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Francisco Romero

Ternium: Despite a 20% fall in sales, 2Q ends slightly negative

Ternium Argentina showed a negative semi-annual net result, due to lower dispatches and negative results of investments in associated companies. However, it managed to end 2Q with almost no losses despite the significant drop in activity caused by the COVID-19 pandemic. Ternium Argentina's consolidated net sales fell 15,5% y-o-y in 1H 2020, as a consequence of a decrease (-22,5%) in deliveries in tons to the domestic market and exports. Cost of sales fell 16,4% in light of lower activity, pa...

Hasnain Malik

Sri Lanka: Rajapaksas like it's 2010 (in one chart)

[/TgGmVMzVlaMuw0ynCBIA0SGILKYSUWEmVR0sWzI4.png] RELATED READING Sri Lanka election: Bonds fairly valued after Rajapaksa landslide Sri Lanka: Waiting for election and IMF; cheap stocks but fiscal derailment Asia equity strategy: Vietnam tops a strong group

Paul Domjan

Digital payments need digital currencies

Last month, I looked at how the Wirecard saga showed that political risk is not just an EM problem and that fintech investors need to look beyond growth to understand partnership and infrastructure risk. In this final item in the series, I look at how the push to move to electronic payments across the economy, which Covid-19 has accelerated, made the unbanked, including most vulnerable in society, particularly dependent on lightly regulated fintechs that built their businesses on the back of ...

Hoang Bui

Danang Rubber: Q2 20 – Sharp decline on Covid-19 impact, but still a Buy; cut TP

In H1 20, radial tire exports were heavily affected by Covid-19. Results continued to decline following the trend of recent years. Taking into account the difficult year, the increasing level of competition and the possibility of the radial plant expansion, which will happen in 2021 instead of 2020, we adjust our target price by reducing it from VND22,500/share to VND19,200/share. Coupled with the expected cash dividend of VND1,000/share within the next 12 months, the total return is 27%. We ...

Stuart Culverhouse

Argentina: What next after the restructuring agreement

Argentina announced an agreement on its debt restructuring with its major foreign bondholders earlier this week, subject to documentation. The deal adjusts certain payment terms and seeks to adjust some legal clauses compared to the government's previous offer. The deadline has been extended to 24 August to allow time for further discussion on the legal clauses. Settlement date is 4 September 2020. The deal appears to value the US$ bonds at about US$55, according to media reports (our calcula...

Stuart Culverhouse

2018 Fixed Income Frontier Outlook

We cannot recall EM and frontier markets beginning a year with so much positive sentiment – we would probably need to go back to before the global financial crisis, perhaps longer still. This comes after 2017 likely saw the first positive global growth surprise in seven years, despite the onset of the withdrawal of global monetary stimulus, and we think this momentum looks set to continue into 2018.

Nirgunan Tiruchelvam

Which of the Baby Amazons will survive?

E-commerce is in the ascendancy in emerging markets, having grown by an estimated 18% per annum over the past five years.

Walid Khalid Bamhair

Saudi Arabia (NCB Capital): FTSE Russell – Saudi implementation phase

On 18 March 2019, FTSE Russell will begin the implementation of the inclusion of Saudi Arabia into the FTSE index series. Saudi Arabia is projected to have a weight of 2.9% in the FTSE Emerging All Cap index and 0.30% in the FTSE Global Equity index. Saudi’s addition to the FTSE Emerging All Cap index is expected to result in a total inflow of cSAR21.7bn mainly from passive funds benchmarked to the index. The implementation will occur in five tranches with the first tranche representing 10% of total inflows equivalent to SAR2.17bn. We expect the Saudi market to continue its positive momentum s...

Nirgunan Tiruchelvam

Food delivery platforms and the tech revolution in emerging markets

Technological innovators are disrupting business, enabled by the increasing prevalence and power of smartphones. In developed markets, this tech revolution is increasing convenience for consumers and creating efficiencies for vendors; in emerging markets, it is a game-changer. In this in-depth report, part of our new series on technological disruption in emerging markets, we examine one such industry – digital food delivery. Powered by the spread of smartphones, better access to broadband and...

