View: In November 2011, we highlighted that because overnight rates were elevated in Kenya and the outlook for the shilling was positive, there was an attractive carry trade available for foreign investors. We consequently entered a bullish position on the Kenyan shilling on November 2 in our global key market views.
Result: Our key market view yielded a total return of 3.4% within the two weeks that we held it.
Quote: "With overnight deposit rates spiking to 21.00% in response to an aggressive rate hike by Kenyan monetary authorities, we have decided to open a bullish KES/US$ position at KES96.50/US$ into our key market view portfolio in order to take advantage of the extremely attractive carry." (from 'Key Market View: Bullish Kenyan Shilling On Carry' November 2 2011)
View: In March 2011, we argued that the Arab Spring would not spread into Sub-Saharan Africa as the authorities would be quick to stifle popular movements that appeared similar to North African uprisings. Moreover, the ethnic divisions and less urbanised populations would make mass mobilisations difficult.
Result: Although a number of countries have seen protests in 2011, especially surrounding elections, these have not been anywhere near the scale of those seen in North Africa.
Quote: "BMI believes that while idiosyncratic political risks remain in a number of SSA countries, on the whole momentum for 'Egyptian-style' uprisings has yet to build." (from 'Will The North African Unrest Filter South?' March 24 2011)
View: : In September 2011, we argued that the central bank of Uganda would need to hike interest rates aggressively in order to countenance soaring core and headline inflation.
Result: The Bank of Uganda hiked rates by a massive 700bps over October-November 2011, taking the policy rate to 23.00%.
Quote: "We expect that inflation will remain elevated, and as a result the Bank of Uganda will need to retain its hawkish stance through the rest of 2011" (from 'Inflationary Environment Demands Aggressive Policy' 6 September 2011)
View: At the start of August 2011, we made a bullish call on South African bonds, believing that the instruments would rally as investors moved to capitalise on the high nominal yields and relative stability of policy.
Result: Bonds rallied sharply: the yield on the four-year treasury, for example, declined by over 100bps over the course of August 2011.
Quote: "We continue to see South African bonds as attractive. Against the backdrop of the Eurozone debt crisis, US macroeconomic woes and policy uncertainty in Turkey - South African local debt is gaining traction as a relative safe haven. Further gains are likely to be fuelled by adjusting interest rate expectations.." (from 'Market Strategy Update: Liking Select FX and South African Bonds' August 3 2011)
View: In September 2011, we argued that fears of a radical change in policy in Zambia following the election of President Michael Sata were overblown, as it would be in the government's interest to maintain the status quo.
Result: Although there have been some changes to taxes on the mining sector, we have not seen any major changes to policy. Indeed, foreign investment has held up strongly, indicating that the business environment remains hospitable.
Quote: "While we believe that his (Sata's) victory will mean significant modifications in the all-important mining sector, we do not believe that mine nationalisation poses a significant risk, and many of the proven policies of the previous government will be maintained." (from 'Sata Upset Means Changes Imminent, But No Time To Panic' 23 September 2011)
View: In September 2011, we noted that data released by the Bank of Ghana showed imports were growing at a very rapid pace, boding ill for the currency. This being the case, we became cautious regarding the cedi, highlighting the downside risks.
Result: The Ghanaian cedi subsequently depreciated, selling off by over 7.0% against the US dollar over the ensuing months.
Quote: "We have adopted a more cautious stance following a data release from the Bank of Ghana on September 1. Imports are growing at a worryingly fast pace (45.4% y-o-y over January-July 2011), exerting downside pressure on the currency." (from 'Market Strategy Update: Bearish Equities, Cautious FX' September 6 2011)
View: Confident that Turkey's central bank will no longer cut interest rates to discourage 'hot money' inflows, we suggested back in February 2011 that the Turkish lira looked ripe for a bounce against the US dollar at around the TRY1.6200/US$ level. Our view is predicated on the expectation that the central bank will ultimately have to tighten monetary policy more aggressively, forecasting a rate hike before year-end.
Result: The Turkish lira came back strongly, rallying from close to TRY1.6200/US$ to TRY1.5000/US$ by April, marking a 7.5% appreciation of the unit against the dollar.
Quote: '[W]e believe that the unit is currently well supported, having held key technical support against both the greenback and the euro. Indeed, we see scope for a retracement towards TRY1.5500/US$ in the short term.' (From Currency Forecast – TRY: Regaining Lost Ground In H211, February 24, 2011)
View: Belarus's enormous external imbalances are unsustainable and will require a considerable balance of payments adjustment via an official devaluation of the national currency.
Result: The Belarusian central bank has established a floating exchange rate for the ruble on April 20, at around the BYR5,000/US$ level, from BYR3,020/US$ at the time of putting out our view.
