account deficits in 2011,
with the notable exception of Brazil where reliance on portfolio flows is increasing
CA balance FDI
CHINA GROWTH, EUROPE CONTAGION, AND FX INTERVENTION
(US$ billion) (US$ billion)
2010 2011 2012 2010 2011 2012
Latin America -51.1 -88.3 -126.2 80.5 99.0 105.0
Argentina 3.1 0.1 -8.9 3.0 2.0 4.0
Brazil -48.9 -69.1 -91.2 32.0 40.0 45.0
Chile -2.1 -9.2 -15.7 11.0 15.0 15.0
Colombia -5.7 -7.5 -8.6 9.0 11.0 11.0
Ecuador -0.4 0.6 1.3 0.5 0.5 0.5
Mexico -10.1 -18.0 -23.3 20.0 23.0 18.0
Peru -2.1 -4.9 -6.5 7.0 6.0 7.5
Venezuela1 15.2 19.6 26.6 -2.0 1.5 4.0
RISKS TO MONITOR:
20
Risk to monitor #2: Contagion from Europe: Latin America’s trade links with peripheral
Europe are highest with Spain but small overall; Spanish FDI is no longer as dominant
Latin America: exports to the EU and Spain Latin America trade balance with Spain
CHINA GROWTH, EUROPE CONTAGION, AND FX INTERVENTION
Stock of Spanish FDI in Latin America (% of total stock) Spanish FDI flows to Latin America (% of total flows)
160 25 30 70
Level Share (rhs) Level Share (rhs)
140 60
25
20
120
50
20
100 15
40
80 15
10 30
60
10
20
RISKS TO MONITOR:
40
5
5 10
20
0 0 0 0
1993 1996 1999 2002 2005 2008 1992 1995 1998 2001 2004
21
Large claims of Spanish banks in Latin America do not mean big outflow risks if bank
conditions in Europe deteriorate; Latin bank loans are mostly funded by local deposits
Claims of foreign banks in Latin America Latin America: credit profile (% of GDP)
CHINA GROWTH, EUROPE CONTAGION, AND FX INTERVENTION
Source: J.P. Morgan
Source: J.P. Morgan
RISKS TO MONITOR:
22
Risk to monitor #3: FX intervention: Growth, commodity prices and rate differentials
still support Latin FX and put pressure on policymakers to contain more appreciation
REER: Current versus 30-year average (except CEE3 12-year average and Peru since Jan 91)
34.0 33.6 31.7
CHINA GROWTH, EUROPE CONTAGION, AND FX INTERVENTION
24.2
21.0
17.8
15.2 14.0
13.3 13.2
10.2
7.0
4.3 3.5 3.2 3.1
1.6
-1.2 -3.1
-3.9
-5.9
-9.1 -9.8
-12.8
-21.4
-24.9
AUD BRL NOK NZD IDR CZK CHF INR COP ZAR CLP THB PLN HUF TRY PEN EUR JPY MXN PHP CAD MYR SEK GBP TWD KRW
Source: Bloomberg, J.P. Morgan
Latin America FX forecasts
End of Period 1Q11 2Q11 3Q11 4Q11
USD/ARS 4.10 4.10 4.15 4.35
USD/BRL 1.72 1.75 1.77 1.80
USD/CLP 480 470 455 455
USD/COP 1,850 1,850 1,850 1,850
RISKS TO MONITOR:
USD/MXN 12.50 12.25 12.25 12.25
USD/PEN 2.82 2.82 2.79 2.75
USD/VEF 4.30 4.30 4.30 4.30
Source: J.P. Morgan
23
Policymakers are trying to contain FX appreciation through aggressive intervention;
after Chile’s recent measures, the next country of market focus is Mexico
State of current FX regime, capital controls, and possible future intervention measures
Reserve Accumulation
CHINA GROWTH, EUROPE CONTAGION, AND FX INTERVENTION
2010* 2010 % Change
FX Regime Recent Measures Possible Future Measures (US$ billion) in Reserves
Argentina Non Convertible and capital outflow None None 3.2 7%
controls remain in place with a minimum
holding period of 1year and US$2mm
outflow per month
Brazil Non Convertible. Tax of 6% on foreign Increase IOF Tax on fixed Risks remain high for further 50 21%
fixed-income investment and 2% on income investment to 4% on interventions and possible
equity investment. Increase margin for Oct 4th, to 6% on Oct 18, new tax measures
derivative transactions increased reserve
requirements to 60% on bank
short USD position on Jan 6
and resumed reverse swap
intervention on January 13
Chile Non Convertible. No capital controls US$12 billion reserve None 2.5 10%
accumulation program for 2011
announced Jan 3, US$50
million per day intervention.
Colombia Non Convertible. 34% tax on income and USD purchases of $20mm day Risks remain high for further 3.0 12%
capital gains and 6% WHT on coupon and complementary actions interventions both in spot fx
payments for bonds with maturities up to (such as postponing the USD and potentially increases in
5 years and 4% for longer bonds. inflows from the official sector) Reserve Requirements for
foreign investors.
Mexico Free floating and deliverable. No FX None Increase in the size of 22.8 25%
controls. Banxico sells $600mm of USD/MXN put option
USDMXN puts per month. auctions per month or
outright spot USD purchases
possible if MXN rallies below
RISKS TO MONITOR:
11.9
Peru Non Convertible. Reserve Requirements USD purchases in the spot FX intervention should 11 33%
on foreign deposits (120%), 30% tax on market, increase in reserve remain high. Although tax
interest paid to non-residents. Limits on requirements on inflows from measures are unlikely, this
pension fund short USD positions abroad and sells PEN-linked possibility is still in the cards
USD CDs
24
Agenda
Output gaps close as growth remains above potential 2
Inflation acceleration to trigger policy tightening in 2011 9
Risks to monitor: China growth, Europe contagion, and FX intervention 16
Central America & Caribbean: Consolidating the recovery 25
Country overview 32
25
Growth in the Central America and Caribbean (CAC) region fared better than the
Latin American average during the 2009 recession…
CENTRAL AMERICA & CARIBBEAN: CONSOLIDATING THE RECOVERY
26
… But the CAC region has underperformed during the recovery phase in 2010 and
will likely perform in line with the Latin American average in 2011
CENTRAL AMERICA & CARIBBEAN: CONSOLIDATING THE RECOVERY
27
Regional inflation should remain broadly stable in the Caribbean and increase
moderately in Central America, but surging global food prices suggests upside risks
CENTRAL AMERICA & CARIBBEAN: CONSOLIDATING THE RECOVERY
28
Fiscal deficits in the CAC region should narrow in 2011 as countercyclical policies
are phased out and growth accelerates
CENTRAL AMERICA & CARIBBEAN: CONSOLIDATING THE RECOVERY
29
External public debt ratios will remain stable in 2011 as higher growth offsets
increased borrowing
CENTRAL AMERICA & CARIBBEAN: CONSOLIDATING THE RECOVERY
30
Increased external borrowing and FDI inflows should cover the CAC region’s
current account deficits, which will widen in 2011
CENTRAL AMERICA & CARIBBEAN: CONSOLIDATING THE RECOVERY
31
Agenda
Output gaps close as growth remains above potential 2
Inflation acceleration to trigger policy tightening in 2011 9
Risks to monitor: China growth, Europe contagion, and FX intervention 16
Central America & Caribbean: Consolidating the recovery 25
Country overview 32
32
Brazil: Full 2010 GDP growth revised up to 7.7% (from 7.5%)
After suffering its sharpest recession in recent history,
Brazil’s growth began a remarkable rebound, and the
economy has been expanding at a pace much faster
than potential since 2Q09. Currently, we believe there
is little, if any, economic slack remaining in the
economy.
The economy slowed in 2Q10 and 3Q10, despite
strong domestic demand, on the back of an inventory
adjustment process and, mainly, external drag.
However, 4Q indicators point to robust economic
activity at the end of last year, meaning full 2010 GDP
growth should approach 7.7% - higher than our last
forecast of 7.5%.
The stronger than expected 4Q10 activity performance
along with support from the inventory cycle and a
favorable global growth outlook put some upside risks
to our 4.5% GDP forecast for 2011 growth. At this point
we still think that the drag from net exports and some
fiscal and monetary tightening will prevent higher GDP
growth.
Therefore, while we are still factoring in some fiscal
COUNTRY OVERVIEW
tightening in our forecasts for 2011 we reckon that this
is up in the air, and if this tightening fails to materialize
we should see a combination of stronger
growth/inflation and more monetary tightening than
currently envisioned (175bp by year-end).
33
Brazil: Central Bank to start a new tightening cycle
Brazil’s Central Bank has begun the tightening cycle with
liquidity and credit measures, following with an adjustment
in the policy interest rate. The reserve requirement ratios
on demand and time deposits have been increased, and
the capital requirements on household loans with
maturities above two years have also been lifted. It is hard
to evaluate exactly the final impact of the measures, but
they should contribute to the impact of the “traditional”
tightening cycle via reference rate increase.
After remaining on hold for six months, the COPOM
resumed its tightening cycle this week with a 50bp hike in
the Selic rate to 11.25%, as expected. The accompanying
statement stressed that this hike was designed to
contribute to the convergence of inflation to the targeted
trajectory, in tandem with the effects of macroprudential
measures (credit tightening measures). We understand
that the mention of the effects of macroprudential
measures in the statement sends a signal that further
credit tightening, rather than an acceleration in the pace of
rate hikes, may be announced if inflation dynamics
continue to deteriorate..
On the inflation front, the already high inflation level and
the combination of underlying pressures from above-trend
growth along with supply shocks derived from rising
COUNTRY OVERVIEW
commodity prices raise some upsides risks to our already
above-target inflation forecasts. While IPCA closed 2010
at 5.9%, we expect some accommodation to take place
during 2011, taking the IPCA back to the 5.4% level.
However, mounting evidences of still strong domestic
demand makes Brazil CPI too vulnerable to any new spike
34
in international prices.
Brazil: Debt dynamics not an issue, but fiscal trends are concerning
With the sovereign now long USD in net terms, lower
real interest rates, and robust growth, there are no
solvency risks on the radar.
Public debt has increased both in net terms (due to
BRL strengthening) and in gross terms (due to the
sterilization of USD purchases and debt issuance to
capitalize BNDES). Although net debt at 40% of GDP
does not raise solvency concerns, gross debt close to
a 60% level is very high by international standards,
creating downward rigidity in debt services.
The upsurge in tax collection with above-trend growth
has been offset by the strong pace of fiscal
expenditures. Even considering the strong
performance of the economy in the recent months,
expenditures have still been growing firmly, indicating
that the 3.1% target for the primary surplus will be
reached in 2010 only with the accounting of one-off
revenues and subtracting up to 0.9% of GDP of
expenditures related to infrastructure projects – which
is allowed by the budget.
The public sector primary surplus has been running at
COUNTRY OVERVIEW
2.5%of GDP in a 12-month sum since the Petrobras
oil rights revenues have been accounted in the public
sector balance.
35
Brazil: BRL should be quite sensitive to portfolio flows and risk assets ebbs and flows
The large “market” BoP surplus (which excludes
official FX transactions) registered in previous years
rested on either a CA surplus, or a modest deficit —
neither of which will be repeated in coming years (at
least not until a BRL correction takes place). Indeed,
even assuming relatively optimistic views on terms of
trade (flat at high levels) and FDI and portfolio inflows
(about US$80 billion p.a.), and a cautiously upbeat
assumption for corporate external debt issuance
(150% of amortizations), the final result for net FX
inflows for this year will depend critically on short-term
capital inflows and the pace of Brazilian investment
abroad.
