JUL 16 Danske EM Briefer

8/9/2019 JUL 16 Danske EM Briefer

1/31

www.danskeresearch.com

Investment Research General Market Conditions

FX: PLN and CZK rebound With market concerns shifting slightly from Europe to the US, the downtrend in

EUR/USD seems to have been halted for now, which has given some support to theEUR-sensitive EM currencies over the past month. Most notable have been therebounds in PLN, CZK and HUF and we think that especially PLN and CZK couldsee further gains. On the negative side have been the USD-sensitive currencies likeMXN, KZT, EGP, INR and ILS. It is also notable that the Asian currencies have not

performed especially well despite continued talk about Chinese revaluation.Stock markets: Chinese stocks continue to underperform The past month has been relatively good for the EM stock markets. A notable

exception is the Chinese stock market that continues to slide on concerns about howsharp the expected slowdown in the Chinese economy will be.

FX change against EUR and USDRisk adjusted FX change against EURand USD

Source: Reuters Ecowin Source: Reuters Ecowin

Change in 2 year swap yield Stock market performance


-5-4-3-2-101234

C Z KH UF

P L NR ON

R UB

KR WMY R

T R Y I DR

S GD

BR L C NY

T WD

UAH

Z AR

P HP

KZ T E GP

I NR

I L S MX N

%

(Simple average relative to EUR and USD)

-2.0

-1.5-1.0

-0.5

0.0

0.5

1.0

C Z KH UF

P L NR ON

R UB

KR WMY R

T R Y BR L

Z AR

I DR

UAH

P HP

S GD

MX N

I NR

T WD

C NY

I L S KZ T

E GP

%

(Annualised r eturn divided by 1-year)

-50

-40

-30

-20

-10

0

10

20

30

H UF

I NR

P L NKR W

C Z KZ AR

HKD

I DR

BR L

bp

-8-6-4-202468

H UF

S KKP HP

I DR

S GD

R UB

I L S I NR

T WD

MY R

C Z KT R Y

KR WP L N

BR L Z AR

MX N

R ON UAH

C NY

E GP

%

(Local

16 July 2010

Emerging Markets Briefer

Contents

Poland ................................................................................. 2

Czech Republic .......................................................... 3

Hungary ............................................................................. 4

Romania ............................................................................ 5

Bulgaria ............................................................................. 6

Estonia ................................................................................ 7

Latvia .................................................................................... 8

Lithuania ........................................................................... 9

Russia .............................................................................. 10

Ukraine ........................................................................... 11

Turkey .............................................................................. 12

South Africa .............................................................. 13

Brazil ................................................................................. 14

Mexico ............................................................................ 15

China ................................................................................. 16

Hong Kong .................................................................. 17Taiwan ............................................................................ 18

South Korea .............................................................. 19

Thailand ......................................................................... 20

Malaysia ....................................................................... 21

Philippines .................................................................. 22

Indonesia ...................................................................... 23

India .................................................................................... 24

FX Forecast ............................................................... 25

Forecasts vs. Forwards ................................ 28

Monetary Policy Calendar ......................... 29


2/31

2 | 16 July 2010 www.danskeresearch.com


PolandMacro outlook The outlook for the Polish economy continues to be bright. Taking into account the

data on Q1 GDP growth, we have revised our growth forecasts up for this year andnext year on the back of a more promising outlook for private consumption. We nowexpect the Polish economy to grow 3.0% y/y in 2010 and 4.0% y/y in 2011.

The outlook for Polish labour market conditions seems better than we previouslyexpected. Wage growth has picked up in recent months and we expect it to continue atthe current pace going forward. Furthermore, we do not expect unemployment to risemuch further. According to our models, Polish unemployment should begin to dropfrom mid-2011. The positive development could lead to mounting pressure on Polishinflation.

Monetary policy outlook

Polish inflation has ticked down in recent months and is now within the Polish centralbanks inflation target of 2.5% y/y +/-1pp. However, as unemployment reaches thetop and wage growth begins to speed up we should see pressure beginning to impactPolish prices. We forecast inflation at 2.6% y/y this year and 3.0% y/y next year.

Recently Polish MPC member Bratkowski signaled that it might be necessary to hikerates in Poland soon. Our models indicate that inflation could move above 3% nextyear - above the NBP's inflation target of 2.5% so we might see rate hikes in Polandrelatively soon.

FX outlook The Polish zloty now trades at levels that we consider to be moderately undervalued

from a longer-term perspective and we therefore see some potential for astrengthening of the zloty on a 12-24 month horizon. Our short-term indicators for thezloty are also slightly bullish, but it should be noted that worries about the public debtsituation in the euro area and Hungary add some short-term risks to the zloty.

PLN

Credit rating:

S&P: A- (stable)

Currency regime:

Free float (Freely convertible)

Inflation target:

2.5% +/- 1%-point

Macro forecasts:

Macro m onitor ( 25 June)

FX forecast

Source: Reuters Ecowin, Danske Markets

Interest rate forecast


Macro forecast


Growth still remains strong Inflation ticks up

02 03 04 05 06 07 08 090

1

2

3

4

5

6

7

8

0

1

2

3

4

5

6

7

8 % y/y % y/yGDP, Poland

06 07 08 09 100

1

2

3

4

5

6

0

1

2

3

4

5

6 % y/y %

>


Danske Forward15-Jul 4.07+3M 4.05 4.10+6M 4.05 4.12+12M 4.00 4.15

Danske Forward

15-Jul 3.14+3M 3.52 3.17+6M 3.43 3.18+12M 3.15 3.21

EUR/PLN

USD/PLN

Policy rate

Next meetingNex t c ha ng e + 25 bp Q3, 2010Year-end

National Bank of Poland (NBP)3.50

26-30/7/2010

4.00

2009 2010 2011

GDP (% y/y) 1.7 3.0 4.0

Inflation (% y/y) -1.6 -1.1 -0.5

Unempl oyment (%) 11.9 12.4 12.4

Current Account (% of GDP) 3.5 2.6 3.0
http://danskeresearch.danskebank.com/link/MacroMonitorPoland250610/$file/MacroMonitor_Poland_250610.pdfhttp://danskeresearch.danskebank.com/link/MacroMonitorPoland250610/$file/MacroMonitor_Poland_250610.pdfhttp://danskeresearch.danskebank.com/link/MacroMonitorPoland250610/$file/MacroMonitor_Poland_250610.pdfhttp://danskeresearch.danskebank.com/link/MacroMonitorPoland250610/$file/MacroMonitor_Poland_250610.pdfhttp://danskeresearch.danskebank.com/link/MacroMonitorPoland250610/$file/MacroMonitor_Poland_250610.pdf


3/31



Czech RepublicMacro Outlook Economic activity improved further in Q1 10 with GDP growth of 1.1% y/y,

compared with -3.2% y/y in Q4 09. On a quarterly basis the Czech economyexpanded by 0.5% in both Q4 09 and Q1 10. Economic growth was driven mainly byforeign trade while domestic demand and investment remain weak. We do not expecta strong recovery in the Czech economy this year, but think that a more sustainedeconomic recovery can be expected in 2011. We expect the economy to grow around0.5% y/y this year, around 2.4% y/y in 2011 and around 3.7% y/y in 2012.

Industrial production continues to advance strongly. Industrial production in Mayexpanded by an impressive 16.9% y/y, partly helped by a base effect. Looking ahead,we expect some slowdown in industrial production in the coming months, but it willnot be dramatic.

Inflation edged up in the past months. In June inflation surprised slightly on thedownside when it remained flat at 1.2% y/y compared to May despite it generallybeing expected that it would rise further. Overall, demand-led inflationary pressure ispractically absent as private consumption remains depressed and inflation is pushedup mainly by higher regulated prices, energy and food prices.

Monetary Policy Outlook The Czech key policy rate is at an all-time low of 0.75%. Given the sluggish

economic recovery this year with further downside risks posed by the debt crises inEurozone the Czech Republics main trading partner the Czech central bank willbe in no hurry to restart monetary tightening any time soon. That was confirmed bythe new Czech central bank governor Miroslav Singer and other board members.

FX Outlook The Czech koruna is currently trading at levels that we consider to be undervalued

relative to our fair value assessment for CZK. We are bullish on CZK on both ashort and long-term horizon. The short-term outlook is relatively bullish as valuation,the technical picture and improving macroeconomic conditions support further CZKgains on a one-to-three month horizon. On the long-term horizon CZK will be helpedby the improving current account situation given our expectation that the currentaccount will turn positive already this year.