Quote: Our view that Belarus would end up running a mammoth current account deficit in 2010 has firmly played out according to the most recent data released by the National Bank of Belarus (see our online service, December 7, 'Ruble Devaluation In 2011). In fact, our projection that the shortfall would hit US$6.1bn (equivalent to 11.3% of GDP) was exceeded, with the deficit in fact ballooning to a massive US$8.5bn (15.3% of GDP). We reiterate our core view at this stage that Belarus's external imbalances are unsustainable and a major adjustment is set to take place in 2011, most likely via a further devaluation in the ruble. (From C/A Adjustment Unavoidable In 2011, March 17, 2011)
View: In late August 2010 we suggested that Russian equities looked primed for a strong bounce as the technical picture suggested upside potential and wildfires that month brought stock valuations down. Combined with an ongoing bounce in commodity prices and a broad-based recovery in global demand, we turned bullish towards the RTS equity index.
Result: Since our bullish call in late August 2010, the RTS index was at one point up by as much as 50.2% in April 2011, aided in large part by strong investor risk appetite and the bull-run in oil prices.
Quote: 'A case in point is the RTS equity index, which pushed through the key psychological 1,400 level at one point on August 26, having previously held major support at 1,385. A crossover on the slow stochastics indicator implies that a bounce is on the cards, and we target a move up to 1,500 in the first instance.' (From Upside Potential For Russian Assets, But Stopped Out Of WIG20, August 26 2011)
View: Since the start of the year, we have been turning increasingly constructive towards the euro-area growth prospects, underpinned by a favourable outlook for private consumption in France, where fiscal tightening measures were being delayed, and strong external demand for German manufactured goods. We have remained above consensus in our eurozone growth forecast of 1.8% for 2011 since.
Result: Strong business sentiment, near-record earnings for German exporters and the initiation of the European Central Bank's tightening cycle support our constructive outlook on the single-currency bloc's growth for 2011. Though we remain above consensus in our aggregate real GDP growth forecast for this year, consensus forecast have moved in line with our own projections.
Quote: 'Despite eurozone Q410 flash estimates for real GDP growth coming in somewhat below Bloomberg consensus expectations, we are nevertheless turning more constructive in our own outlook for euro-area economic growth in 2011. Coming fresh on the back our upward revision to French real GDP growth for 2011 to 1.7% from 1.4% previously on February 11 (see our online service, Upward Revision To 2011 Growth'), we are raising our growth forecast for Germany to 3.0% from 2.1% previously for this year, which takes us above the consensus forecast for 2.6% growth. We have also adjusted our 2012 growth forecast from 1.8% to 2.0% as a tightening labour market and improving business and consumer sentiment pave the way for stronger domestic demand.' (From Growth Revisions Underpin Constructive Euro-Area View, February 15 2011)
View: Since the beginning of 2011 we have been bullish the British pound against the US dollar, which at the time was trading around US$1.5500/GBP. Our view was predicated on a likely shift towards monetary policy normalisation and fiscal consolidation in the UK, as well as a bearish view towards the US dollar. The government's fiscal consolidation programme has buoyed confidence in public debt dynamics and reduced economic stability risks, while surging inflation and concerns about a loss of credibility were likely to spur the Bank of England into hiking policy rates. Meanwhile, we believed that a continuation of the US Federal Reserve's quantitative easing programme through H111, coupled with a lack of strategy on fiscal consolidation, would undermine confidence in the dollar.
Result: The pound has posted significant gains against the US dollar thus far this year. Indeed, hitting US$1.6700/GBP at the end of April, the pound has appreciated nearly 8%.
Quote: 'The unorthodox nature of [US] quantitative easing has distorted the signalling power of the foreign exchange market. Indeed, a strong surge in US$/GBP is as likely to reflect a flood of new dollars entering the market as a positive UK growth story. This is a major factor underpinning our medium-term forecasts. The Federal Reserve is still erring on the dovish side and willing to buy up more government bonds should the US recovery appear to falter. In addition, US President Barack Obama's administration is doing little to address the bloated fiscal deficit, instead opting for a fresh set of tax breaks to stimulate the economy. This could further go in the pound's favour should investors start to unwind dollar assets.' (From Sterling Poised To Pound The Dollar, January 5 2011)
View: In October 2008, we stated that as the forthcoming global recession would be driven by sharp deleveraging in the developed world, that economies with high debt refinancing requirements and large external imbalances such as Ukraine, Bulgaria, the Baltic states and Romania would be worst affected.
Result: Through 2009, Latvia, Lithuania, Estonia, Romania, Bulgaria and Ukraine were among the worst performing economies in Europe, with real GDP contracting by an average of 14.9%, far worse than the 5.1% decline recorded for emerging Europe as a whole.
