Emerging markets in the global crisis and beyond · 2009. 5. 14. · 2 Impact of the global crisis on emerging markets EM financial markets hit indiscriminately M. Lanzeni, May 2009

Think Tank of Deutsche Bank Group

Emerging markets in the global crisis and beyond

May 5, 2009

Maria Laura Lanzeni

Head of Emerging Markets

Emerging markets outlook

Impact of the global crisis on emerging markets

Emerging markets & BRICs as global players

Agenda

Page 2M. Lanzeni, May 2009

1 EMs & BRICs as global players

EMs: Increasingly important in the world economy


0

5

10

15

20

25

30

35

40

1993 1995 1997 1999 2001 2003 2005 2007

EM BRIC

EM share in world GDP%

Source: IMF

-3

-2

-1

0

1

2

3

4

5

6

2006 2007 2008 2009 2010

Advanced economies

Emerging and developing economies*

World real GDP growth% yoy

* includes Asian NIEs

Source: IMF WEO


EMs: Integrated in the world economy


0

50

100

150

200

250

300

350

400

1993 1995 1997 1999 2001 2003 2005 2007

EM imports (goods and services)

EM exports (goods and services)

World trade

1993 = 100

Source: IMF

Outstanding EM trade growth

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1999 2001 2003 2005 2007

Emerging and developing economies

Advanced economies

EMs account for about two-thirds

of global FX reservesUSD bn

Source: IMF COFER


EMs: Larger presence in global financial markets


BRICs vs developed markets over the past five years

18%3% 6%

0

5000

10000

15000

20000

25000

30000

35000

40000

Bank credit to the private sector

Bonds outstanding

Stock market cap

Germany Japan UK US BRIC

USD bn2003

Sources: IMF IFS, IHS Global Insight, Bloomberg, BIS

32% 8% 19%0

10000

20000

30000

40000

50000

60000

Bank credit to the private sector

Bonds outstanding

Stock market cap

xx2008

Sources: IMF IFS, IHS Global Insight, Bloomberg, BIS


BRICs: The emerging giants


0

5

10

15

20

25

30

35

40

45

50

2003 2013

GDP Population

Source: IMF

BRIC story is about size% of world GDP and population

0

2

4

6

8

10

12

Brazil Russia India China

2003-2007 Medium term

Growth performance differsReal GDP growth, % yoy

Source: DB Research


There is more to EMs than BRICs


0 1000 2000 3000 4000 5000

SA

ID

PL

TR

KR

MX

IN

BR

RU

CN

Top ten EMs by GDP 2008, USD bn

Sources: IMF, DB Research

0 10 20 30 40 50 60

PL

KR

TW

HU

CZ

SA

IL

HK

SG

AE

Top ten EMs by GDP per capitaUSD 000, 2008

Sources: IMF, DB Research




Agenda


2 Impact of the global crisis on emerging markets

EM financial markets hit indiscriminately


80

90

100

110

120

130

140

150

160

170

180

2008 2009

KRW/USD RUB/USD PLN/EUR

BRL/USD MXN/USD INR/USD

Source: IHS Global Insight

Jan 08 = 100

Selected EM currencies

0

200

400

600

800

1000

04 05 06 07 08 09

Brazil Russia South Africa Turkey

Source: Deutsche Bank/Global Markets

Bp

Selected CDS spreads


Sudden stop in capital inflows


-100

0

100

200

300

400

500

2006 2007 2008E 2009F

Direct investment, net Portfolio investment, net

Commercial banks, net Nonbanks, net

Net capital flows to the priv. sectorUSD bn

Source: IIF

0

500

1000

1500

2000

2500

100

200

300

400

500

600

2007 2008 2009

Russia Korea India China (right)

USD bn

Source: IMF

FX reserves


Trade flows collapsed ...


-60

-40

-20

0

20

40

60

80

2008 2009

Brazil Russia China

Taiwan Israel Turkey

Exports% yoy

Sources: IHS Global Insight, CEIC, DB Research

-80

-60

-40

-20

0

20

40

60

80

2008 2009

Brazil Russia China

Taiwan Israel Turkey

Imports% yoy



... as did domestic activity indicators


-50

-40

-30

-20

-10

0

10

20

30

2008 2009

China Brazil Russia

Taiwan Turkey Israel

Industrial production% yoy


-20

-10

0

10

20

30

40

2007 2008 2009

Brazil Russia China

Israel Korea Singapore

Retail sales% yoy



GDP growth fell sharply in Q4 2008 and Q1 2009


-10

-5

0

5

10

15

2006 2007 2008 2009

Brazil Russia India China Korea Mexico

Sources: IHS Global Insight, World Bank

% yoyReal GDP growth




Agenda


3 EM outlook

Much depends on the US and EU outlook


-6

-4

-2

0

2

4

6

2007 2008 2009 2010

World United States Euro area

Source: IMF WEO

Real GDP growth, % yoyIMF too pessimistic?