Rahul Shah ...
  • Rohit Kumar
  • Tracy Kivunyu

Want exposure to booming EM digital payments? Consider these 10 listed names

Global digital payments are expected to grow 40% this year, with 20% CAGR to 2023; growth in emerging markets could be faster still. While Alibaba and Tencent are undoubtedly the listed tech titans in EM, we highlight 10 other names that give more targeted exposure to digital payments outside of China. They are also much cheaper. [/1EEdeUIIpQ4THNv2lu1uWxTevaeOP88fnfMR28U6.png] In Figure 2, we present the 10 listed digital payments companies along with revenue contribut...

Rahul Shah ...
  • Rohit Kumar
  • Tracy Kivunyu

WhatsApp Brazil’s digital payments launch changes the game in EM ex-China

Facebook-owned WhatsApp’s launch of its payments app in Brazil brings a potentially powerful new entrant to the global digital payments scene, one with a 2.0bn ready-made active user base (and access to an aggregated 3.0bn users within the Facebook family’s suite of products). ‘Facebook family’ monthly active users (bn) [-eu-west-1.amazonaws.com/exotix-content-uploads/z8c4eQirHCVFAYiBq4yEV655MhXYmW3P9yXJR51j.png] Source: Company data, Tellimer Research. Note: Facebook family include...

Rahul Shah ...
  • Rohit Kumar

Global remittances: Opportunities and risks in an industry upended by Covid-19

International remittances totalled US$714bn in 2019, sent by 272mn migrant workers. We think a further cUS$500mn was sent via informal channels. The largest source markets for remittances are the US, UAE and Saudi Arabia. Key recipient markets include India, China and Mexico. But this industry is changing fast, disrupted by new technologies and the economic impact of Covid-19. Remittance volumes could decline 20% in 2020, according to the World Bank. Key drivers of this decline include negati...

Rahul Shah

Could fungal warfare finally defeat malaria?

While the world currently battles to lower the incidence of Covid-19, prospects for reducing the transmission of a far deadlier disease, malaria, may have improved. Any progress in this area could prove particularly beneficial for sub-Saharan Africa. There are over 200mn incidents of malaria each year Annually, the disease kills c400k people every year, making it one of the deadliest transmittable diseases. This is particularly the case for infants – globally it is the fifth most common cause...

Hasnain Malik

Sri Lanka: Rajapaksas like it's 2010 (in one chart)

[/TgGmVMzVlaMuw0ynCBIA0SGILKYSUWEmVR0sWzI4.png] RELATED READING Sri Lanka election: Bonds fairly valued after Rajapaksa landslide Sri Lanka: Waiting for election and IMF; cheap stocks but fiscal derailment Asia equity strategy: Vietnam tops a strong group

Hasnain Malik ...
  • Patrick Curran

Sri Lanka election: Bonds fairly valued after Rajapaksa landslide

On 5 August, Sri Lankans went to the polls to elect a new parliament, with the ruling SLPP winning 145 out of 225 seats amid 71% turnout (slightly below 75% in 2015). The SLPP can reportedly rely on the support of several small allied parties to muster five additional seats to give them the two-thirds supermajority needed to reverse the 2015 constitutional amendment limiting the powers of the president and imposing term limits. President Gotabaya Rajapaksa’s brother Mahinda (who served as pre...

Hoang Nguyen ...
  • Lam Nguyen
  • Tu Vu
  • Vu Tran

Vietnam investment strategy – August 2020: Prudence with macroeconomic outlook

With the second wave of the coronavirus pandemic, economic recovery will take longer than we expected because of weaker domestic consumption. The second wave has negatively impacted consumer buying power and mobility. Since Vietnam is heavily dependent on exports, a global recession will result in decreasing manufacturing orders, dragging down production activities. However, there are supportive elements for the economy, especially the government’s support towards power infrastructure constru...

Hasnain Malik

Peru: Political obstructionism again as anti-mining, old elite interests unite

President Vizcarra will have to appoint a new cabinet (or, at least, a new Prime Minister instead of Pedro Cateriano) after suffering a 54 to 37 defeat (with 34 abstentions) in Congress on 4th August. [/EIN69xGmrpXBKadbDltGZGvYx00GteapYQ1laSeL.png] CONGRESS OBSTRUCTS PRESIDENT AGAIN The catalysts for the loss of confidence vote were opposition to Cateriano's focus on expanding mining output and his endorsement of the Education Minister Martin Benavides (whose reforms i...