CZK

Credit Rating:

S&P: A (stable)

Currency regime:


Inflation target:

2010: 2% +/- 1%-point

Macro forecasts:

Macro m onitor (25 June)

FX forecast



Source: Danske Markets

Macro forecast


Real recovery started in Q1 Czech koruna gained some ground

96 98 00 02 04 06 08 10

-7-6-5-4-3-2-101234567

-7-6-5-4-3-2-101234567

% y/y % y/y

GDP

% y/y % y/y% y/y % y/y

Jul

08Oct Jan

09Apr Jul Oct Jan

10Apr Jul

22

23

24

25

26

27

28

29

30

22

23

24

25

26

27

28

29

30

EUR/CZK (reversed)




EUR/CZK

USD/CZK

Policy rate

Next meetingNext change - Unchanged 2010Year-end

Czech National Bank (CNB)0.75

05 Aug 2010

0.75

2009 2010 2011

GDP (% y/y) -4.1 0.5 2.4

Inflation (% y/y) -1.1 1.3 2.1

Unemployment (%) 9.1 10.1 10.7

http://danskeresearch.danskebank.com/link/MacroMonitorCzechRepublic250610/$file/MacroMonitor_CzechRepublic_250610.pdfhttp://danskeresearch.danskebank.com/link/MacroMonitorCzechRepublic250610/$file/MacroMonitor_CzechRepublic_250610.pdfhttp://danskeresearch.danskebank.com/link/MacroMonitorCzechRepublic250610/$file/MacroMonitor_CzechRepublic_250610.pdfhttp://danskeresearch.danskebank.com/link/MacroMonitorCzechRepublic250610/$file/MacroMonitor_CzechRepublic_250610.pdf


4/31



HungaryMacro outlook The Hungarian economy has moved up over the past couple of quarters. However, it

is highly uncertain whether the recovery will continue in the coming quarters. Thereare significant uncertainties surrounding the Hungarian debt situation which willaffect growth negatively. We have revised growth slightly down and now expect theeconomy to contract by 1.9% y/y this year and to grow by 3.0% y/y next year.

However, the European debt crisis adds significant downside risks to these forecasts.Hungary in our view is among the countries in Central and Eastern Europe that aremost sensitive to a further deepening of the euro crisis. Furthermore, the recent sharpsell-off in the forint is likely to hit Hungarian households with FX loans, which couldin turn weigh on the already weak private consumption.

We expect a continued deterioration of Hungarian labour market conditions. We still

expect unemployment to continue to rise over the next couple of years to 13.6% in2010 and 14.7% in 2011, and consequently wage growth should remain low at 2.2%y/y in 2010 and 3.4% y/y.

The conservative Fidesz party won a landslide victory in the recent elections. It hasbeen a rather shaky start for Fidesz as governing party as rather misplaced commentsfrom Fideszs top officials about the economic situation in Hungary shocked financialmarkets. That on the positive side probably have made Fideszs growth agenda fartoo ambitious in the sense that the massive tax cuts Fidesz promised during theelection campaign would have led to serious fiscal troubles.

Monetary policy outlook Hungarian inflation is currently at a fairly high level due to last years VAT hike.

However, this is only temporary and there is currently no inflationary pressure inHungary so we expect a gradual decline going forward. We expect inflation onaverage to be 5.2% y/y in 2010 and 4.6% y/y in 2011. The MNB has cut interest ratesrelatively aggressively, but the recent sell-off in the forint and the increaseduncertainty about the outlook for fiscal policy probably mean the easing cycle hascome to an end. That said, the Fidesz-led government has demanded aggressive ratecuts from the NBP. There is a serious risk in our view that the conflict between theMNB and the government will intensify in the coming months.

FX outlook We now expect a current account surplus in Hungary, which is positive for the longer-

term outlook for the forint. However, most short-term indicators point in the oppositedirection. Hence, Hungarian growth remains lacklustre, interest rates levels no longerprovide attractive carry (to risk) and the short-term momentum is somewhat negativefor the forint. Furthermore, we are concerned about the Hungarian comments aboutthe relationship with the EU and the IMF. It is clear that there is serious tensionbetween the parties regarding the need to take further measures to tighten fiscal policyas part of Hungarys standby-agreement with the IMF and EU, which could endangerthe standby-agreement. In addition to this, the governments hostile attitude towardthe Hungarian central bank over interest rates and the MNB governors salary is a keyrisk. These factors clearly add to the downside risks to the Hungarian currency.

HUF

Credit rating:

S&P: BBB- (stable)

Currency regime:


Inflation target:

3% (medium term)

Macro forecasts:

Macro m onitor (25 June)

FX forecast



Source: Reuters Ecown, Danske Markets

Macro forecast

Source: Reuters Ecown, Danske Markets


Danske Forward

15-Jul 215.67+3M 247.83 218.04+6M 241.53 219.55+12M 220.47 222.27

EUR/HUF

USD/HUF

Policy rate


Hungarian Central Bank (MNB)5.25

19 Jul 2010

5.25

2009 2010 2011

GDP (% y/y) -6.3 -1.9 3.0

Inflation (% y/y) 0.2 1.8 1.3

Unempl oyment (% ) 10.8 13.6 14.7

http://danskeresearch.danskebank.com/link/MacroMonitorHungary250610/$file/MacroMonitor_Hungary_250610.pdfhttp://danskeresearch.danskebank.com/link/MacroMonitorHungary250610/$file/MacroMonitor_Hungary_250610.pdfhttp://danskeresearch.danskebank.com/link/MacroMonitorHungary250610/$file/MacroMonitor_Hungary_250610.pdfhttp://danskeresearch.danskebank.com/link/MacroMonitorHungary250610/$file/MacroMonitor_Hungary_250610.pdf


5/31



RomaniaMacro outlook The Romanian economy continues to be in a deep crisis. The sharp drop in economic

activity is broadly based, but we are especially concerned about the outlook forprivate consumption and investment. In recent years we have seen a credit-drivenboom in private consumption. On a positive note, there are relatively strong signs of arecovery in the Romanian manufacturing sector as exports help drag industrialproduction out of the slump.

There are clear signs that bad loans are rising sharply in the banking sector, whichwill add to already subdued credit growth, which in turn will put a lid on investmentand private consumption growth.

Public dissatisfaction with the governments austerity measures is rising and politicalrisks are a key question mark in terms of the outlook for further fiscal consolidation.

Monetary policy outlook Inflation continues to inch down in Romania and economic activity is in free fall. This

has led the Romanian central bank (NBR) to ease monetary policy. However, webelieve the scope for further monetary easing is very limited, as rates have comedown significantly already. Furthermore, the recent weakening of the Romanian leuand concerns over the fiscal situation limit the scope for monetary easing.

FX outlook The leu has held up remarkably well given the extent of the economic and financial

crisis in Romania. However, the leu has come under some pressure recently on theback of concerns about Romanias standby-agreement with the EU and the IMF andrenewed growth concerns. Overall, however, we think that the leu is trading at a levelrelatively close to what we consider to be long-term fair value levels.

The Romanian economy and financial position could be hard hit by continued worriesabout Greece, which could in turn put pressure on the leu. In that connection, it shouldbe noted that Greek banks have a considerable market share in the Romanian bankingmarket.

VAT hike will push inflation sharply up Weak and fragile recovery

03 04 05 06 07 08 09

3

5

7

9

11

13

15

3

5

7

9

11

13

15 % y/y % y/y

Inflation, Romania

01 02 03 04 05 06 07 08 09

-10.0-7.5

-5.0-2.5

0.02.5

5.0

7.510.0

-10.0-7.5

-5.0-2.5

0.02.5

5.0

7.510.0 % y/y % y/y

GDP, Romania

Source: Reuters Ecowin, Danske Mar kets Source: Reuters Ecowin

RON

Credit rating:

S&P: BB+ (stable)

Currency regime:


Inflation target:

2010: 3.5% +/- 1%-point

2011: 3.0% +/- 1%-point

FX forecast






EUR/RON

USD/RON

Policy rate


04 Aug 2010

6.25National Bank of Romania (NBR)

6.50


6/31



BulgariaMacro outlook The Bulgarian economy has gone from boom to bust and economic activity has

dropped sharply over the past year. The drop in economic activity is broadly based,but the real estate market that has become extremely overheated is likely to take theworst beating.

There are still very few signs of a recovery in the Bulgarian economy. Furthermore,the serious debt crisis in Greece is likely to have a seriously negative impact onBulgarian growth both through lower exports to Greece, which is a main exportmarket for Bulgaria, and through tighter credit conditions as Greek banks have a keymarket position on the Bulgarian banking market. Furthermore, the recent turmoil inthe Hungarian markets is likely to have a negative impact on the Bulgarian economy especially through the Hungarian banking exposure to the Bulgarian market.

FX & Monetary policy outlook The Bulgarian central bank continues to conduct its monetary policy within the

framework of a currency board system.

Liquidity and credit conditions remain very tight and the present situation is notsustainable in the long run as the tight credit conditions hamper economic activity.

It has been a long held priority of different Bulgarian governments to first join theERM2 and later the eurozone. However, the Greek crisis has clearly dented Bulgariaseuro ambitions.

Deflationary trends Boom-BUST

04 05 06 07 08 09

-2.50.02.55.07.5

10.012.515.017.5

-2.50.02.55.07.5

10.012.515.017.5 % y/y % y/y

Inflation, Bulgaria

03 04 05 06 07 08 09

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5 % y/y % y/y

GDP, Bulgaria

Source: Reuters Ecowin, Danske Mar kets Source: Reuters Ecowin

BGN

Credit rating:

S&P: BBB (stable)

Currency regime:

Currency board

Inflation target:

No inflation target due to thecurrency board regime

FX forecast


Danske Forward15-Jul 1.96+3M 1.96 -+6M 1.96 -+12M 1.96 -


EUR/BGN

USD/BGN


7/31



EstoniaMacro Outlook The Estonian economy continues to contract but at a decelerating rate: GDP declined

by 2.0% y/y in Q1 10, significantly up from a drop by 9.5% y/y in Q4 09. Domesticdemand remained weak, decelerating to minus 11% y/y, influenced by the continuingsharp decrease in gross fixed-capital formation (23% y/y) and private consumption(8% y/y).