We think that strong capital inflows in the pipeline
should keep USD/BRL toward 1.70, but FX
intervention (amid existing concerns about BRL
overvaluation) should prevent significant appreciation
beyond that level. That said, we do not see the
government intervening in a way to push the spot to
levels close to or above 1.90.
The J.P. Morgan commodities group sees most
commodity prices roughly flat or slightly higher in
COUNTRY OVERVIEW
2011, and the BRL should continue to move in line
with the trend for commodity currencies, powered by
its high-yield characteristics.
36
Brazil: A popular president elects his successor; eyes on the cabinet formation
The government supported candidate, Dilma Rousseff, got
56% of the vote versus 44% for Jose Serra. The focus now
is on the transition and cabinet formation. The new
government's intention is to create a positive environment
within opinion makers after Lula's aggressive fiscal
expansion of late, but the signals are not so consistent at
this point.
The President-elect Dilma Rousseff officially announced
her economic team, in line with what the media had been
reporting. Current Finance Minister Guido Mantega will
remain at that post, while Alexandre Tombini, who is
currently the BCB director for Norms and Organization, will
head the BCB, replacing Henrique Meirelles. In a short
press note, Rousseff announced these appointments and
reiterated that the new economic team would ensure the
continuity of macroeconomic policies based on the
inflation-targeting regime, a floating exchange rate, and
fiscal responsibility.
The reappointed Finance Minister highlighted that the new
government will continue to target higher growth, but is
also focused on controlling inflation. He noted that the
government will make an effort to reduce current
expenditures and will provide fewer resources to BNDES
in 2011 (compared to 2010). We continue to believe that
COUNTRY OVERVIEW
implementation risks on the fiscal side remain very high,
given signs that the minimum wage will be raised to a level
higher than budgeted, and the recent reduction in the
primary surplus target.
37
Brazil: Economic projections
After a sharp and short recession, Brazil’s GDP will
grow at an above-trend pace of 7.5% in 2010. This
remarkable recovery is already resulting in inflationary
pressures, and we reckon that the initial monetary
tightening implemented in 2010 will be extended this
year.
The reduction in sovereign vulnerabilities opened room
for aggressive fiscal and monetary policy actions that
soothed last year’s liquidity squeeze, and provided an
important boost to final demand.
In response to local growth and the global recovery,
inflation accelerated in 2010, triggering tightening
policies, mainly on the monetary front.
In the long term, a more stable macro scenario and
lower rates should boost private sector investments
(with the development of capital markets) and
household consumption (with the expansion of credit to
consumers)
The lack of structural reforms reducing fiscal constraints
and enhancing private sector competitiveness remains
COUNTRY OVERVIEW
the main obstacle to faster growth.
38
Mexico: A more promising scenario in the US has prompted us to rise our 2011
GDP growth forecast to 4.5%
Mexico and US manufacturing production
The recent approval of the ‘Bush era’ tax cuts
%oya
prompted our US economist to revise his GDP growth 20
Mexico US
forecast for 2011 to 3.3% 15
10
The adjustments included a significant revision to the 5
US manufacturing production forecast to 4.6%, from 0
-5
3.3% previously
-10
Manufacturing is Mexico’s major economic link with -15
-20
the US
Jan-05 May-06 Oct-07 Feb-09 Jul-10
This adds to stronger domestic demand, a Source: INEGI and US Federal Reserve
reinvigorated auto sector, a positive outlook for
banking credit, and the imminent beginning of
Mexico’s economic activity forecasts
construction on a number of infrastructure projects
%oya 2010 1Q11 2Q11 3Q11 4Q11 2011
As a result, we now believe Mexico’s GDP will expand Aggregate D/S 9.4 6.5 5.8 6.0 5.4 5.9
4.5% in 2011, instead of 3.5% as projected previously GDP AS 5.4 4.7 4.5 4.4 4.2 4.5
Agriculture 4.8 6.2 3.3 3.3 4.9 4.4
Furthermore, we expect the Mexican economy to grow Industrial 5.6 4.3 4.0 4.1 4.7 4.3
3.5% in 2012 Manufacturing 9.0 3.7 3.7 3.5 5.1 4.0
Other 1.3 5.1 4.4 4.8 4.3 4.6
Services 5.1 4.9 4.9 4.8 4.1 4.7
Imports 23.4 12.2 9.5 10.3 8.5 10.1
COUNTRY OVERVIEW
GDP AD 5.4 4.7 4.5 4.5 4.2 4.5
Consumption 5.3 4.8 4.7 4.4 4.0 4.5
GFI 2.7 2.2 4.8 5.3 5.1 4.4
Exports 20.5 8.7 8.8 8.4 8.6 8.6
Source: J.P. Morgan.
39
Mexico: A reinvigorated auto industry will continue to be the main driver of
manufacturing activity
Auto production has averaged a strong year-to-date
Auto and manufacturing production, and auto exports
expansion of 61%oya in 2010, with exports being the
primary driver, averaging a rebound of 66%oya %oya, both axis
160 30
We believe that the auto industry has been, and will Auto exports
120 20
continue to be, key to Mexico’s manufacturing activity Auto production
80 Manufacturing output (RHS) 10
Several automakers across the world have reallocated
40
part of their production to Mexico to benefit from a 0
0
weaker peso, skilled Mexican labor, still-high transport -10
-40
costs, and the country’s strategic geographic location
-80 -20
Moreover, this has also permeated into other Jan-07 Aug-07 Apr-08 Dec-08 Jul-09 Mar-10 Nov-10
manufacturing industries, such as appliances and Source: INEGI and AMIA
aeronautics
Recent investments in Mexico's auto sector
Auto sales
%oya Announced date US$, mn State
30 Total -- 4,950 --
20 Chrysler 1Q09 300 Coahuila
10 GM 3Q09 300 San Luis Potosi
0 Ford 4Q09 600 Chihuahua
Ford 4Q09 1,000 Cuatitlán
-10
Chrysler 1Q10 550 Toluca
COUNTRY OVERVIEW
-20
Volkswagen 1Q10 1,000 Puebla
-30
Mazda 4Q10 500 --
-40 Volkswagen 4Q10 550 Guanajuato
Jan-05 Mar-06 May-07 Jul-08 Sep-09 Nov-10
Toyota 4Q10 150 Coahuila
Source: AMIA Source: J.P.Morgan
40
Mexico: The credit system could be a key driver for domestic consumption
Total commercial bank credit to the private sector Capitalization indices of major commercial banks
represents less than 15% of GDP Index
Mexican banks are well capitalized 25 22.5
20.4
20 17.4 17.3 16.4 16.4
Following a credit boom in 2003-2006, non-performing 15.2 15.1 15.1 14.7
15
loans increased significantly, forcing banks to rethink
10
their credit extension policies
5 Regulatory m inim um 8%
Nevertheless, commercial banks have now 'cleaned 0
Banamex
Inbursa
Scotiabank
IXE
Santander
Banorte
Bancomer
Azteca
Afirme
up' their credit balances and employment conditions
HSBC
BBVA
have improved significantly over the past 12 months
We believe that it is highly likely that all these factors
Source: National banking Commission (CNVB), Oct. 2010
will probably lead to an ascending trend in the
country's domestic credit cycle
Commercial bank credit Banking credit to the private sector
%oya in real term s % of total credit %oya
80 Credit card Delinquency rate (RHS) 20 40
60 30
40 15 20
20 10 Total
10 Consumer credit
COUNTRY OVERVIEW
0 0
-20 -10 Housing credit
5
-20 Credit to firms
-40
-60 0 -30
Jan-00 Jun-10 Nov-10 Apr-10 Sep-10 Feb-10 Jul-10 Dec-10 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Nov-10
Source: J.P.Morgan with data from Banxico Source: J.P.Morgan with data from Banxico
41
Mexico: We highlight three risks to our optimistic growth outlook
In our view, there are three important risks to our Elections in 2011
positive appraisal of Mexico’s growth in 2011: Governor Local Congress Date
1. A potential escalation of drug-related violence Guerrero X -- 30-Jan
2. More potentially negative issues emerging from the Baja California Sur X X 6-Feb
Euro area periphery countries Coahuila X X 3-Jul
3. The possibility of less vigorous growth in the US Estado de México X -- 3-Jul
In our view, the government has been consistently Nayarit X X 3-Jul
cracking down on the major drug cartels, an Michoacán X X 13-Nov
important step in the government’s efforts to combat
Source: IFE (Federal Electoral institute)
organized crime. However, there are still risks,
particularly with the gubernatorial elections that will
Unfortunately, the large GDP growth rates that the
take place this year in six states
country has observed in 2010 and will probably
On the other hand, we have downplayed the direct observe in 2011 appear to be providing a ‘false sense
effects of a major sovereign crisis in the Euro area, of security’ to government officials, particularly
we believe that the escalation of drug-related legislators, who have now downplayed the need for
violence is indeed curbing Mexico’s growth potential reforms in Mexico
There is no doubt that Mexico needs several Furthermore, with gubernatorial elections due in six
structural reforms, particularly meaningful fiscal and states this year, particularly in the highly-populated
labor-market reforms as well as new guidelines to and politically-sensitive State of Mexico (Estado de
COUNTRY OVERVIEW
empower antitrust officials to dilute monopolies and México), we believe it is going to be difficult to secure
foster competitiveness. We strongly believe that the congressional approval for these key reforms that the
lack of these structural reforms is restraining country truly needs
domestic demand, and Mexico’s potential GDP
42
Mexico: The US Fed’s long pause, moderate inflation, and well-anchored inflation
expectations will keep Banxico on hold until 2Q12
All the indications are that global grain prices will remain Headline inflation
high throughout 2011. This is an important risk to our %oya
Banxico's inlfation target
inflation call for end-2011 of 3.7%oya 7.0
Forecasts
6.0
Nevertheless, well-anchored medium-term inflation
5.0
expectations (around 3.6%), and moderate wage increases
4.0
clearly support our 'low-for-long' monetary policy call, in
3.0
which we anticipate that the first hike will not take place
2.0
until 2Q12 (Consensus: 1Q12)
1.0
Jan-07 Jul-08 Jan-10 Jul-11
On the inflation front, we have observed an important
Source: J.P.Morgan with data from Banxico
structural change coming from two sources: ‘the Wal-Mart
effect’, and the ‘Viva Aerobus effect’
Inflation expectations and wages in Mexico
Wal-Mart has been consistently opening stores in Mexico in %oya
7.0 1-year ahead inflation expectations*
the past few years. We believe this has been an important
6.5 Minimum wage
reason why we have observed a higher degree of 6.0
Wage negotiations
competition among retailers in Mexico 5.5
5.0
In the past few months we have observed that even though 4.5
4.0
Mexicana, once a leading airline in Mexico, shut its doors
3.5
about six months ago, air fares have not only not increased, 3.0
COUNTRY OVERVIEW
but have actually declined. We attribute this 'new' dynamic 2002 2003 2004 2006 2007 2008 2010 2011
to Viva Aerobus, a somewhat newly created 'low-cost' Source: Banxico, Ministry of Labor, CONASAMI, and J.P.Morgan.