Juan Guma

Argentina: Foreign debt settlement, first step for a solid recovery

The favorable resolution of the sovereign debt restructuring is an important first step for Argentine stocks prices future performance. However, the immediate outlook is still not clear due to the slump in economic activity and still uncertain recovery. Companies with a high percentage of dollar-denominated revenues, lower operating exposure to the domestic market and low debt levels act as a hedge in the current scenario, while in case of a better than expected recovery, could outperform th...

Francisco Romero

Ternium: Despite a 20% fall in sales, 2Q ends slightly negative

Ternium Argentina showed a negative semi-annual net result, due to lower dispatches and negative results of investments in associated companies. However, it managed to end 2Q with almost no losses despite the significant drop in activity caused by the COVID-19 pandemic. Ternium Argentina's consolidated net sales fell 15,5% y-o-y in 1H 2020, as a consequence of a decrease (-22,5%) in deliveries in tons to the domestic market and exports. Cost of sales fell 16,4% in light of lower activity, pa...

Hoang Bui

Danang Rubber: Q2 20 – Sharp decline on Covid-19 impact, but still a Buy; cut TP

In H1 20, radial tire exports were heavily affected by Covid-19. Results continued to decline following the trend of recent years. Taking into account the difficult year, the increasing level of competition and the possibility of the radial plant expansion, which will happen in 2021 instead of 2020, we adjust our target price by reducing it from VND22,500/share to VND19,200/share. Coupled with the expected cash dividend of VND1,000/share within the next 12 months, the total return is 27%. We ...

Muhammad Saad Ali

Pakistan OMCs: Q4 FY 20 preview – Expect large losses on sharp price cuts

Our OMC Universe will continue to post large losses in 4QFY20. The quarter was mired by significant price reductions and another slip in the exchange rate. Sales could have been much lower qoq due to lockdown in April-May, but a big jump in June made up for the earlier weakness. Petroleum prices were reduced more than 25% early in the quarter, but the entire cut was reversed at the end of June (likely containing the extent of the losses). Lower finance costs and potential tax credits will als...

John Walsh

VTB Bank: Q2 20 IFRS results – Negative

VTB (VTBR RX: U/R) reported its Q2 20 IFRS financials. While core business lines and cost control were fairly solid, the credit quality surprised negatively with a material CoR pick-up in Q2, going against the trends reported by other banks. That, coupled with a negative revaluation of non-core assets and an open currency position, kept the Q2 bottom line near zero. The strong NIM performance during Q2 is not sustainable – we expect pressure to start from Q3 and beyond driven by loan book re...

Iyad KhalidÊGhulam

SABIC: Losses on lower margins and impairments

SABIC reported its 3rd consecutive losses in Q2 20, with a net loss of SAR2.2bn. This is the weakest set of results since Q1 09. The results were significantly lower than the NCBC and consensus estimates of net losses of SAR677mn and SAR209mn, respectively. The results are compared to a net loss of SAR1.1bn in Q1 20 and a profit of SAR2.0bn in Q2 19. Although revenues were broadly in-line with our estimates, we believe the lower than expected results are due to impairments and lower margins. ...

Stuart Culverhouse

Argentina: What next after the restructuring agreement

Argentina announced an agreement on its debt restructuring with its major foreign bondholders earlier this week, subject to documentation. The deal adjusts certain payment terms and seeks to adjust some legal clauses compared to the government's previous offer. The deadline has been extended to 24 August to allow time for further discussion on the legal clauses. Settlement date is 4 September 2020. The deal appears to value the US$ bonds at about US$55, according to media reports (our calcula...

Lakshini Fernando

Sri Lanka: SLPP secures majority; growth and fiscal agenda likely priorities

The much-awaited Parliamentary elections took place on Wednesday, 5th August after delays due to COVID-19 (elections were initially scheduled for April and then postponed for June). As expected, the Sri Lanka Podujana Peramuna (SLPP) backed by the Rajapaksas emerged clear winners, topping 18 of the 22 districts, thereby winning 59.9% votes. The Premadasa-led Samagi Jana Balawegaya (SJB) came in second with 54 seats (23.9% of votes) including the national list seats. Meanwhile, the United Nati...