Goods exports increased by 35% y/y and imports by 16% y/y at current prices inApril. The fast-growing export trend indicates that this year can expect the positiveGDP results up to 1% in average in this year.[could add 1% to GDP this year.]

However, undoubtedly there are still risks associated with the deterioration in theexternal environment, as well as a number of uncertainties concerning thecompetitiveness of enterprises, particularly in the context of cost inflation.

Estonian Industrial production (IP) growth slowed to 17% y/y in May, but mostlybecause of still very weak domestic sales, as export sales from manufacturingincreased by 46% y/y. Currently all economic growth is being driven by recoveringexternal demand . The slowdown in Estonian retail trade decelerated significantly inMay and retail sales decreased by 5% y/y, up from a drop of 9% y/y in May[April?].We assume that consumer confidence improved as a result of the upcoming Estonianmembership of the euro area.

Despite the continued slowdown in domestic demand, inflation in Estonia reached theunexpectedly high level of 3.5% y/y. The current consumer price dynamic posesadditional threats to inflation in Estonia. Whereas previously we thought that the main

risk came from external markets, it is now clear that domestic market inefficienciesmay bring some surprises as well.

The unemployment rate jumped to almost 20% in Q1 10. We expect it to remain atthis peak in the present cycle, around 21% for this year.

FX & Monetary Policy Outlook Estonia will become the 17th member of the euro area on 1 January 2011. The

positive decision was made despite the ECBs concerns that the inflation criterion isnot sustainable.

Risk Factors The significant upside risks to inflation remain and this could adversely affect the

countrys international competitiveness.

Recovering trend New spike in inflation

01 02 03 04 05 06 07 08 09

-36

-21

-6

9

24

39

-36

-21

-6

9

24

39

GDP

% y/y % y/y

Industrial production

Export

02 03 04 05 06 07 08 09 10

-2-10123456789

101112

-2-10123456789

101112

% y/y % y/y

CPI


EEK

Credit rating:

S&P: A- (stable)

Currency regime:

Currency board, ERM2 member(Freely convertible)

Inflation target:

None, due to fixed exchange rate

FX forecast


Danske Forward15-Jul 15.64+3M 15.65 -+6M 15.65 -

+12M 15.65 -

Danske Forward15-Jul 12.08+3M 13.61 -

+6M 13.26 -+12M 12.32 -

USD/EEK

EUR/EEK


8/31


9/31



LithuaniaMacro Outlook Lithuanian GDP fell by 2.8 % y/y in Q1 10, up from minus 12.1% y/y in Q4 09. Q/Q

seasonally adjusted GDP growth turned to negative territory. Household consumptionexpenditure fell by 10% y/y and gross fixed capital formation dropped by 30.2% y/y.Only exports indicated a positive result: resurgent manufacturing production exportsgrew by 2.8% y/y.

Based on more positive export performance we have upgraded our GDP forecast, butgiven the high level of uncertainty, we leave it, for this year, in negative territory(-1.6% y/y). However, we believe the positive factors outnumber the negative ones,and could improve our forecasts further. In May, Lithuanian IP continued upward, butthe growth rate slowed: IP increased by 3.2% y/y, down from 4.9% y/y in April.

The good news is that Lithuanian exports growth further accelerated in May and

exports and imports increased by 42.3% y/y and 24% y/y, respectively. Continuedstrong growth in exports to Russia, Germany, Poland has been observed. Thesemarkets are rapidly recovering from the crisis, providing hope that Lithuania'seconomic recovery may become more sustainable.

As expected, Lithuanian inflation accelerated further in June to 1.0% y/y from 0.7%y/y in May. There is a clear risk that, despite weak domestic demand, external factorscould push consumer prices upward.

Unemployment rose to 18% in Q1 10 and we expect the labour market to continue todeteriorate . However, unemployment figures may be overestimated as some self-employed people have moved on to the black market but continue to register in

order to get a tax allowance.FX & Monetary Policy Outlook Standard & Poors (S&P) Ratings Services has revised its outlook on Lithuania by

increasing it from negative to stable. This increase in rating is due to the successfulbudget cuts and strong political will to keep its currency stable.

Lithuania has postponed the official euro target to 2014.

Risk Factors In spite of fiscal consolidation efforts, fiscal policy remains expansionary and the

deficit is expected to remain at almost the same level as it was 2009. Lithuanias PMAndrius Kubilius expressed concern that if Lithuania does not reduce its budgetdeficit to sustainable level it could lead to a situation similar to that in Greece.However, the weak consensus among political parties on this issue renders thisdifficult to achieve.

GDP is stabilizing Returning to the downward trend

03 04 05 06 07 08 09

-40

-30

-20

-10

0

10

20

30

40

-40

-30

-20

-10

0

10

20

30

40

GDP

% y/y % y/y


Export

3M interest rates

07 08 09 100

1

2

3

4

5

6

7

8

9

10

0

1

2

3

4

5

6

7

8

9

10% %


LTL

Credit rating:

S&P: BBB (stable)

Currency regime:

Currency board, ERM2 member(Freely convertible)

Inflation target:

None, due to fixed exchange rate

FX forecast


Danske Forward15-Jul 3.45+3M 3.45 -+6M 3.45 -

+12M 3.45 -


USD/LTL

EUR/LTL


10/31



RussiaMacro Outlook In the wake of the global crisis and drop in oil prices, GDP declined by 7.9% in 2009.

A modest recovery is under way with GDP growth of 2.9% y/y in Q1 10. We forecast moderate growth of 3.6% for 2010 as the credit crunch and low

investment activity continue to hold back the economy. We expect nominal creditgrowth to accelerate rapidly in Q4 2010 reaching 15% y/y growth by December.However, most of the growth is likely to come from the household sector supportingconsumption rather than investments.

Unemployment has remained relatively low, and wage arrears are decreasing. This,together with increasing real wages, gives a positive outlook for consumption thisyear, which is likely to outperform the GDP growth rate.

The industrial sector is growing rapidly in year-on-year terms, mostly due to a verylow base year. We think the recovery is still very fragile and sustainable growth needsa more wide-ranging recovery in domestic consumption and investments.

The trade balance surplus has been strong in H1 2010 due to the high oil price. Butfast import growth in the past months implies that the trade balance is not likely tocontribute positively to GDP growth beyond 2010. We forecast gradually rising oilprice, which should keep the current account surplus above 3% of GDP.

FX & Monetary Policy Outlook On 30 June, the Central Bank of Russia (CBR) kept interest rates unchanged as

expected. The CBR reiterated that no further rate cuts are needed for now, but we stillbelieve a 25bp cut in August could be on the cards.

The CBR indicated in its statement that it expects inflation to pick up toward year end(we agree) because fiscal policy remains extremely loose.

In our view, inflation pressures are widely underestimated and inflation is likely toaccelerate from the current 5.8% y/y to above 10% within a year.

Risk Factors The Russian banking sector recovery is a key issue when looking for internal growth

drivers.

As Russia remains unstructured and depends mostly on the global oil price, thesefactors pose the biggest risk for the economy.

Investment activity remains lacklustre Inflationary pressures are mounting

Source: Reuters Ecowin, Danske Mar kets Source: Reuters Ecowin, Danske Mar kets

05 06 07 08 09 10

-30

-20

-10

0

10

20

30

40

-30

-20

-10

0

10

20

30

40% y/y % y/y

>Construction >>

01 02 03 04 05 06 07 08 09 10 11

5,0

7,5

10,0

12,5

15,0

17,5

20,0

22,5

25,0

5,0

7,5

10,0

12,5

15,0

17,5

20,0

22,5

25,0% y/y % y/y

CPI>>


11/31



UkraineMacro Outlook The Ukrainian economy contracted by 15% last year, led mostly by a deep decline in

construction and manufacturing activities: construction fell by 48.3%, manufacturingby 26% and retail sales by 17.9% last year. GDP is expected to return to growth in2010, and the latest comments from the government imply an expected growth rateabove the budgeted 3.7%.

We see some signs of a recovery trend in the Ukrainian economy. However, therecovery seems to be limited to industrial production, which has presented stronggrowth since the beginning of the year.

Retail sales continue to look weak for the first five months of this year. But realwages are increasing, and we expect the recovery in consumption to follow. However,consumption growth remains subdued due to the banking sector, as bank loans to

households are still decreasing. The construction sector is suffering from the credit crunch even more than

consumption. In May, construction activity was still declining by 20% y/y, despite thevery low base year.

FX & Monetary Policy Outlook Ukraines CPI eased in June to 6.9% y/y. We see an upward risk to the inflation

outlook for this year due to an expected rise in gas tariffs and utilities (IMF financialpackage condition) and the global oil price.

Ukrainian FX reserves shrank at a fast pace at the beginning of the year due to foreignexchange interventions. The outlook for the hryvnia has improved since then as theIMF deal is practically done. Also, the political situation has remained calm with theUkrainian standards following the latest elections.

Risk Factors The IMF participation has somewhat diminished the risk of unsustainable fiscal

policy. The new government has agreed to keep budget deficit at 5% of GDP this yearand to cut it to 3.5% in 2011.

The Russian and Ukrainian parliaments have ratified the agreement to extend the stayof the Black Sea Fleet to 2042.