*The series was moved 1-year forward
airline that, in our view, has taken Mexicana’s bankruptcy
as a strategic opportunity to gain market share
43
Mexico: CPI calculation improvements could partially isolate inflation from
commodity price swings
Banxico has announced important modifications to the CPI goods and services components
methodology for calculating the CPI Contribution to 12-month headline inflation
7.0
We highlight that the central bank will publish the new
6.0
component weights for the new CPI on January 24
5.0
These methodological modifications respond mainly to 4.0
changes in consumption patterns fostered by technological 3.0
and structural changes 2.0
1.0
The new way to calculate housing prices could reduce the Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
influence of commodity price swings in the new CPI Source: J.P.Morgan with data from Banxico
In this new framework, Banxico will calculate the use of Most important modifications to the CPI calculation
housing price inflation using rental prices, instead of input 1 Change of CPI base year to 2H-Dec 2010, from 2H-Jun 2002
prices (e.g. cement, copper, iron, etc.) 2 Use of INEGI’s income-expenditure survey (ENIGH) of 2008,
instead of the one conducted back in year 2000. This could have
On the other hand, we note that rental prices have a very important changes in the CPI weights as the income shares
assigned to different goods and services have changed in time
low variance compared to commodity prices. In Mexico, for 3 Some ‘specific items’ will be grouped as ‘generic items’ in order to
reduce any potential bias emerging from regional differences
example, rental prices are usually modified once a year by 4 Some ‘generic items’ will be ungrouped with ‘specific items’
landlords. As a result, this change could help inflation to be
5 Some items will be moved to other groups
less responsive to the recent rise in global commodity
6 Some groups will be renamed to become more transparent,
prices, and provides support to our current 3.7% inflation
COUNTRY OVERVIEW
modern, and to continue incorporating best practices worldwide
7 The ‘services’ component will have a larger weight in the new
forecast for year-end 2011
CPI, relative to the current methodology
Source: Banxico
INEGI will take over the calculation of consumer price
inflation in July 2011, instead of Banxico
44
Mexico: Still positive on the peso, we expect USD/MXN at 12.25 by year-end.
However, we believe it could trade at lower levels in the short-term
Major emerging currencies index
Market participants should continue to look to countries with
relatively positive growth potential and no fiscal problems Index Jan (2000 = 100) Mexican peso South Korean won
140 Peruvian sol Brazilian real
Colombian peso Southafrican rand
Healthy public finances, low rates for an extended period of 130
time worldwide, and the inclusion of Mbonos into the Citigroup’s 120
110
World Government Bond Index (WGBI), suggest that Mexico
100
should continue to benefit from foreign flows in 2011
90
80
In this context we expect USD/MXN at 12.25 by year, but we
70
believe it will trade stronger in the short-term
60
50
In our view, while the uncertainty on the US economy
40
‘punished’ the peso since the crisis started back in 2008, a Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
more constructive growth scenario for the US with Mexico's
Source: Bloomberg and J.P.Morgan
prudent fiscal stance and healthy external accounts may
support the peso’s strength MXN net long positioning vis-à-vis the US dollar1
Going forward, the fact that other EM currencies have US$, billion
6
strengthened more than the peso vis-à-vis the US dollar, as
5
well as the US Fed’s QE2 and the market-friendlier FX stance
4
of the Mexican authorities, could continue to allow the Mexican 3
peso to gain ground 2
1
In this context, we believe USD/MXN could reach 11.50 by end- 0
2012 -1
COUNTRY OVERVIEW
-2
However, we acknowledge that the main risk to our call would -3
be a significant escalation in drug-related violence, as the Jan-00 Feb-02 Mar-04 Apr-06 May-08 Jun-10
USD/MXN market has proved very sensitive 1. Calculated using CME non-commercial positions
Source: J.P. Morgan with data from Bloomberg
45
Mexico: Economic projections
We believe there are five reasons to be positive on
Mexico’s growth in 2011:
1.The recent approval of the ‘Bush era’ tax cuts
2.Stronger domestic demand
3.A reinvigorated auto sector
4.A positive outlook for banking credit; and
5.Major infrastructure projects to begin construction
As a result, we recently revised our GDP forecast to 4.5%
in 2011, instead of 3.5% that we had projected before
We identify three risks to our optimistic growth call:
6.Potential escalation of drug-related violence
7.Further negative news from European periphery countries
8.The Possibility of less vigorous growth in the US
The US Fed’s long pause, moderate inflation, and well-
COUNTRY OVERVIEW
anchored inflation expectations will keep Banxico on hold
46
Argentina: After having peaked, growth remains strong and inflation is accelerating
again but the President’s positive image is recovered
Energy rationing and labor disputes genuinely hurt industrial
performance in 3Q, while import growth continues to advance.
But the economy is expected to have rebounded in 4Q and
averaged 8.5% real GDP in 2010.
Neighboring economies like Brazil are booming, low global
rates have helped to mitigate capital flight (even as domestic
policy volatility has persisted), terms of trade are favorable, the
agricultural sector is enjoying a strong rebound in the harvest
industrial inventories have come down sharply (as demand
recovers), and import barriers have increased (allowing local
producers a temporary advantage)
Growth will decelerate in 2011 to 5.5% as dry weather is
affecting the harvest yield .
The post-2009 legislative election environment has
consolidated a muddle-through scenario on macro policy and
intensifying of regulation on specific business sectors in micro-
policy. The opposition has gained a majority in the legislature
but remains fragmented and coordination is thus difficult.
The 1Q inflation acceleration owed to food prices and
particularly beef but inflation moderated in 2Q. After averaging
1.5% m/m in 3Q(measured by private sources) , inflation is
running at 1.8% m/m average October-November.
Cristina Kirchners image, which benefited strongly from the
recovery (while not suffering from high inflation) has been
COUNTRY OVERVIEW
boosted to 56% from 36% following the death of her husband
and ex-president Nestor Kirchner. At the end of 2009 her
positive image was 21%. The evolution of this trend will be
critical in defining the peronist party candidate for the 2011
presidential elections (primaries: August, election: October).
47
Argentina: Trade surplus is still providing a solid cushion for the balance of payments;
ARS is the nominal anchor ahead of elections
Private sector capital flight halted in 4Q. While a recovery in
capital flows seemed likely for 2010, political conflicts dampened
the outlook and capital outflows resumed in early 2010. But by %oya Private , 3mma (ar)
mid year the outflows had again receded. This not only facilitates
reserve accumulation but is also a plus for the economy. Private, oya
The 1Q inflation acceleration owed to food prices and particularly
beef but inflation moderated in 2Q. After averaging 1.5% m/m in
3Q(measured by private sources) , inflation is running at 1.8%
m/m average October-November. The peso has been
appreciating in real terms due to high inflation and is a concern Official, oya
for the future.
In 2010, strong external demand and a larger soy harvest
boosted exports while imports (partly curbed by administrative
restrictions) boomed The trade surplus is $13.8 billion, down only
moderately from $16. 2 billion at year end 2009. In 2011 export
volumes will be hurt by smaller harvest but increases in
international prices of agricultural commodities will compensate,
allowing Argentina to rely on a high trade surplus again.
12-mo sum, US$ billion
Reserves have been growing at a steady, yet moderate, pace Commodity price boom
despite use of CB reserves by the Treasury to pay down debt.
The central bank has been buying dollars in the spot market and
futures market.
FX policy is geared to tightly managing spot ARS as an anchor
12-mo. sum
for inflation expectations and to maintain central bank reserves 3mma, saar Farmers’ strike
high given the reliance of fiscal authorities on BCRA as a lender
COUNTRY OVERVIEW
of last resort (LOLR).
Authorities are unlikely to allow a sharp adjustment in ARS
ahead of October 2011 presidential elections. ARS is likely to
end 2011 at 4.20
48
Argentina: Fiscal accounts get cyclical uplift; Treasury relies on BCRA; liability
management may lag due to politics
The primary fiscal surplus will narrow to 1.1% in 2010 after
reaching 1.5% in 2009. Fiscal revenues are rising strongly but
spending has remained elevated until recent months. The
primary surplus is running at 1.6%. %oya, 3mma
High growth and higher inflation suggest upside risk to the
Primary spending
primary fiscal surplus forecast of 1.1% of GDP. But central bank
profits and Anses interest earnings exaggerate the reported
primary balance.
The one-off revenues that boosted the 2009 result make it
difficult to foresee an improvement in 2010 despite the rebound Reported revenues
in growth. Note that while the primary surplus is currently above
the year end forecast, the extraordinary 0.7% point improvement
of the fiscal surplus in December 2009 will fall out of the 12-
month sum in December 2010.
The public sectors lack of voluntary market access remains a
liability—but at current yields Argentina could issue debt in
voluntary markets if it decided to. For now, the Treasury
continues prefering to rely on BCRA reserves as lender of last
resort (LoLR) for financing needs. % of GDP
Following the debt swap for untendered bonds Argentinas
Treasury was looking to reaccess markets with an international Reported
bond issue ($1 bn); to swap local short-term USD bonds for
longer foreign law USD bonds for cashflow and NPV gains, swap
EUR paper for USD paper for NPV gains. However, political
events have led Argentina to (informally) postpone these Adjusted
COUNTRY OVERVIEW
objectives. In contrast, Paris Club talks have been restarted and
April is the government’s target for striking a deal.
49
Argentina: Economic projections
The economy has fully recovered to pre-global crisis levels. The slowing of
activity in 3Q was followed by a rebound in 4Q.
Inflation is running at a 24-25%oya pace
Activity is benefiting more than inflation is punishing the image of the
government. In public opinion polls the president’s image peaked in July to
37% from 21% in late 2009 and was 36% in August. The death of ex-
president Nestor Kirchner further raised the positive image of president
Cristina Kirchner to 56%.With the opposition still fragmented this trend will
be important to monitor ahead of the October 2011 elections.
Private sector capital flight has moderated. A large trade surplus continues
to provide a cushion for the balance of payments. A lower harvest estimate
in 2011 will be compensated by higher commodity export prices.
The loss of competitiveness is a problem for the future but for now the
government is effectively using ARS as a nominal anchor for inflation
expectations. A gradual crawl remains BCRA’s primary FX strategy. ARS
likely at 4.20 since ahead of October 2011 elections the government will
prefer not to rock the boat.
Fiscal accounts are improving and the primary balance stands at 1.6% of
GDP. The primary fiscal balance will narrow to 1.1% in 2010 as one-off
support is reduced. The strength of the Treasury’s payment capacity is
found “below the line” given the support from BCRA as a lender of last
resort. Argentina’s decision to not tap markets is dictated by the comfort
that BCRA support provides the Treasury. In 2011 the government will use
$7.5 billion reserves to pay down debt (after using $6.5 billion in 2010). As
long as the balance of payments allows BCRA to maintain or accumulate
COUNTRY OVERVIEW
reserves the market will sympathize with this policy choice.
Politics can delay the liability management objectives. However, Paris
Club talks have been restarted and the government hopes that a final
settlement could be reached by April.
50
Chile: The economy is growing strong and the administration has the benefit of the
doubt from the business community
GDP growth should average 5.2% in 2010 and 6.0% in 2011.
Yet it is the high double-digit domestic demand boom that is the
most eye-catching. Activity will accelerate sharply to an 8-9% %change
pace on an over-year-ago basis in 1Q due to base effects from
the earthquake earlier this year.
Real retail sales
The backbone of the recovery is domestic: a substantial
monetary and fiscal stimulus. The earthquake reconstruction
effort will further boost domestic demand for non-tradable goods.
Mood among businesses picked up visibly as president Pieras
pro-growth agenda raises expectations. In fact, the positive mood Activity
persisted despite the earthquake.
Mood among consumers has been affected negatively by the
earthquake but is now fully recovered, although some slippage
ocurred a the end of 2010. Tightening labor markets and benign
inflation have helped support a recovery in household confidence
yet inflation could pick up more visibly ahead.
Pieras original plans were to provide macroeconomic
incentives for investment (accelerated amortization) and level
reinvestment (shifting of income tax to distributed, rather than
Consumer confidence Business confidence
accrued, profits) as well as microeconomic incentives for raising
efficiency in the public (reorganizing state companies) and
private sector (environmental and labor reforms). The
administration, however, does not have a majority in Congress.