3 EM outlook

Commodity prices and financing conditions are key


-50

0

50

100

150

200

250

300

PL UA TR ZA MX KR CO BR RU IN CN

Sources: IHS Global Insight, DB Research

2009 EFR* as % FX reserves

CEE has high financing needs

* EFR = C/A deficit + ext. debt maturing over the next 12 months

0

20

40

60

80

100

120

-6

-4

-2

0

2

4

6

8

10

12

14

2000 2002 2004 2006 2008F 2010F

RUS (left) UAE (left)

SAU (left) Oil price (WTI, right)

Sources: DB Research, IHS Global Insight

% yoy (GDP growth), USD per barrel (Oil price)

Oil prices and GDP growth

3 EM outlook

EM governments have announced “anti-crisis” packages


0

2

4

6

8

10

12

14

16

18

AE CN RU KW KZ HK MY BR SA SG VN TH CO KR TR TW PH IN CL CZ MX PL EG ID AR PE

Announced stimulus packages% of 2008 GDP

Source: DB Research

3 EM outlook

EM central banks in easing mode


0

2

4

6

8

10

12

14

16

18

Jan 08 Mar 08 May 08 Jul 08 Sep 08 Nov 08 Jan 09 Mar 09

Brazil Chile Korea Israel Turkey

Policy interest rates% yoy

Sources: National central banks, IHS Global Insight, DB Research

3 EM outlook

Asia to remain fastest growing region


-4

-2

0

2

4

6

8

10

12

2003 2004 2005 2006 2007 2008E 2009F 2010F

Asia-10 EE LatAm-7 MENA Africa-10

% yoy

Source: DB Research

Real GDP growth by region

3 EM outlook

China, India lead the BRICs


-6

-4

-2

0

2

4

6

8

BR RU IN CN

% yoy

Source: DB Research

2009F Real GDP growth

0

1

2

3

4

5

6

7

8

9

BR RU IN CN

% yoy

Source: DB Research

2010F Real GDP growth

3 EM outlook

Eastern Europe: External adjustment the hard way


-10

0

10

20

30

40

50

60

70

KZ RO UA LV

Avg 2006-2007 Avg 2008-2009

Credit to the private sector% yoy

Sources: National central banks, DB Research

-8

-6

-4

-2

0

2

4

6

8

10

12

14

KZ RO UA LV

Avg 2006-07 Avg 2008-09

Real GDP growth% yoy

Source: DB Research

3 EM outlook


Light at the end of the tunnel? (I)

0

20

40

60

80

100

120

0

10

20

30

40

50

60

70

Jul 08 Okt 08 Jan 09 Apr 09

EMU PMI

US consumer confidence

China PMI (manuf.)

Korea consumer sentiment (right)

Sentiment indicators keep hope aliveIndices

0

100

200

300

400

500

0

200

400

600

800

1000

1200

1400

2008 2009

EM (right) World (left)

Sources: Bloomberg, Global Markets

Stock markets stabilise for nowMorgan Stanley Capital International

Indices, 1988 = 100

3 EM outlook

Page 23

Light at the end of the tunnel? (II)

M. Lanzeni, May 2009

0

2

4

6

8

10

12

14

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2008 2009

Value (USD m, left) No. of deals (right)

EM sovereign bond issuance has picked up

Source: Dealogic

3 EM outlook

Helping hand: IMF (and other official) lending is back


Deeper-than-expected global recession

Protracted US/EU bank liquidity and solvency concerns

Increased protectionism

• World Bank reported 89 new trade-restricting measures by G20 countries

since October 2008, 23 of which since London G20 Summit in April

Domestic policy mistakes that prolong slump

EM banking sectors under strain

Political and social risks

3 EM outlook

What are the risks for the emerging markets?


3 EM outlook

Medium-term outlook for the emerging markets


On average, EM growth will continue to outperform

• But trend growth will be lower than in the boom years 2003-2007

“Investment story ” intact

• Demographics, increasing openness, investment needs (infrastructure), low

banking & capital markets penetration, increased macroeconomic stability,

rise of middle class, commodities wealth

• Large markets most attractive; smaller economies may seek regional

integration (e.g. ASEAN)

Self-insurance policies (FX reserves) not likely to change soon

• Despite IMF support, risks of high external financing needs and FX exposure

laid bare by crisis

The EM consumer will gain in importance

• But improvement in governance & institutions is a precondition


Thank you!

Emerging Markets at DB Research

Visit us at www.dbresearch.com



© Copyright 2009. Deutsche Bank AG, DB Research, D-60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite

“Deutsche Bank Research”.

The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of

the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change

without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The

above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or

representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.

In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, authorised by Bundesanstalt für Finanz-

dienstleistungsaufsicht. In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG London, a member

of the London Stock Exchange regulated by the Financial Services Authority for the conduct of investment business in the UK. This

information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in

Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities

Limited, Tokyo Branch. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial

product referred to in this report and consider the PDS before making any decision about whether to acquire the product.

Documents

Emerging markets in the global crisis and beyond · 2009. 5. 14. · 2 Impact of the global crisis on emerging markets EM financial markets hit indiscriminately M. Lanzeni, May 2009