Political instability continues to be perhaps the biggest risk related to Ukrainian

economy.

Real wage growth is picking up External debt

Source: Reuters Ecowin, Danske Mar kets Source: Reuters Ecowin, Danske Mar kets

05 06 07 08 09 10

-25

0

25

50

75

100

125

150

-30

-20

-10

0

10

20

30

40% y/y % y/y

>

Banks >>


12/31



TurkeyMacro outlook The Turkish economy has experienced a quite dramatic rebound in economic growth.

In Q1 10 the economy expanded 11.7% y/y a growth rate only comparable to China.Such a high growth rate is only temporary and can mainly be contributed to last yearssignificant economic setback. Going forward we expect Turkey to lead the region interms of economic growth albeit at a more modest pace. We forecast Turkisheconomic growth of 7.9% y/y in 2010 and 5.9% y/y in 2011.

The sharp Turkish economic recovery is primarily driven by a recovery in domesticdemand. Growth rates in both private consumption and investments have nowreturned to pre-crisis levels. The booming domestic demand has led to a large increasein imports which will consequently weaken the current account balance. We expectthe Turkish current account deficit to increase in 2010 to 4.7% of GDP.

Monetary policy outlook Rising economic activity and consequently rising wage growth will put upward

pressure on inflation going forward. We expect an average inflation of 9.0% y/y and7.8% y/y above the central banks year-end target of 6.5% y/y and 5.5% y/y in 2010and 2011 respectively. Therefore, we also believe the monetary easing cycle has cometo an end and now believe that TCMB will hike its key policy rate by an accumulated150bp during 2010. We expect the rate hikes to take place in H2 10.

FX outlook Overall we believe the lira is trading at slightly overvalued levels, which could put

some pressure on the lira on a longer horizon. However, in the short run there aresome mitigating factors that support the lira especially the continued relatively

strong recovery in the Turkish economy and the outlook for higher Turkish interestrates. Furthermore, for euro-based investors it is relevant that we expect more euroweakness against the dollar, which is likely to benefit the lira against the euro.

The biggest risk to the lira is another spike in global risk aversion, but if the globaleconomy continues to improve we believe the lira will remain relatively stable.Furthermore, renewed political tensions between the Islamist-oriented Turkishgovernment and the strongly secular Turkish military and judiciary have spooked theTurkish markets and continued tension could lead to further weakness in the lira.Furthermore, the recent tensions between Turkey and Israel create some risk to bothTurkish and Israeli financial markets.

Inflation eased in June Economy experienced strong rebound

05 06 07 08 09 10

56789

10111213

56789

10111213 % y/y % y/yInflation, Turkey

02 03 04 05 06 07 08 09

-15

-10

-5

0

5

10

15

-15

-10

-5

0

5

10

15 % y/y % y/y

GDP, Turkey


TRY

Credit rating:

S&P: BB (positive)

Currency regime:

Free-float (freely convertible)

Inflation target:

6.5% year-end 2010

5.5% year-end 2011

Macro forecasts:

Macro M onitor (14 July)

FX forecast



Source: Danske Mar kets

Macro forecast




USD/TRY

EUR/TRY

Policy rate

Next meetingNex t c hang e + 50 b p H 2, 2010Year-end

C.B. of the Republic of Turkey (TCMB)6.50

19 Aug 2010

8.00

2009 2010 2011

GDP (% y/y) -4.7 7.9 5.9

Inflation (% y/y) -2.2 -4.7 -3.4

http://danskeanalyse.danskebank.dk/abo/MacroMonitorTurkey140710/$file/MacroMonitorTurkey_140710.pdfhttp://danskeanalyse.danskebank.dk/abo/MacroMonitorTurkey140710/$file/MacroMonitorTurkey_140710.pdfhttp://danskeanalyse.danskebank.dk/abo/MacroMonitorTurkey140710/$file/MacroMonitorTurkey_140710.pdfhttp://danskeanalyse.danskebank.dk/abo/MacroMonitorTurkey140710/$file/MacroMonitorTurkey_140710.pdf


13/31



South Afr icaMacro Outlook The South African economy expanded strongly in Q1, by an annualised 4.6% on the

previous quarter on a seasonally-adjusted basis, compared with growth of 3.2% inQ4 09. On an annual basis, growth was 1.6% y/y, up from contraction of 1.4% y/y inQ4 09. The economy was driven by the mining and manufacturing industries, on theback of stronger foreign demand for South African goods. We expect the SouthAfrican economy to grow at an average rate of 2.5% y/y in 2010 and 3.5% y/y in2011. The main risks to our forecast are the uncertain global growth picture and thatprivate demand fails to recover.

The South African PMI continues to fall. It came down for the fourth consecutivemonth and even fell below the critical 50 level in June, to 48.4 from 51.1 in May. Thesignals from the PMI have begun to be reflected in the manufacturing production data,which came out slightly weaker than expected at 7.9% y/y in May, down fromdownward revised Aprils 8.7% y/y. Looking ahead, a further setback inmanufacturing production can be expected.

Unemployment continued to rise and in Q1 it accelerated to 25.2%. Risingunemployment suggests that private consumption will remain fairly weak in the nextfew months.

South African inflation eased further in May, to 4.6% y/y down from 4.8% y/y inApril. Hence, inflation is now well within the South African central banks (SARB)inflation target band of 3-6%. Looking ahead, the inflation outlook remains fairlybalanced with the main upside risk coming from administered prices.

Monetary Policy Outlook The latest SARBs MPC decision in mid-May was in line with expectations, with the

interest rates left on hold. However, recent dovish comments from South Africancentral bank governor Gill Marcus that the economic recovery is hesitant anduneven raised speculations whether the SARB will continue its monetary easing.Given the balanced outlook for inflation and the recovery losing steam we cannot ruleout that the SARB will deliver a 50bp rate cut on 22 July.

FX Outlook The rand is currently trading at levels we consider to be strongly overvalued, relative

to our fair value assessment for ZAR. Given the overvaluation, both the short-termand long-term outlook for the rand are bearish.

PMI falls further Will SARB deliver further cut?

02 03 04 05 06 07 08 09 10

30

35

40

45

50

55

60

65

70

-25

-20

-15

-10

-5

0

5

10

15

Manufacturing production, South Afr ica>>Index

% %y/y


ZAR

Credit rating:

S&P: BBB+ (negative)

Currency regime:


Inflation target:

3%-6%

FX forecast






USD/ZAR

EUR/ZAR

Policy rate

Next meetingNe xt chang e - 50 bp Jul , 2010Year-end

South African Reserve Bank (SARB)6.50

22 Jul 2010

6.00


14/31



BrazilMacro Outlook The Brazilian economy continues its robust recovery, driven mainly by consumer

spending. In the first quarter the Brazilian economy grew 9% on an annual basis,showing clear signs of overheating as the potential growth of Brazilian economy isbetween 4% and 5%. We estimate that it could grow by as much as 6.5% this year. Inorder to prevent overheating of the economy and price pressures, the Braziliangovernment has announced additional 2010 budget cuts and phase-out of governments tax breaks.

Even though Brazils benchmark IPCA rolling 12-month inflation fell to 4.84% inJune, slowing from 5.22% in the 12 months through May, inflation remains above theofficial year-end target of 4.5%. As the economy expands, driven mainly by buoyantprivate consumption, inflation will continue to head upwards in the coming months.

Monetary Policy Outlook The central bank (BCB) delivered yet another 75bp rate hike in June, bringing

Brazils benchmark Selic interest rate to 10.25%, in order to curb surging inflationarypressure in the economy. In an attempt to prevent the Brazilian economy fromoverheating the Brazilian central bank will continue with monetary tightening. Weexpect yet another 75bp rate hike at Julys monetary policy setting meeting. That willbring the Selic interest rate to 11.00%.

FX OutlookBRL is currently trading at levels that we consider to be somewhat overvaluedrelative to our fair value assessment for BRL. On a short-term horizon the fairly

strong setback in commodity prices and deterioration of global conditions is notsupportive of further gains in BRL. The overvalued nature of BRL limits further gainson the long-term horizon.

Domestic activity expands Central bank continues to hike

01 02 03 04 05 06 07 08 09 1090

100

110

120

130

140

150

160

170

90

100

110

120

130

140

150

160

170

Industrial production, constant prices

Level, Jan 2000 = 1

Retail sales, constant prices

Level, Jan 2000 = 100

03 04 05 06 07 08 09 102.55.07.5

10.012.515.017.520.022.525.027.5

2.55.07.5

10.012.515.017.520.022.525.027.5

Inflation IPCA, Brazil >>


15/31



MexicoMacro Outlook The Mexican economy shrank by 6.5% last year, but fairly robust growth should

follow. We expect GDP growth this year of around 4.5%. Industrial production rose at its fastest pace so far this year growing by 8.4% y/y in

May, up from Aprils 6.1% y/y. Hence, the Mexican industrial sector continues to bedriven by fairly strong external demand for Mexican goods especially from the US Mexicos main trading partner. On the other hand, domestic demand remains weak, asrising unemployment limits the recovery in private consumption. Too slow a recoveryin private consumption is one of the risks to our growth scenario.

Inflation in June dipped further below 4%, to 3.7% y/y, from Mays 3.9% y/y. It isnow within the Bank of Mexicos unofficial target range of 2% to 4%, although thecentral bank still expects inflation to accelerate to between 4.75% and 5.25% in Q4

this year, before easing to 3% in Q2 2011. Overall, the inflation outlook is fairlybenign due to weak private demand.