Fiscal policy will make room for reconstruction spending but will
Earthquake
COUNTRY OVERVIEW
shift to a tightening bias earlier than expected as the government
redefines the fiscal rule and targets narrowing the structural
deficit
51
Chile: Inflation remains within the target band but in 2011, but in the aftermath of FX
intervention, inflation risks are rising and BCCh may not meet its target
BCCh expects the output gap to close in 1H11 and continues to
reaffirm its tightening bias. Unemployment continues to decline at
a rapid pace and wage pressures, quite benign until mid-year, are
now starting to build. Moreover, global agricultural prices are likely
to lift domestic food prices visibly in coming quarters. We expect
inflation of 5.5%Dec/Dec (above target) in 2011 and
3.8%Dec/Dec (within the +/-1% tolerance range of the 3% target)
in 2012.
For the time being inflation has remained benign. The peso’s
appreciation has played a large part in anchoring inflation. As
tradable goods were up only 0.5% while non-tradable goods were
up 5.6%.
CPI continued to climb in November to 2.5%oya compared to
Septembers reading of 2.0%oya. The acceleration in core CPI
has been gradual and lagging that of the headline while relevant
inflation expectations remain well behaved. BCChs preferred
measure of core CPI is at -0.5%oya. In the next months CPI %
August 21, 2008 = 100
should continue to print low readings.
Due to CLP appreciation, excess demand pressures will partly
manifest themselves through stronger imports and a deterioration
of Chiles external balance rather than just a higher CPI inflation.
BCCh’s announcement of FX intervention in early January involves
a $12 billion full-year reserve accumulation program (50% larger
than the announced intervention in 2008). The daily USD
purchases of $50 million can bee fine-tuned by BCCh according to
COUNTRY OVERVIEW
developments.
We expect that BCCh will continue tightening The forecast sees a
3.75% policy rate by 1Q11, 4.5% by 2Q11, 6.0% by 3Q11 and
6.5% by 4Q11.
52
Chile: Economic projections
GDP growth should average 5.2% in 2010 (with downside risk
given weak October) and 6.0% in 2011. Yet it is the high double-
digit domestic demand boom that is the most eye-catching. The
acceleration of activity can be partly attributed to the temporary
boost from post-earthquake spending but business and
household confidence is strong and notwithstanding a
deceleration, demand should remain strong.
Fiscal policy will make room for reconstruction spending but will
shift to a tightening bias earlier than expected as the government
redefines the fiscal rule and targets narrowing the structural
deficit
Inflation has remained benign but in 2011 domestic and external
factors risk pushing CPI to 5.5% (above the 3% target).
BCCh’s intervention in the FX market and the “tactical” rate
pause in the january policy meeting highlight the challenge that
multiple objectives could present for BCCh if inflation does
accelerate as forecasted. BCCh can calibrate FX intervention
through adjustments to daily purchases even as the annual
target is fixed at $12 billion reserve accumulation.
Given the updated CPI inflation forecast, we expect that BCCh
will continue tightening to 6.5% by end 2010 and the peso to
appreciate to 455. This scenario prompted a revision to 2012
growth to 4.5%
COUNTRY OVERVIEW
53
Colombia: Mixed messages from activity readings, but growth should regain
traction in 2011
GDP growth came in at an underwhelming 3.6%oya pace in 3Q10,
with the drag coming largely from a -10.5%oya performance in
construction due to a fall in public works.
Supply-side data suggest that manufacturing remains subdued,
while domestic demand gains momentum. The gradual recovery in
employment, credit expansion and improving consumer confidence
have been supporting a strong expansion in retail sales. In the
opposite direction, industrial production growth continues to fade
(first chart).. Our assessment is that the increasing perception of
“high” inventories along with the strong COP in 3Q and the start of
4Q have hurt the manufacturing sector, despite relatively high
business confidence.
The weak 3Q10 result prompted us to change the full-year 2010
growth forecast to 4.0% (from 4.3%). Public investment should not
improve much in 4Q, even though it will likely be less of a drag
compared to 3Q. At the same time we should continue to see the
retail sector flourishing and IP underperforming.
We maintain our 4.5% growth forecast for 2011. Recent floods
should drive higher public investments in 1Q11, while the inventory
cycle and some modest recovery of exports to Venezuela could
help boost the manufacturing sector in 1H11. Finally, we expect
private consumption to remain supported by a gradual
improvement in the labor market and credit expansion
(underpinned by loose monetary policy). Therefore it remains
reasonable to expect some reacceleration in activity next year.
Employment continues to expand in the retail sector, but remains
COUNTRY OVERVIEW
subdued in the manufacturing sector. Employment in the retail
sector has been showing a vigorous expansion, with real wages
improving considerably. However, employment in the
manufacturing sector continues to shrink, at the same time that real
wages also lose momentum after the surge recorded in 1H10.
54
Colombia: BanRep on hold during 1Q11, but will likely hike rates in 2Q11
Colombian domestic demand has been rebounding in recent
quarters, while both inflation and inflation expectations had—until
December—been subdued. Despite end-year food price
pressure, core inflation remains contained and economic activity
is showing some mixed signals (namely, lagging manufacturing
activity). This should lead BanRep to keep the policy rate at its
current (admittedly stimulative) level over the near term.
Recent headline inflation numbers have been accelerating on the
back of higher food prices, while core figures remain benign.
This acceleration was a result of some pass-through from the
recent spike in international commodity prices, which has
coincided with extreme weather conditions in Colombia (harsh
rains and flooding) that have added pressure on fresh food
items. Inflation is poised to accelerate even further in the coming
quarters as food prices should reflect the pressure in external
markets, while domestic demand is expected to remain on a
strong footing.
BanRep has been highlighting that its technical team projects
“with a high degree of confidence” that inflation will remain inside
the target range in 2011. BanRep’s official forecast was looking
for 2011 inflation only slightly above 2.0%, but this seems overly
optimistic, especially after the recent spike in local food inflation.
Market expectations are for inflation to finish 2011 well above
3%, and the downward trend in these forecasts has reversed
COUNTRY OVERVIEW
sharply in January following December’s upward surprise
(second chart).
We continue to see BanRep beginning to remove monetary
stimulus with an initial 25bp hike in April amid higher inflation and
activity data. We see the policy rate finishing 2011 at 5.5%.
55
Colombia: Should get the Investment Grade stamp this year
Reforms point to a better fiscal outlook, but Congress may still
water down key projects. The Santos administration has
presented a full plate of inter-related fiscal reforms to Congress,
including constitutional reforms to the royalties system and to
elevate fiscal stability to a constitutional right (on par with health
care); a fiscal rule proposal; and a so-called “mini-fiscal reform”
to reduce tax exemptions and eliminate loopholes. The originally
stated goal of the fiscal rule would be to reduce Colombia’s
central government debt from 39.4% of GDP in 2010 to 28.4% in
2015 via a very gradual move toward a primary surplus by the
end of Santos’ term.
The reform of laws governing energy/mining sector royalties
intends to better channel and manage the expected boom in the
coming years, including the creation of a centrally managed
counter-cyclical stabilization fund. The constitutional reforms
passed both houses of Congress in the 2H10 legislative session,
and now, as required under Colombian law, must be taken up
again in the 1H11 session. Royalties reform has good
momentum but could face further watering down, as local
interests push back against centralized control of the windfall.
The constitutional reform on fiscal stability is more controversial
and could face stepped up opposition. Overall, many crucial
details are set to be defined this year.
All three major rating agencies have Colombia’s rating one notch
below Investment Grade, with a positive outlook. The approval
and implementation of fiscal reforms may be a catalyst of rating
COUNTRY OVERVIEW
agency action. But at this point even a less-than-ideal final
reform package could earn Colombia an Investment Grade
rating, given the agencies’ overall positive assessment of
Colombia’s macroeconomic resilience and positive policy
agenda.
56
Colombia: Government has been fighting COP gains, but oil boom helps keep
external accounts robust
Since last September, BanRep has been buying US$20 million
per day in the FX spot market, a policy that has been extended
through March. The government also announced in November a
series of measures intended to curb COP appreciation, including
the postponement of monetization of external debt in 2010,
eventual purchases of USD in the forward markets to meet
external debt obligations, and the elimination of the exemption of
a 33% withholding tax on the interest payments for external
credit lines. If the COP/USD regains momentum, “tougher
measures” cannot be ruled out—like the resumption of capital
controls, last used in 2007.
Colombian President Santos, and Venezuelan President Chavez
have agreed to restore diplomatic ties. The bilateral frictions
intensified in the last years of the Uribe administration, causing
severe strain on bilateral trade in particular. The bulk of the
negative impact on Colombian exports was felt in 2009, but so
far there has been no recovery. At this point this means that
Venezuela is neither a drag on Colombian growth (on a
sequential basis) nor supportive of it.
The drop in Colombian exports has helped to tame inflation in
Colombia by increasing the domestic supply of food. If exports to
Venezuela regain traction, this could benefit Colombian industry
at the same time that it should add some pressure to food
inflation in Colombia.
Colombia’s external accounts have shown resilience despite the
Venezuela shock, as growth in “traditional exports”—mainly
COUNTRY OVERVIEW
commodities—have more than compensated the Venezuela-
related fall in “non-traditional” exports. Not only have terms of
trade been supportive, but Colombia has been increasing its
production and its exports—particularly in the oil sector. Crude
oil production was up 16.9% in 2010, having reached 825kbd by
December.
57
Ecuador: Correa has dominated a three-year political cycle but is finally facing
some noisy political challenges
President Correa won reelection under the new constitution in April
2009 in the first round vote. His four-year domination of Ecuadors
political landscape appeared until recently to represent a historic break
from the deadlocks and instability of the previous decade
Following his 2006 election, Correa managed to rewrite the constitution
and marginalize the traditional political parties
The constitution tilted the balance of power toward the executive; the
concern is that Ecuador is following a familiar illiberal model that has
undermined checks and balances and left institutions highly politicized
Public investment and popular social initiatives have helped keep a
floor under Correa’s approval ratings. Indeed, despite some erosion,
no Ecuadorean president in recent memory has had popularity this
resilient this far into his mandate
Correas popularity has declined in 2010 given corruption scandals,
tensions with specific social groups (teachers, indigenous,
environmentalists), and most importantly a sluggish economy.
The police mutiny of September 2010 (characterized by Correa as a
coup attempt) puts traditional Ecuadorean political turbulence back
in the spotlight. The confrontation with rebel police units, who had
rejected benefit cuts in the context of a larger civil service reform, was
the first major institutional challenge of Ecuadors new constitution
Correa survived the episode thanks to loyalists in the armed forces,
and his popularity even improved. But the presidents confrontational
style and relentless drive to take on what he perceives to be overly
COUNTRY OVERVIEW
influential interest groups means tension could flare up again
In 2011 we cannot rule out Correa playing the card of muerte
cruzada or the constitutional right to dissolve the legislature and
simultaneously call for new presidential and legislative elections
58
Ecuador: Current account is deteriorating, but dollarization supported by
reserves, China lending
The political commitment to dollarization seems strong but depends on
oil-generated current account surpluses or foreign lending. Structural
weaknesses in the balance of payments (ie an increasingly large non-oil
trade deficit) are exacerbated by loose fiscal policy.
The 2011 budget reveals an aggressive fiscal stance. The budget’s large
outlays for public investment and growing current expenditure leave
US$5.4 bon (9.5% of GDP) of financing needs—US$3.7 bn deficit plus
another US$1.6 bn of amortizations. US$1.1 bn of this would be raised
domestically while US$3.9 bn would be multilateral and bilateral lending.
Ecuador has also signed more than US$3.6 bn of lending deals since
2009 with China, which are paid with flows of crude. In 2010 these
include a US$1.7 bn loan for a large hydroelectric project, and a 4-year
US$1 bn loan to the Finance Ministry.