Kiti Pantskhava ...
  • Luke Richardson
  • Patrick Curran
  • Stuart Culverhouse

Sri Lanka, Belarus elections; Argentina, Ecuador restructuring deals

In Focus: Belarus election doesn’t threaten the investment thesis; Buy * President Lukashenko is highly likely to win a sixth term in the 9 August election, despite mounting opposition * Economy hit hard by coronavirus, but V-shaped recovery expected, helped by the oil agreement with Russia * Sound liquidity and funding sources limit near-term risks to debt service; recent repayment experience is good Read the full report here. Recap of the week’s key credit research Sri Lanka...

Nicolás Viveros

Argentina: Fixed income weekly – Deal agreed on debt restructuring

At last, the government and bondholders reached an agreement on the foreign law debt exchange, at a net present value of around USD 54.8. The agreement comes after an improvement in both, economic terms and an Argentine commitment to improve the contract’s legal terms. Simultaneously, the delayed proposal for the exchange of domestic legislation bonds was also disclosed, which is in line with the government's comments about giving the same treatment to the local and foreign legislation, altho...

Patrick Curran

IMF points to material currency misalignment in several key EMs

The IMF released its 2020 External Sector Report on 4 August (see here), which aims to produce "multilaterally consistent estimates for current account and real exchange rate norms" for the 30 largest global economies, which cover c90% of global GDP. The report has a wealth of interesting data, but we focus here on the salient analysis for currency valuation of the 13 included EMs and their key external vulnerability factors. METHODOLOGY The report estimates current account and REER gaps by c...

Lakshini Fernando

Sri Lanka (Asia Securities): New president appoints interim cabinet; positive for policy direction

Sri Lanka’s newly-elected President Gotabaya Rajapaksa appointed an interim caretaker cabinet consisting of 16 members today. This followed his appointment of ex-President Mahinda Rajapaksa as the prime minister. In addition to his post as PM, Mahinda Rajapaksa was sworn in as 1) Minister of Finance, 2) Economic affairs and policy development, 3) Buddhist affairs, 4) Cultural, 5) water supply and urban development, and 6) housing development. We believe the smooth transfer of power from the previous UNP administration is a key positive to establish stability soon after the presidential electio...

Takudzwa Sherekete

Zimbabwe (IH Securities): Strategy – economic headwinds to persist

The 2020 Budget attempts to solve the underlying problem of productivity through several measures, the main lever of which is the increase in tax-free thresholds to release more disposable income from consumers. Our concern is that prevailing economic headwinds including elevated inflation will in the short term continue to outpace consumer earnings especially as corporate employers remain under significant pressure.

Muhammad Saad Ali ...
  • Raza Jafri

Pakistan (IMS): Market Strategy – a U-shaped recovery

We recently met with a group of key government officials and major corporates in Pakistan. Most companies retain a cautious outlook on volumes (over the next 12-18 months), but acknowledge the macro improvement and bottoming out of corporate profitability. The ongoing protests in Islamabad were given short shrift.

Sandy Eskaros

Egypt (Pharos): Inflation Monitor – October inflation hits record low

Inflation in October 2019 fell to its lowest level since January 2007; hitting 2.4% YoY for total Egypt against 4.3% in September, enforcing the single digit inflation trend further and faster than expected, as it has been decelerating further every month since May 2019. Annually, the highest growing category was Education, growing at 28.5% YoY followed by Recreation & Culture as well as Transportation, both growing at 15.7% YoY in October. Worthy of attention is the Food & Beverages category recording a decline for the second consecutive month at -6.3% YoY in October compared to -0.06% YoY i...

Kavinda Perera ...
  • Lakshini Fernando

Sri Lanka (Asia Securities): Voting for a change, but which way?

The 2019 elections will see 15.8mn voters (including 1mn new voters) polling to elect the 8th President of Sri Lanka. Overall, we note the election will be a closely contested and 1) events in the last week before the elections could shift the floating voter base, 2) higher voter participation in North and East will be critical for Sajith and 3) Gotabaya needs to attract ~68% of the ethnic majority – Sinhala voter base for a win.