Monetary Policy Outlook The still weak Mexican economy and weak domestic demand might prevent the

Mexican central bank from tightening its monetary policy any time soon, and it isvery likely that the central bank will keep the overnight lending rate unchanged at4.5% for some time to come, to support the economy. It seems very likely that thecentral bank will start monetary tightening in Q1 next year at the earliest.

FX Outlook The Mexican peso is currently trading at levels that we consider to be somewhat

overvalued relative to our fair value assessment for MXN. Hence, the fact that theMXN is trading at fundamentally overvalued levels is likely to curb the strengtheningof MXN on the long-term horizon. The short-term outlook is also relatively bearish asthe deteriorating global conditions and the setback in commodity prices limit anygains of MXN on a one-to-three months horizon.

Private consumption is fragile Interest rates on hold for some time

04 05 06 07 08 09 10-10.0

-7.5-5.0

-2.50.02.55.07.5

10.012.5

-10.0-7.5-5.0

-2.50.02.55.07.5

10.012.5

Inflation target band

% y/y


MXN

Credit rating:

S&P: BBB (stable)

Currency regime:


Inflation target:

3.0% +/- 1%-point

FX forecast





Danske Forward15-Jul 12.77+3M 13.30 12.89

+6M 13.35 13.02+12M 13.40 13.28

USD/MXN

EUR/MXN

Policy rateNext meetingNext change - Unchanged 2010Year-end

16 Jul 2010

Bank of Mexico (Banxico)4.50

4.50


16/31



ChinaMacro Outlook Chinas growth has now started to slow. GDP growth in Q2 declined to 8.0% q/q AR

from 12.0% q/q AR in the previous quarter. Growth is slowing because the positivegrowth impact from the governments massive stimulus last year has started to waneand because of the governments recent tightening measures targeting primarily realestate. Exports so far have proven surprisingly resilient, but export growth is expectedto ease in H2 2010. We regard this as a healthy moderation rather than a severeslowdown in growth.

Inflationary pressure has started to ease, with headline inflation surprisingly decliningto 2.9% y/y in June, below the governments official 3% target for 2010. In additionproperty prices declined in June following the governments tightening measures.With the risk of overheating declining fast, China has now room to ease both fiscaland monetary policy if growth slows more than expected.

Chinas current account is expected to remain in a substantial surplus and improveslightly to 5% of GDP, following a sharp decline in the trade surplus in 2009. Thebudget deficit remains modest around 3% of GDP and China still has room to easefiscal policy if growth falters again.

Monetary Policy Outlook So far The Peoples Bank of China (PBoC) has tightened monetary policy by curbing

credit growth and by raising the reserve requirement ratio for commercial banks twiceby 50bp. In addition China resumed appreciation of CNY in June and severalregulatory tightening measures have been announced.

With growth slowing and inflationary pressure easing we have scaled back ourexpectations of further monetary tightening, but we do expect PBoC to raise itsleading interest rate by 27bp before year-end.

FX outlook China in June resumed appreciation of CNY against USD. With growth slowing and

inflationary pressure easing we only expect a modest appreciation of CNY. Withresilient exports and the trade balance surplus again increasing, we still believe theappreciation case is strong. So far CNY has appreciated by close to 1% against USDand we expect CNY to appreciate by another 3% over the next year.

China resumes appreciation of CNYGDP growth slowing and inflationarypressure easing

Source: Reuters EcoWin, Danske Mar kets Source: Reuters EcoWin, Danske Markets

Jun09

Aug Oct Dec10

Feb Apr Jun

6.55

6.60

6.65

6.70

6.75

6.80

6.85

6.55

6.60

6.65

6.70

6.75

6.80

6.85 Spot

12 month forward

USD/CNY

3 month forward

07 08 09 10

2

4

6

8

10

12

14

2

4

6

8

10

12

14GDP growth% q/q AR % q/q AR

FX forecast

Source: Reuters EcoWin, Danske Market s

CNY

Credit rating:

S&P: A+ (stable)

Currency regime:

Crawling USD peg

Inflation target:

3% for 2010





USD/CNY

EUR/CNY

Policy rateNext meetingNe xt c ha ng e + 27 bp Q3, 2010Year-end

Not announced

People's Bank of China (PBOC)5.31

5.85


17/31



Hong KongMacro Outlook Hong Kongs economy has recovered sharply supported by a major fiscal stimulus

package, monetary easing and not least a strong recovery in China. GDP contractedby over 2.7% in 2009 but is expected to expand more than 6% in 2010.

Inflation has picked up again and deflation is no longer a threat. The property marketis recovering rapidly, supported by strong capital inflows from mainland China. Thereis an increasing risk of property market bubbles, not least because real interest ratesare negative.

Monetary Policy Outlook Due to the countrys USD currency board, interest rates are linked to their US

counterparts. As a result, money market rates are now expected to remain unchangeduntil at least Q1 11. With growth increasingly decoupling from the US, pegging

monetary policy to the US could be potentially destabilising.

Decoupling of the Asian business cycle from the US cycle presents a major challengefor monetary policy in Hong Kong.

FX Outlook Hong Kongs currency is pegged to USD. At present, the country is being flooded by

USD liquidity. Its Monetary Authority (MA) has been buying USD to keep HKDwithin its trading band. However, appreciation pressure has eased in the wake of theEuropean debt crisis.

Hong Kong is expected to maintain its US dollar peg for the foreseeable future. We

do not anticipate the country abandoning its USD peg when China permits the CNYto appreciate once again. That said, in the very long term the authorities target somesort of linkage to CNY, but full CNY convertibility is probably a necessary conditionfor HKD to abandon its USD peg. However, we cannot completely rule out thepossibility that the narrow trading band could be widened to provide more flexibilityin monetary policy.

HKD has weakened slightly in thewake of the debt crisis

Real interest rate is negative achallenge for monetary

Source: Reuters EcoWin Source: Reuters EcoWin

06 07 08 09 10

7.70

7.75

7.80

7.85

7.90

7.70

7.75

7.80

7.85

7.90

USD/HKD

03 04 05 06 07 08 09 10

-4

-2

0

2

4

6

-4

-2

0

2

4

6 %


18/31



TaiwanMacro Outlook Taiwan has recovered very rapidly due to aggressive fiscal easing, an improved global

electronics market and not least strong exports to the important Chinese Market. GDPexpanded a whopping 14.8% y/y in Q1 10, but is expected to slow in the comingquarters not least because of slower growth in exports to China.

Despite the strong recovery inflation remains subdued and below the central banksmedium-term 2% inflation target.

Liberalisation of economic ties with China could be a major positive for Taiwan.Tourism, transport and regulation of foreign direct investments for financialinstitutions have recently been liberalised. In addition, Taiwan and China haveconcluded a trade agreement. This is very positive news for Taiwan.

Monetary Policy Outlook Despite muted inflation Taiwans central bank joined the Asian rate hike club in June,

when it raised its leading interest rate by 25bp to 1.5%. In light of the strong recoveryreal interest rates remain low and hence we expect two additional rate hikes beforeyear-end.

FX Outlook TWD remains well supported by a strong current account position. Despite its recent

appreciation, the currency remains substantially undervalued. The central bank hasintervened heavily in the market. Capital controls prohibiting foreigners TWD timedeposits were introduced in November, to prevent further TWD appreciation.

TWD has depreciated slightly in the wake of the European debt crisis but we expect itto appreciate again supported by continued CNY appreciation.

Ma Ying-jeou from the Kuomintang won a landslide victory in the presidentialelection in March 2008. The Kuomintang has a majority in Parliament. Politicalstability is on the cards, even though the slowdown is starting to weigh on thegovernments popularity.

The political agenda has shifted from independence to an economic agenda includingliberalisation of economic ties with Mainland China. Political tensions betweenTaiwan and China have eased considerably, and this is currently a major positive forTaiwan.

Export recovery remains very strong But inflationary pressure modest so far


04 05 06 07 08 09 10

-40

-30

-20

-10

0

10

20

-40

-30

-20

-10

0

10

20

Exports


% 3m/3m% 3m/3m

07 08 09 10

-8

-4

0

4

8

12

-8

-4

0

4

8

12

CPI, % y/y

%%CPI, % 3M AR

%

TWD

Credit rating:

S&P: AA- (stable)

Currency regime:

Free float

Inflation target:

2% medium-term

FX forecast






USD/TWD

EUR/TWD

Policy rateNext meetingNext change + 12.5 bpQ3, 2010Year-end

Not announced

Central Bank of Taiwan (CBT)1.38

1.75


19/31



South KoreaMacro Outlook The South Korean recovery has been remarkably strong and GDP growth in Q1 10

accelerated to 1.8% q/q on the back of a strong improvement in domestic demand.Industrial production is now above its pre-crisis level. The recovery has beensupported by aggressive fiscal easing and solid export growth, driven not least bySouth Koreas most important export market China. With the output gap closingfast, growth will eventually slow.

The current account has returned to a substantial surplus due to the strong recovery.

Inflation has eased to slightly below 3% y/y, and is now at the lower end of the Bank of Koreas 3.0% +/-1pp target range. While recent KRW appreciation is likely toprevent a sharp near-term acceleration in inflation, we expect it to increase graduallyinto the upper part of the central banks target range in H2 10.