The government also continues to tap the liquidity in the public sector,
mainly from the state social security institute (IESS). This practice
impacts CB “reserves”, which are actually assets of the Treasury, local
governments, the IESS, and the private banking system.
All told, Ecuador’s lack of market access will constrain the ability to run $m n
such large deficits. Correa has stated in recent interviews that Ecuador
could look to return to international bond markets, but lingering ill-will
from the 2009 default makes this unlikely in the short term.
The trade deficit, which was almost zero at the end of 1H10, has swung
into a US$1.1 billion deficit during 3Q. Imports are soaring, with growth in
non-oil imports accelerating from a 22%oya growth pace in 1H10 to
44%oya in 3Q10. Exports are not keeping up with imports’ torrid pace.
COUNTRY OVERVIEW
Workers’ remittances—a traditional buffer for the BoP—remain
depressed (down 5% in 1H10 to US$1.1 billion). Despite the higher oil
prices observed since QE2, we now see the current account posting a
deficit in the order of US$400 million (0.7% of GDP) in 2010; our call for a
return to surplus in 2011 (1% of GDP) is reliant on J.P. Morgan’s oil price
forecast of $93/bbl for WTI (versus $80 in 2010).
59
Ecuador: The economy is rebounding, but strong domestic demand is leading to
external imbalances that will keep dollarization concerns alive
The government favors a highly state-centric economic model with
strong regulation. The government has taken a stronger stance and
rewritten contracts with a number of sectors.
The toughest discussions have been in the oil sector, where the
government forced foreign firms to adopt service provider contracts.
Five companies agreed to stay and increase investment, while four
companies (including Petrobras) decided to leave.
Overall oil production is down 5% since 2008 to an average of
480kbd in 2010. However public production has reached a new
historical high and private production—down more that 20%—may
rebound now that there is a resolution of the contract issue.
Growth is recovering. Ecuador reported 4.3%oya growth in 3Q10 up
from 2.7%oya in 2Q, and 0.65%oya in 1Q.
We revised our 2010 full-year forecast up to 3% from 2.5% given
the solid rebound in the region, firm commodity prices, and ongoing
public investment. For 2011 we now see 3.5%.
Domestic demand is surging, growing at 8.5% in the first three
quarters over the same period in 2009, behind private consumption
(7.1%) and investment (9%), most of which is coming from the
public sector. Meanwhile, net exports are an increasing drag, with
real imports up 18%oya in the first three quarters of the year,
compared to 2.5% for exports.
Public sector investment continues to be the main engine of growth,
as private sector demand has recovered but remains constrained.
The government’s investment program calls for roughly 15% of
COUNTRY OVERVIEW
GDP in public investment expenditure annually, which is only
possible in an environment where oil prices rise exponentially or
large-scale Chinese lending continues.
Ultimately, external financing constraints and perhaps renewed
fears over dollarization will be a limitation on growth
60
Peru: Elections dominates the political landscape, but risks seem subdued
The first round of presidential elections will take place on April
10, 2011, with a likely second round taking place on June 5
The early frontrunners in electoral polls (Keiko Fujimori, Luis
Castañeda and ex-President Toledo) are unlikely to make
meaningful changes to Peru’s market-oriented
macroeconomic policy. Moreover, even if nationalist candidate
Humala (currently with 10-12% in the polls) does make it to a
second round, he has been trying to distance himself from
Chavez-style policies, highlighting instead that he would
respect private property, preserve the independence of the
BCRP, not pursue expropriations, not seek reelection, etc.
Other candidates to watch include former finance minister
Pedro Pablo Kuczynski, who joined ranks with prominent
political leaders of northern Peru, as well as a candidate from
the center-left Fuerza Social party of the newly elected mayor
of Lima Susana Villaran. At this point, however, they seem
unlikely to make it to a second round.
51 55 51
We recognize that polling trends can still change dramatically Castaneda
in the months ahead, but at this point we see a relatively low 38
risk of exaggerated political noise around the 2011 vote. Toledo
31 32
There could be some modest political noise surrounding a K. Fujimori
proposal in Congress to lift mining royalties—potentially
including companies with stability contracts—which could
become a factor in the electoral debate
COUNTRY OVERVIEW
Scenario 1 Scenario 2 Scenario 3
61
Peru: BCRP took a “preventive” 25bp hike; policy rate to reach 4.5% by year-end
The BCRP hiked the policy rate by 25bp to 3.25% at the
first meeting of 2011. The move was described as
“preventive” in the face of the strong tone of domestic
demand as well as rising international food/energy prices.
2010 inflation ended at 2.1%, and we see the CPI reaching
2.5% in 2011. The BCRP has mentioned the recent spike
in international food and energy prices, stating that the
preventive rate hike aims to avoid any impact on
inflationary expectations.
We see GDP growing 8.8% in 2010, while the strong tone
of private investment should sustain growth at about 6.0%
in 2011. The BCRP updated the official 2010 GDP forecast
to 8.8% in the December Inflation Report from the 8.0%
forecast in the September Report. The Board has
mentioned that recent economic activity indicators have
been pointing to a strong expansion.
The recent measures that were taken by the BCRP—
increase in reserve requirements and the preventive rate
hike in January—should allow the Board to pause again
and take stock before starting a hiking cycle in earnest.
Given the latest move was “preventive” and that inflation
should remain relatively tame in the short-term, we keep
our call for the next rate hike to take place in April, with the
COUNTRY OVERVIEW
policy rate eventually rising to 4.5% by year-end. However,
if inflation or inflation expectations start to deteriorate,
BCRP has shown that it could react by adjusting monetary
policy again sooner than our base-case scenario—
especially as the output gap is poised to turn positive.
62
Peru: PEN should strengthen amid low volatility; further rating upgrades likely
The continued increase in commodity prices has been
limiting the deterioration in external accounts despite the
strong growth of domestic demand, and the current
account deficit should remain below 3% of GDP in 2011.
Constructive external accounts, limited evidence of
overvaluation of the PEN on a REER basis, a strong
growth outlook, additional monetary tightening and mild
and temporary election noise all augur well for further PEN
appreciation this year. We expect the strong measures
enacted by the authorities to keep PEN appreciation
gradual—but we see USD/PEN gradually appreciating to
2.75 by end-2011.
Fiscal expenditures surged in 2009 and in 1H10 on the
back of the fiscal stimulus program announced in 2008, but
started to moderate in 3Q10. In 2010 as a whole, the fiscal
stimulus should still add 1.2%-pts to 2010 GDP growth, but
the recent moderation in public expenditures will result in
fiscal tightening in 2011. Peru’s government is now aiming
to reduce public spending further, which could bring the
overall fiscal deficit to about 0.5% of GDP in 2011.
Rating agencies could well upgrade Peru in 2011. S&P
and Fitch both revised Peru’s rating outlook to positive in
2010, reflecting strong growth and fiscal and external
COUNTRY OVERVIEW
accounts that compare well against ratings peers
63
Venezuela: Politics have become more competitive—and thus will be even
noisier than usual heading toward 2012 presidential elections
President Chavez faced myriad challenges in 2010: sharp
stagflation, electricity rationing that exposed underinvestment
and mismanagement in the sector, a mini-banking crisis and
Chavez Opposition*
related scandals, and fallout from an unwieldy fx policy, including 7.31
a long-resisted formal devaluation and USD scarcity for the 6.31
private sector after closure of the parallel fx market 5.78
5.19 5.44
4.29 4.38 4.5
The business climate continues to be tense, marked by a new
wave of nationalizationsmany in the food distribution sectors
following 2009s takeover of some oil service providers
The on-again, off again confrontation with Colombia has
surprisingly eased with the election of Santos, but bilateral trade
remains depressed and the current dtente may be fleeting Presidential Constitutional Term-limits National
election - 2006 referendum - referendum - Assembly - 2010
2010s political challenges were in contrast to 2009, when 2007 2009
Chavez was flying high after a February 2009 referendum victory
left him free to run in 2012 presidential elections
Polls now show Chavezs popularity below 50%, and most
pollsters show the public remains skeptical of radicalization.
Chavezs PSUV still managed to maintain the simple majority in
the September 2010 National Assembly election, but the
opposition broke the qualified 2/3 majority and relegated the
PSUV to a minority in the popular vote
Lest one be tempted to believe the relatively strong opposition
showing would restore some semblance of checks and balances,
the lame-duck Assembly handicapped the incoming body by
COUNTRY OVERVIEW
granting Chavez decree power for 18 months
Chavez also asserted his power post-election with a new wave of
nationalizations. This suggests a double-down radicalization
strategy, though Chavez must balance this with better economic
performance if he hopes to recover popularity
64
Venezuela: Despite operational concerns, oil price rebound provides oxygen and
Orinoco reopening provides a long-term anchor
Oil accounts for over 90% of exports and half of government revenues
Although state oil company PDVSA consistently claims to be producing
close to 3 million bpd, OPEC data shows crude production down to just
over 2 million bpd
Highly subsidized domestic consumption has steadily increased even as
production has fallen, leading to concern that actual exports fall short of
the official figurespotentially contaminating official macroeconomic data
PDVSA cash flow difficulties intensified in 2009 along with the drop in oil
prices, as the company has been overburdened supporting social
spending, and struggled to devote enough money to CAPEX
PDVSA nationalized some 70 service provider in 2009. The episode
further undermined production and highlighted the risks of doing business
in Venezuela. PDVSA still faces potential multi-billion contingent legal
liabilities stemming from the 2007 nationalizations (Exxon / Conoco)
Higher oil prices and the official devaluation of the VEF versus the USD
in January 2010 should have helped PDVSAs cashflow in 2010 but there
are signs that operational difficulties persist
PDVSA has turned to China and Japan for financing, which it repays with
shipments of oil. In April, China confirmed $20 billion of new 10-year
lending. Since 2009, PDVSA placed almost US$11bn of bonded debt.
Despite the nationalization episodes of 2007-09, foreign oil companies
(IOCs and NOCs alike) in 2010 signed JVs with PDVSA to further
develop the Orinoco heavy crude block. Foreign companies with a long
term perspective note that Venezuela may have over 200 billion barrels
COUNTRY OVERVIEW
of reserves when including the unconventional heavy crudeputting the
country on par with Saudi Arabia
The bidding for the Orinoco’s prized Carabobo fields finally advanced in
2010 after months of delays, and several new JVs have been formed.
Even so, actual increases in production of heavy crude may only occur
by 2012-13, assuming companies agree to go ahead with multi-billion
dollar investments 65
Venezuela: Devaluation should ease fiscal pressure in 2011, but the FX regime
remains cumbersome
On December 30, 2010, Venezuela’s economic team announced that
it was unifying the official FX rate at 4.3, eliminating the preferential
2.6 rate that prevailed in 2010. The move is effectively a devaluation.
On December 30, 2010, Venezuela’s economic team announced that
it was unifying the official FX rate at 4.3, eliminating the preferential
2.6 rate that prevailed in 2010. The move is effectively a devaluation.
Venezuela has operated under capital controls with a fixed FX regime
for much of the 2000s, and between 2005 and early 2010 the official
FX rate was pegged at 2.15.
In January 2010, the government announced dual official rates, with
FX controls agency CADIVI disbursing official-rate USD at an FX rate
of 2.6 for some “essential” and 4.3 other FX needs
Several months later, the government effectively closed a broker-led
private parallel FX market (that had blossomed after 2006) and
replaced it with a much more constrained “alternative” FX market
called SITME, which is heavily managed by the Central Bank (BCV).
SITME functions by providing a secondary market platform where
USD-denominated international Venezuela and PDVSA bonds can be
purchased by locals (via local banks) in exchange for local currency
(VEF) at an implied FX rate of 5.3.