Alfa Equity Team

Alfa Morning Bulletin: 7 August 2020

Markets retreat on negative backdrop: The Russian market corrected on Thursday – RTSI (-1.1% @ 1,281) and IMOEX (-0.2% @ 2,986) – largely in line with EMEA peers on worries over the growth in coronavirus cases globally and rising US-China tensions. A better than expected US jobless claims report failed to resurrect the markets. Weak earnings across Europe also dampened the mood. The ruble retreated (-0.8% @ 73.43) versus a flat US dollar (DXY +0.1% @ 92.94). Oil prices fluctuated, closing sli...

Alfa Equity Team

Alfa Morning Bulletin: 6 August 2020

Jump in crude prices drove Russian stock market higher: The Russian market rallied strongly yesterday – RTSI (+2.8% @ 1,295) and IMOEX (+1.8% @ 2,993) – driven by a sharp jump in oil prices (Brent +3.4% @ 45.93). Crude prices surged higher on an API forecast that US inventories shrunk by 8.6 million barrels last week. That provided support to the ruble (+1.05% @ 72.78), which recouped some of last week’s losses. Promising PMI data provided a boost to European markets (StoxxEuro600 +0.5%). Gol...

Alfa Equity Team

Alfa Morning Bulletin: 5 August 2020

Markets succumb to weak earnings: A string of weak earnings proved to be a drag on the capital markets on Tuesday with investors also anxious that US lawmakers agree on a new support package. The Russian market was on the back foot after opening lower but found some momentum in the evening – RTSI (+0.2% @ 1,260) and IMOEX (+0.4% @ 2,940) – with miners and oil & gas stocks the main laggards. The ruble (-0.5% @ 73.51) was under pressure again in a volatile day for EM currencies: the Turkish lir...

Alfa Equity Team

Alfa Morning Bulletin: 4 August 2020

Russian market starts August with confidence: The Russian market got August off to a good start yesterday – RTSI (+1.9% @ 1,257) and IMOEX (+0.6% @ 2,929) – driven by financial stocks, retailers, tech names and a basket of metals producers. The ruble (+1.5% @ 73.28) recovered some of last week’s losses and oil prices edged higher (Brent +1.5% @ 44.18). European stocks started August on a positive note (StoxxEuro600 +2.1%) after a weak performance in July. Russia faces an uphill struggle: The ...

Alfa Equity Team

Alfa Morning Bulletin: 3 August 2020

Russia struggled for direction: The Russian market managed to close in positive territory on Friday despite paring opening gains – RTSI (+0.2% @ 1,234) and IMOEX (+1.0% @ 2,911). A weak ruble (-1.8% @ 74.38), in part as a result of large dividend payments by big state-owned corporations, provided support to the IMOEX amid a negative global backdrop – EuroStoxx600 (-0.9%). Worries over a spreading coronavirus and fresh lockdowns undermined confidence and that is clouding the global economic ou...

Stuart Culverhouse

Argentina: No easy option to avoid another (currency) crisis

The Argentinian Peso (ARS) fell to 61/US$ in early trading (down 26% from Friday's close), but has since recovered a bit to 55. It looks like the authorities have not intervened too much this morning, by letting the currency fall as far as it has. Why resist that pressure? But it is a difficult, if not impossible, job for them now. The central bank has some ammunition, but probably not enough if it keeps on like this.

Olabisi Ayodeji

Nigeria Tier 1 Banks: Looking to the rest of Africa for growth

The ‘rest-of-Africa’ segment is making a rising contribution to the group-level growth and profitability of Tier 1 Nigeria banks. We think this should serve as a medium-term tailwind considering challenges in Nigeria. Our top pick on this theme is Zenith, and Nigeria Tier 1 banks generally are at an attractive discount to Africa peers.

Rahul Shah CFA

FM & SMALL EM: Gaining FX protection through banks

Some banks offer a natural hedge against currency devaluation risk due to their net long foreign currency positions, enabling investors to gain exposure to long-term positive fundamentals (demographics, financial inclusion, institutional improvements and so on), while also providing some FX protection.

Frontier Themes: Affordability in Africa

The rise of the African consumer continues to present a significant opportunity for local and multinational consumer companies operating in the region. However, there is growing frustration among these companies over whether this opportunity will be realised, given disappointing sales growth in the region in recent years. We argue that the challenges and underwhelming performance of most of these companies is not because the opportunity does not exist, but because of their inability to adapt adequately to local nuances. In particular, that of consumer affordability, which essentially is the pr...

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