Monetary Policy Outlook Despite the output gap closing fast, short-term real interest rates have remained

negative and Bank of Korea (BoK) has in our view been one of the central banks inAsia most behind the curve. BoK finally started tightening monetary policy in July.

We think BoK will continue to guide its leading interest rate towards a neutral leveland we expect two additional rate hikes before year-end. However, there isconsiderable political pressure on BoK to restrain its tightening and with growthslowing there is an increasing risk that BoK will tighten less.

FX Outlook KRW has weakened significantly against USD in the wake of the European debt

crisis. In addition, the announcement of tighter regulation of forward positionsannounced in June has weighed on KRW.

However, KRW remains hugely undervalued and FX intervention to stemappreciation should ease, as concerns over growth fade and China continues thegradual appreciation of CNY. KRW is currently well supported by a favourablecurrent account position, portfolio inflows and a strong international liquidityposition, with FX reserves substantially exceeding short-term debt.

Geopolitical risks are increasing, on concerns over the health of North Korean leader

Kim Yung Il, and the transition to a new leadership in North Korea. In addition,political tensions have risen, on increasing speculation that North Korea was behindthe sinking of a South Korean warship recently.

GDP growth accelerates in Q1 Inflation remains muted


06 07 08 09

-6

-4

-2

0

2

4

-6

-4

-2

0

2

4 % q/q % q/q

Domestic demand

GDP

04 05 06 07 08 09 10 0

2

4

6

8

10

0

2

4

6

8

10%%

y/y

Consumer prices

3m/3m AR

KRW

Credit rating:

S&P: A (stable)

Currency regime:

Free float

Inflation target:

3.0% +/- 1%-point

FX forecast





Danske Forward

15-Jul 1201.50+3M 1180.00 1202.00+6M 1075.00 1206.50+12M 1050.00 1210.30

USD/KRW

EUR/KRW

Policy rateNext meetingNe xt c hang e + 25 bp Q3, 2010Year-end 2.75

Bank of Korea (BOK)2.2512 Aug 2010


20/31



ThailandMacro Outlook Like other Asian economies, Thailand began a substantial recovery in Q2 09, based

on a strong turnaround in exports. But political uncertainty continues to weigh ondomestic demand and tourist earnings, so the recovery in Thailand has lagged the restof Asia.

The current account surplus increased sharply in due to weak domestic demand, somerecovery in exports and lower crude oil prices. It has remained in substantial surplus.The government budget deficit is likely to reach 6% of GDP due to fiscal stimulusand weaker growth.

Headline inflation has accelerated markedly to almost 3%, mainly on the back of higher energy and food prices. Core inflation excluding food and energy has alsoedged higher and is now in positive territory.

Monetary Policy Outlook With clear signs that the economy is recovering, inflation back into positive territory

and political turmoil receding at least on street level, Bank of Thailand (BoT) has joined the tightening club by raising its leading interest rate by 25bp to 1.5%. Whileinflation remains muted real interest rates remain negative and for that reason weexpect BoT to hike twice by another 25bp before year-end.

FX Outlook Overall, Thailand has strong external balances, and because portfolio inflows and FDI

have been weak compared with the rest of EM Asia as a result of the uncertainpolitical situation in Thailand THB is less sensitive to changes in global risk

sentiment. For this reason, THB has been remarkable resilient recently in the face of increasing political turmoil and the recent volatility in financial markets. Thailandsexternal liquidity position is very strong (FX reserves exceeding total foreign debt bya wide margin)..

The political situation is dominated by a conflict between pro- and anti-Thaksinparties. The Democratic party has formed a government with a slim parliamentarymajority, with party leader Abhisit Vejjajiva as the new Prime Minister. With only asmall majority, the government remains weak. Street fighting in Bangkok has endedfollowing a military crackdown, but the political situation remains tense.

Thailand is a constitutional democracy with the monarchy wielding considerable

political influence. The Thai King is extremely popular, but he is believed to be sick and his accession is a major political uncertainty that could exacerbate currentpolitical turmoil.

Recovery strong despite politicaluncertainty

Inflation back into positive terrritory


06 07 08 09 1090

100

110

120

130

140

90

100

110

120

130

140Jan. 2006 = 100


Export

03 04 05 06 07 08 09 10-4

-2

0

2

4

6

8

10

-4

-2

0

2

4

6

8

10

CPI excl. food & energy

CPI, headline

% y/y% y/y

THB

Credit rating:

S&P: BBB+ (negative)

Currency regime:

Free float

Inflation target:

0%-3%

FX forecast





Danske Forward

15-Jul 32.22+3M 32.00 32.25+6M 31.70 32.29+12M 31.40 32.35

USD/THB

EUR/THB

Policy rate

Next meetingNext change + 25 bp Q3, 2010Year-end

1.50

1.75

Bank of Thailand (BOT)

25 Aug 2010


21/31



MalaysiaMacro Outlook Malaysia is an extremely open economy and has been hard-hit by the global financial

crisis, despite a massive government fiscal stimulus. After a slow start, there are nowsigns that the recovery is gathering momentum, albeit weaker than in most otherAsian countries. GDP growth was slightly negative in 2009 but will improvesubstantially to around 6% in 2010.

Major fiscal easing has been implemented and the budget deficit increased sharply in2009.

Inflation has started to increase as the base effect of higher crude oil prices last yearhas started to recede. However, inflation in Malaysia remains modest.

Monetary Policy Outlook The Malaysian central bank increased its leading interest rate by 25bp in July, the

third rate hike this year. The Malaysian central bank is one of the few central banks inAsia that cannot be accused of being behind the curve. We expect one more 25bp ratehike this year.

FX Outlook The currency is supported by a current account surplus of 15% of GDP. MYR has

strengthened significantly due to the interest rate hikes by the Malaysian central bank,as well as the governments announcement that it intends to accelerate liberalisationof part of the economy, including easing access for foreign investment.

Although the governing Barisan Nasional (BN) coalition won a majority in thegeneral election in March last year, it was regarded as a defeat because it lost its two-thirds majority, as well as power in several provinces. However, there is probably nocredible political alternative to BN at present.

While Malaysia has a stable regulatory environment, it has been lagging other Asiancountries on governance reforms and economic liberalisation in recent years. Thatsaid, the new Prime Minister recently announced some liberalisation of foreign directinvestment rules, easing requirements for co-Malay ownership.

Recovery has been trailing rest of AsiaMonetary policy tightened despitemodest inflation


08 09 10

70

80

90

100

110

70

80

90

100

110Jan. 2008=100


Jan. 2008=100

Export

04 05 06 07 08 09 10

-4

-2

0

2

4

6

8

-4

-2

0

2

4

6

8%


22/31



PhilippinesMacro Outlook GDP growth has recovered strongly due to fiscal easing and a recovery in exports. So

far, there are no signs that the pace of the recovery is easing, although we expect it tomoderate in Q2.

Inflation has increased to the lower range of central banks 4-5% target for inflation,mainly due to lower energy and food prices. However, inflation should soon start topick up as the base effect of lower energy prices last year begins to recede.

The fiscal deficit has deteriorated sharply due to fiscal easing. The central governmentdeficit is likely to increase to around 4% of GDP, from just 0.9% in 2008.

Monetary Policy Outlook With growth improving, inflation gradually increasing and the presidential election

out of the way, we expect the central bank to raise its leading interest rate by 25bp inQ3 10.

FX Outlook The Philippines has a very strong external position. The current account surplus has

remained resilient, not least because remittances from Filipinos working abroad havecontinued at a high level. FX reserves have improved substantially in recent monthsas the central bank has tried to stem PHP appreciation.

Senator Benigno Aquino III from the Liberal Party defeated the populist JosephEstrada in the Presidential election on 10 May. This should be positive for financialmarkets. However, it is still unclear how well the Liberal party and its alliesperformed in the Parliamentary election.

Recovery has been strong External position still improving


08 09 10

50

60

70

80

90

100

110

50

60

70

80

90

100

110 Jan. 2008=100

Export

Industrialproduction

Jan. 2008=100

02 03 04 05 06 07 08 09 10

15

20

25

30

35

40

45

50

-0.50

-0.25

0.00

0.25

0.50

0.75

1.00

1.25bn USD

FX reserves>>FX reserves>>


23/31


24/31



IndiaMacro Outlook India has not been hit as hard by the global financial crisis as other Asian economies,

as it is a comparatively closed economy with little financial depth. Growth isrecovering, supported by fiscal and monetary easing and stabilisation in the globaleconomy. However, drought has hit major parts of India and it is expected to subtract1pp from GDP growth this year. Still, GDP growth should exceed 8% in 2010 and2011.

The drought in India has added substantially to food price inflation, and inflationmeasured by wholesale prices accelerated sharply and remained stubbornly highabove 10% y/y in recent months. However, food prices have started to stabilize andthe year-on-year inflation rate is expected to decline sharply in H2 2010 and shouldreach about 5% y/y by the end of the year.

The current account deficit has deteriorated sharply due to much slower export growthand resilient domestic demand and it has become increasingly difficult to finance thecurrent account deficit from foreign direct investments. The increasing currentaccount deficit now close to 4% of GDP is a concern.