In addition, Venezuela’s public sector has continued to supplement
the local demand for FX by selling new issues of USD-denominated
external debt directly to locals (outside of SITME) at an implied FX
rate that generally falls in between the official and parallel rates.
Finally, while the grey parallel market became illegal in 2010, by all
COUNTRY OVERVIEW
local accounts an underground parallel market continues to exist.
Devaluation is positive for fiscal accounts. In theory it magnifies the
local currency value of the USD-denominated oil revenues flowing
into the governments budget (though in practice more cash may be
flowing into parallel budget structures).
66
Venezuela: Growth should turn modestly positive in 2011 after two years of recession,
but capital flight remains a drag on GDP and the BoP
Venezuela was the last and the slowest country in Latin America to exit
recession. A return to the double-digit growth pace seen earlier in the
decade is unlikely. Loose fiscal and monetary policies are no longer
getting much traction, given stubbornly high inflation (close to 30%),
ongoing supply side constraints from restrictive price controls and the
FX regime, and a prevailing environment of private sector fear and
uncertainty stemming from the government’s ongoing nationalization
campaign.
GDP fell 0.4%oya in 3Q10. This was the sixth consecutive quarter
posting an oya decline, but a smaller contraction than the 3.5%oya fall
in 1H10.
Domestic demand is rebounding—4.1%oya in 3Q was the first positive
print since 1Q09—led by public sector consumption (+3.4%oya) and
investment (+4.4%oya). However, private consumption remains
depressed and net exports have swung from a cushion to GDP to a
drag as export volumes stagnate and imports recover.
With the release of the 3Q data, we have tweaked our 2010 outlook to a
1.5% decline in GDP (from -2.2% previously and compared to the
BCV’s preview of -1.9%). Our 2011 GDP forecast stands at 1.5%
meager increase. Supply side bottlenecks and loose monetary policy
leave inflation entrenched at close to 30% despite the recession
We expect a full-year US$15 billion current account surplus in 2010, or
some 7.5% of GDP. Our 9.5% of GDP surplus forecast for 2011
depends on J.P. Morgan’s positive scenario for oil prices (over $90/bbl)
Current account surpluses have been more than consumed by capital
COUNTRY OVERVIEW
account deficits. Unlike the 2006-08 period, when the government was
exporting capital on a net basis to off-budget funds, the capital account
deficit is now a story of private sector capital flight financed by a
deterioration of the sovereign balance sheet.
Public debt to GDP is now close to 45% (including China lending).
67
Uruguay: Consolidating its fundamental outperformance
Real GDP continues to exceed expectations and post impressive numbers, with
growth reaching 8.8%oya in January-September 2010 supported by all economic
sectors. Based on the latest trends, we have raised our real GDP growth forecast to 0.0
8.5% for 2010, a level that would mark a significant improvement on last year’s 0.0
2.9%, and to 6.2% for 2011
-0.5
-0.5 -0.5
Consumer prices rose 0.5%m/m in December, matching the level posted a year
earlier, causing annual inflation to remain unchanged at 6.9% from November. Our -0.7
-0.8
current forecast calls for inflation to moderate to 6.5% in 2011, an improvement on -1.0
last year, but not enough to meet the official 5% (+/-1%) target
The unemployment rate fell to a record low 6.1% in November from 6.2% in October -1.5
-1.5
and 7.0% a year earlier. While the decline in November was driven largely by
-1.7
improved labor market conditions in Montevideo, it is in the interior regions of the
-2.0 -1.9
country where the improvement has been more pronounced. We view the steady 2004 2005 2006 2007 2008 2009E 2010F 2011F
decline in unemployment as a testament to the strength of the economy
Sources: MEF, J.P. Morgan
The consolidated fiscal deficit for the 12 months through November came in at 1.1%
of GDP (US$449 million), lower than the 1.3% of GDP shortfall posted in October. Uruguay 2008 2009 2010F 2011F
As both the economy and fiscal revenues expanded and the government returned to
a neutral fiscal stance after absorbing extraordinary one-off expenses related to a Nominal GDP (US$MM) 31,199 31,553 40,050 43,728
severe drought, we believe the fiscal deficit likely moderated to around 0.8% of GDP Real GDP (% change) 8.5 2.9 8.5 6.2
in full 2010. We expect positive economic and fiscal momentum to underpin a
Inflation (% change y/y) 9.2 5.9 6.9 6.5
further decline in the deficit to 0.5% of GDP in 2011
FX Rate (Pesos/US$, eop) 24.4 19.6 20.1 20.4
The trade deficit narrowed 0.7%oya in the first ten months of 2010, underpinned by
a 23.4%oya surge in exports and an 18.6%oya increase in imports. Exports totaled Fiscal Balance (% GDP) -1.5 -1.7 -0.8 -0.5
US$5.56 billion, and imports amounted to US$6.67 billion between January and Trade Balance (US$MM) -3,128 -1,521 -1,491 -2,750
October, resulting in a trade deficit of US$1.11 billion, down from a US$1.12 billion
shortfall during the corresponding period of 2009. While we expect a 2%y/y Current Account (US$MM) -1,486 215 175 -850
narrowing to US$1.49 billion (3.7% of GDP) in last year’s trade deficit to contribute Current Account /GDP (%) -4.8 0.7 0.4 -1.9
to a 0.4% of GDP full-2010 current account surplus, we believe this year's trade
shortfall will almost double to US$2.75 billion (6.3% of GDP), contributing to a 1.9% Pub. Sec. Ext. Debt (% GDP) 34.4 40.5 32.7 30.5
of GDP current account deficit in 2011
COUNTRY OVERVIEW
Pub. Sec. Dom. Debt (% GDP) 18.6 28.9 24.7 23.1
Bolstered by a 14.9%oya rise to 1.7 million in tourist arrivals, tourism revenues Pub. Sec. Total Debt (% GDP) 53.0 69.4 57.4 53.6
surged 15.2%oya to US$1.1 billion during the first nine months of 2010. The year-
Net Int. Reserves (US$MM) 6,360 7,987 7,650 7,875
to-date totals put the tourism sector on track to extend the favorable performance it
registered in 2009, when tourist arrivals climbed 5%y/y to 2.1 million and tourism
Sources: MEF, BCU, J.P. Morgan
earnings jumped 26% to US$1.3 billion.
68
Dominican Republic: Outlook improves
Fitch on January 5 revised the outlook on DomRep’s B rating to positive from stable.
The revision was prompted by three factors: (1) the economy’s resilience during the
global financial crisis, which was supported by a Stand-by Arrangement with the IMF,
12 10.7
(2) improving export prospects, and (3) structural improvements in public debt
management. Following the favorable rating action, DomRep now has positive 10 9.3
outlooks from Fitch and S&P, both of which have a B rating on the country, one notch 8.5
7.8
lower than Moody’s B1 (stable outlook). Given DomRep’s recent fundamental 8
outperformance, like Fitch, we too view the country as an improving credit story 6.0
6 5.3
Real GDP grew by a higher-than-expected 7.8% in 2010. While all major sectors of 3.5
the economy registered positive growth last year, the strongest performance was 4
posted by the commerce (+12.1%y/y), financial services (+11.3%y/y), local
manufacturing (+8.6%y/y), and communications (+8.4%y/y) categories. Positive
2
momentum and an improvement in the external environment should enable the
0
Dominican economy to expand by a robust 6%y/y in 2011
2005 2006 2007 2008 2009 2010F 2011F
Tourism revenues surged US$188 million (4.6%y/y) to US$4.24 billion in 2010,
registering a significant improvement on the US$115 million (2.8%y/y) contraction to
US$4.06 billion they posted in 2009. Last year’s increase in earnings was supported
Dominican Republic 2008 2009 2010F 2011F
by a recovery in foreign tourist arrivals, which rose 3.3%oya through November after
falling 0.9%y/y to 3.42 million in 2009. Official estimates call for growth in travel Nominal GDP (US$MM) 45,718 46,712 51,900 55,800
receipts to strengthen in 2011, boosting them to US$4.54 billion, up 7.1%y/y
Real GDP (% change) 5.3 3.5 7.8 6.0
Remittances shrank 2.8% (US$85 million) to US$2.96 billion in 2010 from US$3.04 Inflation (% change y/y) 4.5 5.8 6.2 6.0
billion in 2009. The deterioration was driven primarily by declines in the second FX Rate (Pesos/US$) 35.4 36.1 37.6 38.9
(-6.2%oya) and third (-8.1%oya) quarters, with figures for the first quarter showing a
Fiscal Balance (% GDP)* -4.4 -4.5 -3.8 -3.0
negligible 0.1%oya drop and the final tally for the fourth quarter likely to show a
3.3%oya expansion. Based on recent trends, we expect remittances to increase Trade Balance (US$MM) -9,245 -6,741 -8,191 -8,220
5.0%y/y to US$3.07 billion this year Current Account (US$MM) -4,519 -2,159 -3,865 -3,542
Foreign direct investment (FDI) fell 26.0% to US$1.53 billion (2.9 of GDP) in 2010 Current Account /GDP (%) -9.9 -4.6 -7.4 -6.3
from US$2.07 billion (4.4% of GDP) in 2009, when inflows had already contracted Pub. Sec. Ext. Debt (% GDP)* 15.8 17.6 18.2 17.9
28%y/y. The government expects FDI to surge 30%y/y to US$1.99 billion (3.6% of
Pub. Sec. Dom. Debt (% GDP)* 20.0 22.3 21.2 20.1
projected GDP) in 2011
COUNTRY OVERVIEW
Total Pub. Sec. Debt (% GDP)* 35.8 39.9 39.4 38.0
Foreign Reserves (US$MM)** 2,165 2,852 3,343 3,650
*Consolidated public sector deficit. **NIR. Sources: Central Bank, Ministry of Finance, J.P. Morgan
69
El Salvador: Recovering slowly but surely
The central bank’s monthly index of economic activity (IVAE) rose 2.5%oya (sa) in
October, bouncing back significantly from the 5.8%oya (sa) decline it posted a year
earlier. The latest monthly reading took the 12-month moving average to 0.4%oya,
up from -0.3%oya in September. Real GDP shrank 3.5% in 2009, in line with our 4.2 4.3
5
forecast. Hopeful that a US recovery will provide a boost to the domestic economy, 3.3
4
the government expects real GDP to expand 1% in 2010 and 2.5% in 2011, higher 2.4
3
than our projections of 0.5% and 1.8%, respectively 1.8
2
1 0.5
A 0.1%m/m fall in the December CPI, compared with a 0.4%m/m contraction a year
earlier, led annual inflation to rise to 2.1% from 1.8% in November. Boosted by a 0
recovery, albeit modest, in domestic demand, the full 2010 reading was higher than -1
2009’s -0.2% annual print, yet still lower than the official 2.5-3.5% projection. We -2
expect annual inflation to remain relatively low (~2.8%) in 2011, owing largely to -3
below-potential real GDP growth (~1.8%) and anticipated USD strength in the near -4
-3.5
term -5
2005 2006 2007 2008 2009 2010F 2011F
The deficit of the non-financial public sector (NFPS) narrowed 25.9% to US$673
million (3.1% of GDP) during the first eleven months of 2010 from US$909 million
(4.3% of GDP) a year earlier. The NFPS deficit climbed to 5.6% of GDP in 2009 from
3.1% of GDP in 2008 amid the global financial crisis. The Funes administration El Salvador 2008 2009 2010F 2011F
believes the fiscal shortfall likely declined to 4.8% of GDP last year supported by a
recovery in economic activity (which contracted 3.5%y/y in 2009) and tax revenues Nominal GDP (US$MM) 22,107 21,101 21,796 22,953
(which shrank 9.6%y/y in 2009), and expects it to fall to 3.5% of GDP in 2011
Real GDP (% change) 2.4 -3.5 0.5 1.8
Remittances rose 4.0% to US$273 million in November from US$263 million a year Inflation (% change y/y) 5.5 -0.2 2.1 2.8
earlier, boosting the tally for the first eleven months of 2010 to US$3.2 billion, 2.3%
FX Rate (US$/US$) 1.0 1.0 1.0 1.0
higher than during the corresponding period of 2009. Remittances totaled US$3.47
billion in 2009, posting an 8.5%y/y decrease, compared with a 2.5%y/y increase in Fiscal Balance (% GDP) -3.1 -5.6 -4.8 -3.5
2008. Prompted by a recovery in economic activity in the US, where an estimated Trade Balance (US$MM) -5,205 -3,457 -4,011 -4,667
2.5 million Salvadorans reside, we project remittances to increase 2.5%y/y to
Current Account (US$MM) -1,682 -374 -605 -710
US$3.55 billion in 2010 and by a further 4.5%y/y to US$3.71 billion in 2011
Current Account/GDP (%) -7.6 -1.8 -2.8 -3.1