Monetary Policy Outlook With growth recovering rapidly and inflation exceeding the RBIs comfort zone, the

RBI has started tightening monetary policy and raised its leading interest rate so farby 75bp. We expect the RBI to raise its leading interest rate by another 25bp inconnection with its policy review on 27 July and another 75bp before year-end.

FX Outlook INR has recently depreciated slightly, on the back of the recent deterioration in risk

sentiment internationally. Because of the deteriorating current account deficit INRlooks increasingly vulnerable, but longer term it will remain underpinned bycontinued strong FDI inflows and the strong external liquidity position.

Overall, Indias economic balances have deteriorated in recent years, and the publicfinances particular remain a major concern. Growth is now taking priority overcontinued fiscal consolidation. Including off-balance items, the public budget deficitwill probably exceed 10% of GDP due to fiscal easing. INR remains vulnerable to thecurrent account deficit and possible lower portfolio and FDI inflows in a globaldeleveraging scenario.

India s external position among theweakest in Asia

Inflationary pressure has started toease


00 01 02 03 04 05 06 07 08 09

-8

-6

-4

-2

0

2

4

6

-8

-6

-4

-2

0

2

4

6 % of GDP Basic balance

Foreign direct investmentPortfolio investment

Foreign direct investment abroadCurrent account

05 06 07 08 09 10

42.5

45.0

47.5

50.0

52.5

55.0

57.5

60.0

-15

-10

-5

0

5

10

15

20 Diffusion

Output prices, manf. PMI>>

>

INR

Credit rating:

S&P: BBB- (stable)

Currency regime:

Free float

Inflation target:

8% for fiscal 09/10

3% medium term

FX forecast

Source: Reuters EcoWin, Danske Markets


Source: Reuters EcoWin, Danske Markets


Danske Forward

15-Jul 46.61+3M 47.50 47.13+6M 47.00 47.53+12M 46.00 48.15

USD/INR

EUR/INR

Policy rateNext meeting

Ne xt c hange + 25 bp Jul y, 2010Year-end

27 Jul 20103.75

Researve Bank of India (RBI)

4.50


25/31



Core-Major

Source: Reuters EcoW in, Danske Market s

Wider CEE


CIS


Danske Forward Danske For ward Danske For ward Danske For war d Danske Forwar d15-Jul 1.29 745.0 940.2 797.5+3M 1.15 1.29 744.0 744.8 940.0 940.6 765.0 801.1+6M 1.18 1.29 744.0 744.7 920.0 941.9 760.0 804.5

+12M 1.27 1.29 745.0 744.7 920.0 944.6 760.0 810.515-Jul 1.29 575.7 727.0 616.4+3M 1.15 1.29 647.0 575.7 817.4 727.1 665.2 619.3+6M 1.18 1.29 630.5 576.0 779.7 728.4 644.1 622.1

+12M 1.27 1.29 586.6 576.1 724.4 730.8 598.4 627.015-Jul 113.1 87.5 6.58 8.31 7.05+3M 109.0 113.0 95.0 87.3 6.83 6.59 8.62 8.33 7.02 7.09+6M 117.0 112.8 99.0 87.2 6.36 6.60 7.86 8.35 6.50 7.13

+12M 130.0 112.3 102.0 86.9 5.73 6.63 7.08 8.41 5.85 7.22

NOK

EUR

USD

JPY

EUR USD DKK SEK

Danske Forward Danske For ward Danske For ward Danske For war d Danske Forwar d15-Jul 4.07 3.14 182.8 230.7 195.7+3M 4.05 4.10 3.52 3.17 183.7 181.7 232.1 229.5 188.9 195.5+6M 4.05 4.12 3.43 3.18 183.7 181.0 227.2 228.9 187.7 195.5

+12M 4.00 4.15 3.15 3.21 186.3 179.5 230.0 227.6 190.0 195.315-Jul 279.7 215.7 2.66 3.36 2.85+3M 285.0 282.1 247.8 218.0 2.61 2.64 3.30 3.33 2.68 2.84

+6M 285.0 283.9 241.5 219.6 2.61 2.62 3.23 3.32 2.67 2.83+12M 280.0 287.3 220.5 222.3 2.66 2.59 3.29 3.29 2.71 2.8215-Jul 25.38 19.63 29.35 37.04 31.42+3M 24.80 25.39 21.57 19.63 30.00 29.34 37.90 37.05 30.85 31.55+6M 24.40 25.38 20.68 19.63 30.49 29.35 37.70 37.12 31.15 31.70

+12M 23.60 25.34 18.58 19.60 31.57 29.39 38.98 37.28 32.20 31.9915-Jul 4.27 3.30 174.5 220.2 186.8+3M 4.50 4.32 3.91 3.34 165.3 172.6 208.9 217.9 170.0 185.6+6M 4.50 4.38 3.81 3.38 165.3 170.2 204.4 215.2 168.9 183.8

+12M 4.55 4.47 3.58 3.46 163.7 166.6 202.2 211.3 167.0 181.315-Jul 1.96 1.51 381.0 480.8 407.8+3M 1.96 - 1.70 - 380.6 - 480.8 - 391.3 -+6M 1.96 - 1.66 - 380.6 - 470.6 - 388.7 -

+12M 1.96 - 1.54 - 381.1 - 470.6 - 388.7 -

EUR USD DKK SEK NOK

PLN

HUF

CZK

RON

BGN


+12M 36.20 40.76 28.50 31.53 20.58 18.27 25.42 23.18 21.00 19.8915-Jul 10.19 7.90 73.1 92.3 78.3+3M 9.78 N/A 8.50 N/A 76.1 N/A 96.2 N/A 78.3 N/A+6M 9.32 N/A 7.90 N/A 79.8 N/A 98.7 N/A 81.5 N/A

+12M 8.64 N/A 6.80 N/A 86.3 N/A 106.5 N/A 88.0 N/A

EUR USD DKK SEK

RUB

NOK

UAH


26/31



Baltics


MEA


LATAM


Danske Forward Danske For ward Danske For ward Danske For war d Danske Forwar d15-Jul 15.64 12.08 47.63 60.11 50.98+3M 15.65 - 13.61 - 47.54 - 60.06 - 48.88 -

+6M 15.65 - 13.26 - 47.54 - 58.79 - 48.56 -+12M 15.65 - 12.32 - 47.60 - 58.79 - 48.56 -15-Jul 3.45 2.67 215.8 272.3 231.0+3M 3.45 - 3.00 - 215.7 - 272.5 - 221.7 -+6M 3.45 - 2.92 - 215.7 - 266.7 - 220.3 -

+12M 3.45 - 2.72 - 215.9 - 266.7 - 220.3 -15-Jul 0.71 0.55 1052.1 1327.8 1126.3+3M 0.70 - 0.61 - 1062.9 - 1342.9 - 1092.9 -+6M 0.70 - 0.59 - 1062.9 - 1314.3 - 1085.7 -

+12M 0.70 - 0.55 - 1064.3 - 1314.3 - 1085.7 -

EUR USD DKK SEK NOK

EEK

LTL

LVL


+12M 2.11 2.11 1.66 1.63 353.1 352.8 436.0 447.6 360.2 384.015-Jul 9.76 7.55 76.4 96.4 81.8+3M 9.14 9.92 7.95 7.66 81.4 75.1 102.8 94.9 83.7 80.8+6M 9.74 10.05 8.25 7.77 76.4 74.1 94.5 93.7 78.1 80.0

+12M 11.18 10.33 8.80 7.99 66.7 72.1 82.3 91.4 68.0 78.515-Jul 4.99 3.86 149.4 188.6 159.9+3M 4.60 5.00 4.00 3.87 161.7 149.0 204.3 188.1 166.3 160.2+6M 4.66 5.00 3.95 3.87 159.6 148.9 197.4 188.3 163.1 160.9

+12M 4.89 5.00 3.85 3.87 152.4 148.9 188.2 188.8 155.4 162.015-Jul 7.37 5.70 101.1 127.6 108.2+3M 6.44 7.20 5.60 5.57 115.5 103.4 146.0 130.6 118.8 111.2+6M 6.67 7.35 5.65 5.68 111.6 101.3 138.0 128.2 114.0 109.5

+12M 7.24 7.46 5.70 5.77 102.9 99.8 127.1 126.6 105.0 108.6

USD

TRY

EUR SEK NOK

ILS

ZAR

EGP

DKK


+12M 2.35 2.47 1.85 1.91 317.1 300.9 391.6 381.7 323.5 327.515-Jul 5.09 3.93 146.5 184.9 156.8+3M 4.60 5.20 4.00 4.02 161.7 143.2 204.3 180.9 166.3 154.0+6M 5.31 5.35 4.50 4.14 140.1 139.1 173.3 175.9 143.1 150.3

+12M 5.84 5.69 4.60 4.40 127.5 130.9 157.5 166.1 130.1 142.515-Jul 16.52 12.77 45.10 56.92 48.28+3M 15.30 16.68 13.30 12.89 48.64 44.66 61.46 56.41 50.02 48.04+6M 15.75 16.83 13.35 13.02 47.23 44.25 58.40 55.96 48.24 47.80