The trade deficit widened 17.3%oya during the first eleven months of 2010,
Pub. Sec. Ext. Debt (% GDP)* 26.4 31.0 31.7 31.6
underpinned by a 16.9%oya rise in exports and a 17.1%oya increase in imports. The
COUNTRY OVERVIEW
trade deficit shrank 33.6%y/y to US$3.5 billion (16.4% of GDP) in 2009, as a Pub. Sec. Dom. Debt (% GDP)* 17.6 21.9 22.5 22.4
25.6%y/y plunge in imports outweighed a 16.5%y/y decrease in exports. As a
Total Pub. Sec. Debt (% GDP)* 44.0 53.0 54.1 54.0
recovery in global and domestic demand boosts both exports and imports, we expect
the trade deficit to increase 16.0%y/y to US$4.0 billion (18.4% of GDP) in 2010 and Foreign Reserves (US$MM) 2,541 2,985 2,815 2,935
by an additional 16.4%y/y to US$4.7 billion (20.3% of GDP) in 2011 *NFPS. Sources: BCR, MinFin, EIU, J.P. Morgan
70
Jamaica: IMF program still on track
Real GDP contracted 1.3%oya through September 2010 owing to the slow
pace of global recovery and a drop in activity due to the security operations
in Kingston in 2Q10. We believe the economy contracted again in the
Real GDP CPI
fourth quarter mostly due to the damage caused by the recent tropical 5 20
3.5 3.0 1.4
storms, resulting in a full-year contraction of 1-1.5%, marking the third
3 1.4
consecutive year of recession. A recovery in remittances, which would 1.1 1.0 15
boost private consumption, and a rebound in the mining and tourism 1
10
sectors should aid growth in 2011. However, we expect growth to be -1
lackluster and project weak positive growth of 1.0% in 2011 owing to the -0.9
-3 -1.0 5
still gradual global recovery and the IMF-mandated austerity measures
-3.0
-5 0
Fiscal consolidation may be challenging in 2011. The central government
2003 2004 2005 2006 2007 2008 2009 2010F 2011F
posted a deficit of US$585 million, or 4.3% of GDP, through the first eight
months of FY10/11. Fiscal accounts have outperformed in recent months,
mostly on the back of expenditure restraint, but the recent tropical storms
and the still-weak economy suggest that this outperformance is unlikely to
last. After posting a deficit of 10.8% in FY09/10 and an expected 7.5% in
FY10/11, we expect the deficit to narrow further, to 5.5% of GDP, in
FY11/12. Our estimates are higher than what is programmed in the IMF
SBA given our less optimistic growth forecasts
Overall Fiscal B alance (FY)
Jamaica comfortably met its third set of quarterly targets under the IMF Current A cco unt B alance
program at the end of November, but the risk of noncompliance in 2011, -2.0
especially with fiscal targets, is rising given the costs related to storm -3.3
-6.0 -4.3-5.0
damage, weak tax collections and potential inability to implement public -5.2 -5.5 -5.5 -5.5
-6.4
sector job cuts. Program disbursements so far amount to US$838 million, -10.0 -6.9-8.1 -6.8
-7.2-7.5
or 66% of the total loan. The next disbursement of US$200 million, in -9.6 -9.9
-14.0 -10.8
February 2011, will be based on end-December targets
-18.0 -15.7
The CAD will likely widen in 2011, in line with rising import demand. We
-22.0 -20.0
COUNTRY OVERVIEW
expect the CAD to narrow from US$912 million (7.2% of GDP) in 2009 to
US$725 million (5.5% of GDP) in 2010 but to widen to US$930 million 2003 2005 2007 2009 2011F
(6.4% of GDP) in 2011 as oil prices remain high and exports weak on
sluggish external demand
71
Panama: Shining bright
Seasonally-adjusted growth in the monthly index of economic activity (IMAE) came
in at 7.0%oya in October, a considerable improvement on the modest 0.5%oya
expansion it posted a year earlier. Real GDP growth averaged 9.1% between 2004
6.0
and 2008 and while it slowed to 3.2% in 2009 amid the global recession, the
government estimates that the economy expanded more than 7% in 2010 bolstered 3.5
4.0
by the ongoing expansion of the Canal and an ambitious public investment
program. We expect positive momentum to underpin growth of 6.3% in 2011 2.0 0.5 0.5
0.4 0.0
The non-financial public sector (NFPS) deficit came in at 1.8% of GDP (US$489 0.0
million) in January-September 2010, down from 2.4% (US$575 million) during the
first nine months of 2009. We believe that higher revenues (including sizeable year- -2.0 -1.1
end public transfers) and tight expenditure controls will enable the Martinelli
administration to deliver a balanced result for full 2010, which we expect to become -4.0 -3.2
a small surplus (0.5% of GDP) in 2011 -6.0
A 6.6%oya increase in cargo tonnage traveling through the Canal drove toll 2005 2006 2007 2008 2009 2010F 2011F
revenues to expand 6.8%oya in October to US$144 million. October’s favorable
performance took the toll tally for the first ten months of 2010 to US$1.24 billion,
2.1% higher than in the same period of 2009. Toll revenues totaled US$1.47 billion
in 2009, posting a 7.9% improvement on 2008. Increased canal traffic, which
Panama 2008 2009 2010F 2011F
according to ACP estimates may grow 1.5%y/y in 2011 as global trade recovers,
and higher toll rates should boost revenues going forward. The government
Nominal GDP (US$MM) 23,184 24,349 26,541 29,062
expects to receive US$839 million (2.9% of GDP) in transfers from the ACP in 2011
Real GDP (% change) 10.1 3.2 7.2 6.3
Tourist arrivals rose 4.4%oya to 134,000 in October, taking the total number of
Inflation (% change eop) 6.8 1.9 4.9 4.5
visitors for the first ten months of 2010 to 1.35 million, or 10.1%oya higher than a
year earlier. Bolstered by a significant increase in arrivals for the month, tourism FX Rate (Balboas/US$) 1.0 1.0 1.0 1.0
revenues rose 9.7%oya to US$141 million in October, taking the year-to-date tally Fiscal Balance (% GDP)* 0.4 -1.1 0.0 0.5
to US$1.37 billion, or 14.2% higher than in January-October 2009. While the
Trade Balance (US$MM) -4,546 -2,123 -4,750 -4,350
number of visitors fell 0.8%y/y in 2009 to 1.56 million, tourism earnings increased to
a record US$1.48 billion last year, 5.3% higher than the year before. Based on Current Account (US$MM) -2,722 -44 -3,125 -2,275
recent trends, we expect the number of foreign visitors to increase ~10%y/y in Current Account /GDP (%) -11.7 -0.2 -11.8 -7.8
2010, boosting tourism revenues by 13.5%y/y to US$1.7 billion
Pub. Sec. Ext. Debt (% GDP) 36.6 41.7 38.4 36.5
COUNTRY OVERVIEW
Pub. Sec. Dom. Debt (% of GDP) 8.5 3.4 5.6 5.7
Pub. Sec. Total Debt (% GDP) 45.0 45.1 44.0 42.2
Foreign Reserves (US$MM) 2,424 3,082 3,525 3,825
*NFPS. Sources: Comptroller General's Office, Ministry of Economy and Finance, J.P. Morgan
72
Latin America economic forecasts
COUNTRY OVERVIEW
73
Latin America economic forecasts (cont.)
COUNTRY OVERVIEW
74
Disclosures
Analyst Certification:
The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst
denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the
views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s
compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report
Conflict of Interest: This research contains the views, opinions and recommendations of J.P. Morgan credit research analysts. Research analysts routinely consult with J.P. Morgan
trading desk personnel in formulating views, opinions and recommendations in preparing research. Trading desks may trade, or have traded, as principal on the basis of the research
analyst(s) views and report(s). Therefore, this research may not be independent from the proprietary interests of J.P. Morgan trading desks which may conflict with your interests. In
addition, research analysts receive compensation based, in part, on the quality and accuracy of their analysis, client feedback, trading desk and firm revenues and competitive factors. As
a general matter, J.P. Morgan and/or its affiliates normally make a market and trade as principal in fixed income securities discussed in research reports.
Important Disclosures
Explanation of Credit Research Ratings:
Ratings System: J.P. Morgan uses the following sector/issuer portfolio weightings: Overweight (over the next three months, the recommended risk position is expected to outperform
the relevant index, sector, or benchmark), Neutral (over the next three months, the recommended risk position is expected to perform in line with the relevant index, sector, or
benchmark), and Underweight (over the next three months, the recommended risk position is expected to underperform the relevant index, sector, or benchmark). J.P. Morgan’s
Emerging Market research uses a rating of Marketweight, which is equivalent to a Neutral rating.
Valuation and Methodology: In J.P. Morgan’s credit research, we assign a rating to each company (Overweight, Underweight or Neutral) based on our credit view of the company and
the relative value of its financial instruments, taking into account the ratings assigned to the company by credit rating agencies and the market prices for the company’s securities. Our
credit view of a company is based upon our opinion as to whether the company will be able service its debt obligations when they become due and payable. We assess this by
analyzing, among other things, the company’s credit position using standard credit ratios such as cash flow to debt and fixed charge coverage (including and excluding capital
investment). We also analyze the company’s ability to generate cash flow by reviewing standard operational measures for comparable companies in the sector, such as revenue and
earnings growth rates, margins, and the composition of the company’s balance sheet relative to the operational leverage in its business.
Other Disclosures
J.P. Morgan is the global brand name for J.P. Morgan Securities LLC (JPMS) and its non-US affiliates worldwide. J.P. Morgan Cazenove is a brand name for equity research produced
by J.P. Morgan Securities Ltd.; J.P. Morgan Equities Limited; JPMorgan Chase Bank, N.A., Dubai Branch; and J.P. Morgan Bank International LLC.
Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk
disclosure documents. For a copy of the Option Clearing Corporation’s Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the
OCC’s website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf.
Legal Entities Disclosures
U.S.: JPMS is a member of NYSE, FINRA and SIPC. J.P. Morgan Futures Inc. is a member of the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and
regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorised and regulated by the
Financial Services Authority. Registered in England & Wales No. 2711006. Registered Office 125 London Wall, London EC2Y 5AJ. South Africa: J.P. Morgan Equities Limited is a
member of the Johannesburg Securities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the
Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is regulated by the Korea
Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia
Limited (ABN 61 003 245 234/AFS Licence No: 238066) is a Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of
the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited is a member of the National Stock
Exchange of India Limited and Bombay Stock Exchange Limited and is regulated by the Securities and Exchange Board of India. Thailand: JPMorgan Securities (Thailand) Limited is a
COUNTRY OVERVIEW
member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia
is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock Exchange
and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of
Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the
National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS)
[MICA (P) 020/01/2010 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of
Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. Malaysia: This material is issued and distributed in
75
Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by
the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and exchange
Commission of Pakistan. Saudi Arabia: J.P.Morgan Saudi Arabia Ltd. is authorised by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent,
arranging, advising and custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O.
Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered
address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.
Country and Region Specific Disclosures
U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMSL. Investment research issued by
JPMSL has been prepared in accordance with JPMSL’s policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European
regulators require that a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49
of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on
by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant
persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and
distributed by JPMSAL in Australia to “wholesale clients” only. JPMSAL does not issue or distribute this material to “retail clients.” The recipient of this material must not distribute it to any
third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms “wholesale client” and “retail client” have the meanings given to
them in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd., Frankfurt Branch and J.P.Morgan Chase Bank, N.A.,
Frankfurt Branch which are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the
requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published
within the first ten days of the month, the disclosure may be based on the month end data from two months’ prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider for
derivative warrants issued by J.P. Morgan Structured Products B.V. and listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website:
http://www.hkex.com.hk/prod/dw/Lp.htm. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due
to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax
(shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance.
Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The
Financial Futures Association of Japan. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul
Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is
disclosed in the Important Disclosures section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is
issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business,
habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of
this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no
circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein,
in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus
with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer
registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as
investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer
incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No
securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the
securities described herein, and any representation to the contrary is an offense. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA
rules.
General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries
(collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst’s involvement with the
issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of
the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase
COUNTRY OVERVIEW
or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as
recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any
securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may
be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact
analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.
“Other Disclosures” last revised September 1, 2010.
Copyright 2010 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of
J.P. Morgan.
76
Anda mungkin juga menyukai
- Ma AdvisorDokumen2 halamanMa Advisorjennifer4217Belum ada peringkat
- Mexico101 2012Dokumen84 halamanMexico101 2012jennifer4217Belum ada peringkat
- Mexico101 2012Dokumen84 halamanMexico101 2012jennifer4217Belum ada peringkat
- Mexico 101 (2011 Report)Dokumen84 halamanMexico 101 (2011 Report)jennifer4217Belum ada peringkat
- JPM Mexico Economic Comment 2012-03!30!819544Dokumen6 halamanJPM Mexico Economic Comment 2012-03!30!819544jennifer4217Belum ada peringkat
- Latin America Equity ResearchDokumen76 halamanLatin America Equity Researchjennifer4217Belum ada peringkat
- The Subtle Art of Not Giving a F*ck: A Counterintuitive Approach to Living a Good LifeDari EverandThe Subtle Art of Not Giving a F*ck: A Counterintuitive Approach to Living a Good LifePenilaian: 4 dari 5 bintang4/5 (5784)
- The Yellow House: A Memoir (2019 National Book Award Winner)Dari EverandThe Yellow House: A Memoir (2019 National Book Award Winner)Penilaian: 4 dari 5 bintang4/5 (98)
- Never Split the Difference: Negotiating As If Your Life Depended On ItDari EverandNever Split the Difference: Negotiating As If Your Life Depended On ItPenilaian: 4.5 dari 5 bintang4.5/5 (838)
- Shoe Dog: A Memoir by the Creator of NikeDari EverandShoe Dog: A Memoir by the Creator of NikePenilaian: 4.5 dari 5 bintang4.5/5 (537)
- The Emperor of All Maladies: A Biography of CancerDari EverandThe Emperor of All Maladies: A Biography of CancerPenilaian: 4.5 dari 5 bintang4.5/5 (271)
- Hidden Figures: The American Dream and the Untold Story of the Black Women Mathematicians Who Helped Win the Space RaceDari EverandHidden Figures: The American Dream and the Untold Story of the Black Women Mathematicians Who Helped Win the Space RacePenilaian: 4 dari 5 bintang4/5 (890)
- The Little Book of Hygge: Danish Secrets to Happy LivingDari EverandThe Little Book of Hygge: Danish Secrets to Happy LivingPenilaian: 3.5 dari 5 bintang3.5/5 (399)
- Team of Rivals: The Political Genius of Abraham LincolnDari EverandTeam of Rivals: The Political Genius of Abraham LincolnPenilaian: 4.5 dari 5 bintang4.5/5 (234)
- Grit: The Power of Passion and PerseveranceDari EverandGrit: The Power of Passion and PerseverancePenilaian: 4 dari 5 bintang4/5 (587)
- Devil in the Grove: Thurgood Marshall, the Groveland Boys, and the Dawn of a New AmericaDari EverandDevil in the Grove: Thurgood Marshall, the Groveland Boys, and the Dawn of a New AmericaPenilaian: 4.5 dari 5 bintang4.5/5 (265)
- A Heartbreaking Work Of Staggering Genius: A Memoir Based on a True StoryDari EverandA Heartbreaking Work Of Staggering Genius: A Memoir Based on a True StoryPenilaian: 3.5 dari 5 bintang3.5/5 (231)
- On Fire: The (Burning) Case for a Green New DealDari EverandOn Fire: The (Burning) Case for a Green New DealPenilaian: 4 dari 5 bintang4/5 (72)
- Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic FutureDari EverandElon Musk: Tesla, SpaceX, and the Quest for a Fantastic FuturePenilaian: 4.5 dari 5 bintang4.5/5 (474)
- Rise of ISIS: A Threat We Can't IgnoreDari EverandRise of ISIS: A Threat We Can't IgnorePenilaian: 3.5 dari 5 bintang3.5/5 (137)
- The Hard Thing About Hard Things: Building a Business When There Are No Easy AnswersDari EverandThe Hard Thing About Hard Things: Building a Business When There Are No Easy AnswersPenilaian: 4.5 dari 5 bintang4.5/5 (344)
- The Unwinding: An Inner History of the New AmericaDari EverandThe Unwinding: An Inner History of the New AmericaPenilaian: 4 dari 5 bintang4/5 (45)
- The World Is Flat 3.0: A Brief History of the Twenty-first CenturyDari EverandThe World Is Flat 3.0: A Brief History of the Twenty-first CenturyPenilaian: 3.5 dari 5 bintang3.5/5 (2219)
- The Gifts of Imperfection: Let Go of Who You Think You're Supposed to Be and Embrace Who You AreDari EverandThe Gifts of Imperfection: Let Go of Who You Think You're Supposed to Be and Embrace Who You ArePenilaian: 4 dari 5 bintang4/5 (1090)
- The Sympathizer: A Novel (Pulitzer Prize for Fiction)Dari EverandThe Sympathizer: A Novel (Pulitzer Prize for Fiction)Penilaian: 4.5 dari 5 bintang4.5/5 (119)
- Her Body and Other Parties: StoriesDari EverandHer Body and Other Parties: StoriesPenilaian: 4 dari 5 bintang4/5 (821)
- Purposive Communication Module 1Dokumen18 halamanPurposive Communication Module 1daphne pejo100% (4)
- Lost Temple of Forgotten Evil - Adventure v3 PDFDokumen36 halamanLost Temple of Forgotten Evil - Adventure v3 PDFВячеслав100% (2)
- (Template) Grade 6 Science InvestigationDokumen6 halaman(Template) Grade 6 Science InvestigationYounis AhmedBelum ada peringkat
- Sample Letter of Intent To PurchaseDokumen2 halamanSample Letter of Intent To PurchaseChairmanBelum ada peringkat
- Independent Study of Middletown Police DepartmentDokumen96 halamanIndependent Study of Middletown Police DepartmentBarbara MillerBelum ada peringkat
- McLeod Architecture or RevolutionDokumen17 halamanMcLeod Architecture or RevolutionBen Tucker100% (1)
- Wonder at The Edge of The WorldDokumen3 halamanWonder at The Edge of The WorldLittle, Brown Books for Young Readers0% (1)
- 5 6107116501871886934Dokumen38 halaman5 6107116501871886934Harsha VardhanBelum ada peringkat
- Political Philosophy and Political Science: Complex RelationshipsDokumen15 halamanPolitical Philosophy and Political Science: Complex RelationshipsVane ValienteBelum ada peringkat
- An Analysis of Students Pronounciation Errors Made by Ninth Grade of Junior High School 1 TengaranDokumen22 halamanAn Analysis of Students Pronounciation Errors Made by Ninth Grade of Junior High School 1 TengaranOcta WibawaBelum ada peringkat
- 2010 Economics Syllabus For SHSDokumen133 halaman2010 Economics Syllabus For SHSfrimpongbenardghBelum ada peringkat
- ModalsDokumen13 halamanModalsJose CesistaBelum ada peringkat
- Neligence: Allows Standards of Acceptable Behavior To Be Set For SocietyDokumen3 halamanNeligence: Allows Standards of Acceptable Behavior To Be Set For SocietyransomBelum ada peringkat
- Strategies To Promote ConcordanceDokumen4 halamanStrategies To Promote ConcordanceDem BertoBelum ada peringkat
- FCE Listening Test 1-5Dokumen20 halamanFCE Listening Test 1-5Nguyễn Tâm Như Ý100% (2)
- Tanroads KilimanjaroDokumen10 halamanTanroads KilimanjaroElisha WankogereBelum ada peringkat
- Detailed Lesson PlanDokumen5 halamanDetailed Lesson PlanHazel Mae HerreraBelum ada peringkat
- PHEI Yield Curve: Daily Fair Price & Yield Indonesia Government Securities November 2, 2020Dokumen3 halamanPHEI Yield Curve: Daily Fair Price & Yield Indonesia Government Securities November 2, 2020Nope Nope NopeBelum ada peringkat
- hcpb7 v7r1Dokumen2.296 halamanhcpb7 v7r1Jose Gregorio Vivas LemusBelum ada peringkat
- BICON Prysmian Cable Cleats Selection ChartDokumen1 halamanBICON Prysmian Cable Cleats Selection ChartMacobBelum ada peringkat
- BCIC General Holiday List 2011Dokumen4 halamanBCIC General Holiday List 2011Srikanth DLBelum ada peringkat
- Education: Address: Mansoura, EL Dakhelia, Egypt EmailDokumen3 halamanEducation: Address: Mansoura, EL Dakhelia, Egypt Emailmohammed sallemBelum ada peringkat
- De So 2 de Kiem Tra Giua Ki 2 Tieng Anh 8 Moi 1677641450Dokumen4 halamanDe So 2 de Kiem Tra Giua Ki 2 Tieng Anh 8 Moi 1677641450phuong phamthihongBelum ada peringkat
- Kedudukan Dan Fungsi Pembukaan Undang-Undang Dasar 1945: Pembelajaran Dari Tren GlobalDokumen20 halamanKedudukan Dan Fungsi Pembukaan Undang-Undang Dasar 1945: Pembelajaran Dari Tren GlobalRaissa OwenaBelum ada peringkat
- Training Effectiveness ISO 9001Dokumen50 halamanTraining Effectiveness ISO 9001jaiswalsk1Belum ada peringkat
- Trang Bidv TDokumen9 halamanTrang Bidv Tgam nguyenBelum ada peringkat
- 2 - How To Create Business ValueDokumen16 halaman2 - How To Create Business ValueSorin GabrielBelum ada peringkat
- BI - Cover Letter Template For EC Submission - Sent 09 Sept 2014Dokumen1 halamanBI - Cover Letter Template For EC Submission - Sent 09 Sept 2014scribdBelum ada peringkat
- The Highest Form of Yoga - Sant Kirpal SinghDokumen9 halamanThe Highest Form of Yoga - Sant Kirpal SinghKirpal Singh Disciple100% (2)
- The Five Laws of Light - Suburban ArrowsDokumen206 halamanThe Five Laws of Light - Suburban Arrowsjorge_calvo_20Belum ada peringkat