+12M 17.02 17.17 13.40 13.28 43.78 43.37 54.06 55.01 44.66 47.20

NOKEUR USD DKK SEK

MXN

BRL

ARS


27/31



EM Asia


Danske Forward Danske Forward Danske Forward Danske Forward Danske Forward15-Jul 8.77 6.78 85.0 107.2 90.9+3M 7.77 8.76 6.76 6.77 95.7 85.1 120.9 107.4 98.4 91.5+6M 7.87 8.72 6.67 6.75 94.5 85.4 116.9 108.0 96.6 92.2

+12M 8.29 8.65 6.53 6.69 89.8 86.1 110.9 109.2 91.6 93.715-Jul 1555 1202 0.48 0.60 0.51+3M 1357 1555 1180 1202 0.55 0.48 0.69 0.60 0.56 0.52+6M 1269 1560 1075 1207 0.59 0.48 0.73 0.60 0.60 0.52

+12M 1334 1564 1050 1210 0.56 0.48 0.69 0.60 0.57 0.5215-Jul 41.7 32.2 17.9 22.6 19.1+3M 36.8 41.7 32.0 32.3 20.2 17.9 25.5 22.5 20.8 19.2+6M 37.4 41.7 31.7 32.3 19.9 17.8 24.6 22.6 20.3 19.3

+12M 39.9 41.8 31.4 32.4 18.7 17.8 23.1 22.6 19.1 19.415-Jul 1.78 1.37 419 529 449+3M 1.58 1.78 1.37 1.37 472 420 597 530 486 451+6M 1.60 1.77 1.36 1.37 465 420 575 531 475 454

+12M 1.71 1.77 1.35 1.37 435 420 537 533 444 45815-Jul 10.05 7.77 74.1 93.6 79.4+3M 8.94 10.04 7.77 7.76 83.3 74.2 105.2 93.7 85.6 79.8+6M 9.17 10.03 7.77 7.75 81.1 74.3 100.3 93.9 82.9 80.2

+12M 9.88 10.01 7.78 7.74 75.4 74.4 93.1 94.4 76.9 81.015-Jul 4.14 3.20 180.0 227.2 192.7+3M 3.65 4.16 3.17 3.21 204.1 179.1 257.9 226.2 209.8 192.6+6M 3.66 4.18 3.10 3.23 203.4 178.3 251.5 225.5 207.8 192.6

+12M 3.90 4.21 3.07 3.26 191.1 177.0 236.0 224.5 194.9 192.615-Jul 59.9 46.3 12.44 15.70 13.31+3M 52.90 60.43 46.00 46.71 14.06 12.33 17.77 15.57 14.46 13.26+6M 52.51 60.92 44.50 47.11 14.17 12.23 17.52 15.46 14.47 13.21

+12M 55.88 61.69 44.00 47.73 13.33 12.07 16.46 15.31 13.60 13.1415-Jul 11709 9050 0.064 0.080 0.068+3M 10408 11876 9050 9180 0.071 0.063 0.090 0.079 0.074 0.067+6M 10620 12032 9000 9305 0.070 0.062 0.087 0.078 0.072 0.067

+12M 11303 12344 8900 9550 0.066 0.060 0.081 0.077 0.067 0.06615-Jul 60.30 46.61 12.35 15.59 13.22+3M 54.63 60.97 47.50 47.13 13.62 12.22 17.21 15.43 14.00 13.14+6M 55.46 61.46 47.00 47.53 13.42 12.12 16.59 15.33 13.70 13.09

+12M 58.42 62.24 46.00 48.15 12.75 11.96 15.75 15.18 13.01 13.0215-Jul 41.63 32.11 17.90 22.58 19.16+3M 36.57 41.47 31.80 32.06 20.34 17.96 25.70 22.68 20.92 19.32+6M 35.99 41.34 30.50 31.97 20.67 18.02 25.56 22.78 21.12 19.46

+12M 38.10 41.04 30.00 31.75 19.55 18.15 24.15 23.02 19.95 19.75

TWD

INR

SEK NOK

CNY

KRW

EUR USD DKK

IDR

THB

SGD

HKD

MYR

PHP


28/31


29/31



Monetary Policy Calendar

Calendar


16 July 2010Wider CEE

PLN 3.50 - 25 bp Jun, 2009 + 25 bp Q3, 2010 26-30/7/2010 4.00HUF 5.25 - 25 bp Apr, 2010 - Unchanged 2010 19 Jul 2010 5.25CZK 0.75 - 25 bp May, 2010 - Unchanged 2010 05 Aug 2010 0.75RON 6.25 - 25 bp May, 2010 - Unchanged 2010 04 Aug 2010 6.50TRY 6.50 - 50 bp Oct, 2009 + 50 bp H2, 2010 19 Aug 2010 8.00CIS

RUB 7.75 - 25 bp May, 2010 - Unchanged 2010 Not announced 7.75MEA

ILS 1.50 + 25 bp Mar, 2010 + 25 bp Q3, 2010 26 Jul 2010 2.50ZAR 6.50 - 50 bp Mar, 2010 - 50 bp Jul, 2010 22 Jul 2010 6.00

LATAM

BRL 10.25 + 75 bp June, 2010 + 75 bp Jul, 2010 21 Jul 2010 11.50MXN 4.50 - 25 bp Jul, 2009 - Unchanged 2010 16 Jul 2010 4.50

EM Asia

CNY 5.31 - 27 bp Dec, 2008 + 27 bp Q3, 2010 Not announced 5.85KRW 2.25 +25 bp Jul, 2010 + 25 bp Q3, 2010 12 Aug 2010 2.75THB 1.50 + 25 bp Jul, 2010 + 25 bp Q3, 2010 25 Aug 2010 1.75HKD 0.50 - 100 bp Dec, 2008 + 25 bp Q1, 2011 Not announced 0.50MYR 2.75 + 25 bp Jul, 2010 + 25 bp Q4, 2010 02 Sep 2010 2.75PHP 4.00 - 25 bp Jul, 2009 + 25 bp Q3, 2010 26 Aug 2010 4.75IDR 6.50 - 25 bp Aug, 2009 + 25 bp Q3, 2010 04 Aug 2010 7.00INR 3.75 + 25 bp Jun, 2010 + 25 bp July, 2010 27 Jul 2010 4.50

TWD 1.38 +12.5 bp Jun, 2010 + 12.5 bp Q3, 2010 Not announced 1.75

Year-end (%)Next MeetingPolicy Rate (%) Latest Change Next Change


30/31



Emerging Markets Contacts

Emerging Markets Research

Lars Christensen +45 45 12 85 30 [email protected]

Flemming Jegbjrg Nielsen +45 45 12 85 35 [email protected] Violeta Klyviene +370 5 2156992 [email protected]

Stanislava Pravdova +45 45 12 80 71 [email protected]

Sanna Kurronen +358 10 546 7573 [email protected]

Jens Nrvig Pedersen +45 45 12 84 98 [email protected]

Emerging Markets Sales, Danske Markets

Erik Rasmussen +45 45 14 32 47 [email protected]

Global Retail SME, FX

Stig Hansen +45 45 14 60 86 [email protected]

Flemming Winther +45 45 14 68 24 [email protected]

Trading FX, Fixed Income, Danske Markets

Frank Sandbk Vig +45 45 14 67 96 [email protected]

Thomas Manthorpe +45 45 14 69 68 [email protected]

Markku Anttila +358 10 513 8705 [email protected]

Perttu Tuomi +358 10 513 8738 [email protected]

Danske Bank Poland, Warsaw

Marciej Semeniuk +48 22 33 77 114 [email protected]

Bart omiej Dzieniecki +48 22 33 77 112 [email protected]

Danske Markets Baltics

Howard Wilkinson +358 50 374 559 [email protected]

Martins Strazds +371 6707 2245 [email protected]

Giedre Geciauskiene +370 5215 6180 [email protected]

Lauri Palmaru +372 675 2464 [email protected]

ZAO Danske Bank Russia, Saint-Petersburg Treasury Department

Mikko Pitknen +7 812 332 73 06 [email protected]

Vladimir Biserov +7 812 332 73 04 [email protected]

Darja Kounina +7 812 332 73 04 [email protected]

All EM r esearch is available on Bloomberg DDEM


31/31


DisclosureThis research report has been prepared by Danske Research, which is part of Danske Markets, a division of

Danske Bank. Danske Bank is under supervision by the Danish Financial Supervisory Authority.

Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high

quality research based on research objectivity and independence. These procedures are documented in the Danske

Bank Research Policy. Employees within the Danske Bank Research Departments have been instructed that anyrequest that might impair the objectivity and independence of research shall be referred to Research Management

and to the Compliance Officer. Danske Bank Research departments are organised independently from and do not

report to other Danske Bank business areas. Research analysts are remunerated in part based on the over-all

profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other

remuneration linked to specific corporate finance or debt capital transactions.

Danske Bank research reports are prepared in accordance with the Danish Society of Investment Professionals

Ethical rules and the Recommendations of the Danish Securities Dealers Association.

Financial models and/or methodology used in this research report

Calculations and presentations in this research report are based on standard econometric tools and methodology

as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be

obtained from the authors upon request.

Risk warning

Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis

of relevant assumptions, are stated throughout the text.

First date of publication

Please see the front page of this research report.

DisclaimerThis publication has been prepared by Danske Markets for information purposes only. It has been prepared

independently, solely from publicly available information and does not take into account the views of Danske

Banks internal credit department. It is not an offer or solicitation of any offer to purchase or sell any financial

instrument. Whilst reasonable care

Documents

JUL 16 Danske EM Briefer