Quote: "We reiterate our long-held view that as this ultimately is a question of where to find capital, the countries with large external asymmetries will be hardest hit. Primarily, these include the 'current account deficit five' in the EU of Bulgaria, Estonia, Latvia, Lithuania and Romania as well as Ukraine in the CIS" (from 'Strategic View: Demand Destruction Key For Negative Outlook' October 13 2008)
View: At the beginning of the global credit crunch in October 2008, we highlighted Turkey and Poland, as among the best positioned economies within CEE. This was followed consistently through 2010, where we firmly established these two countries as strategic outperformers through the long term.
Result: Poland was the only major economy in Europe to avoid recession in 2009, expanding by 1.7%. Turkish real GDP growth accelerated to become the fastest in the region in Q409, coming in at 6.0%.
Quote: "...Turkey and Poland are looking healthier and better positioned to withstand the pressures of a global credit crunch." (from 'Strategic View: Demand Destruction Key For Negative Outlook' October 13 2008). "Once global credit markets begin to stabilise, we believe that the significant macroeconomic differentiation within emerging Europe will become more evident and this will certainly play to Turkey's advantage." (from 'Why Turkey Will Be A Strategic Outperformer' June 11 2009)
View: At the beginning of February 2009, we forecast a significant devaluation of the Kazakh tenge in light of the slump in global oil prices and previous devaluation of the Russian rouble. Specifically, we targeted a 25% devaluation of the tenge against the US dollar.
Result: The National Bank of Kazakhstan devalued the tenge by 22% on February 4
Quote: "Having come under considerable pressure on the back of a stricken banking sector and broader economic woes, the Kazakh tenge now looks poised to undergo a substantial devaluation. Though we have been cautious in the past of going outright bearish on the tenge, owing to the significant arsenal of foreign currency reserves which can be used to prop up the currency, we cautioned that a breach of KZT121.90/US$ would nonetheless signal that a significant devaluation would be on the cards. As such, we believe that the sharp sell off to KZT123.52/US$ at one point on February 3 suggests that the National Bank of Kazakhstan (NBK) is now preparing for a significant weakening of the currency"( from 'Targeting A 25% Devaluation Of The Tenge' February 3, 2009).
View: In November 2009 we highlighted that Ukraine's 2010 presidential election would lead to a significant improvement of relations between Kiev and Moscow, regardless of whether Yulia Tymoshenko or Viktor Yanukovych won. This in turn, would significantly help to mitigate macroeconomic risks through the medium term.
Result: Following Viktor Yanukovych's victory, relations between Russia and Ukraine are at their most stable point since 2004. This was reflected in an agreement signed in April 2010 which resulted in Russia reducing the costs of its natural gas exports to Ukraine by 30%, in exchange for a 25-year extension of the Russian lease on the naval base at Sevastopol.
Quote: "...our core view remains for bilateral relations between the two states (Ukraine and Russia) to improve after the vote, which should reduce (but not eliminate) the likelihood of frequent flare ups in tension through 2014" (from 'Political Risk In 2010: As Bad As it Gets' November 26 2009)
View: In February 2011, we argued that China's excessive railway boom was overly-ambitious and would have to be capped owing to financial constraints at the Ministry of Railways (MoR). We also noted that despite historically cheap valuations, railway construction companies would suffer as bullish sentiment towards the railway boom faded.
Result: A first quarter loss of CNY3.8bn at the MoR was quickly followed by a tragic train crash (which the government has conceded was due to poor safety standards), and finally a suspension of new investment. Meanwhile, the stock prices of China Railway Group and China Railway Construction Corporation have nosedived by roughly 40% respectively.
Quote: "We believe that the current boom in China's railway investment is unsustainable, despite highly ambitious official projections. Debt levels at the Ministry of Railways (MoR) are mounting, and the poor economic viability of major high-speed rail projects suggests a sharp slowdown in investment growth going forward. Major railway construction companies are set to suffer, with China Railway Construction Corporation and China Railway Group looking technically precarious." ('Railway Boom Unsustainable', February 25 2011)
View: In July 2011, we warned that instability in the Chinese banking sector should be expected on the back of mounting loan repayment concerns at a local government level. From a financial markets perspective, we adopted a negative outlook on the Hang Seng H-Financials index, which is comprised of China's largest financial companies. We also expected to see China's sovereign 5-Year credit default swap (CDS) head significantly higher, as concerns over a potential financial sector bailout intensified.
Result: China's commercial banks have come under serious duress due to their heavy exposure to local government investment vehicles. Interbank rates, for instance, have doubled in the space of 12 months. Meanwhile, the H-Financial index plummeted 35% in Q311, and Chinese 5-Year CDS spreads have soared to levels last seen during the global financial crisis.
Quote: "As the repayment capacity of loans extended to local government investment vehicles comes under threat, we continue to expect instability in China's banking system. With valuations still lofty (at 1.9x book value) and not reflective of crisis risks, we have turned bearish on the Hang Seng H-Financials index... (also) we believe the 5-year sovereign credit default swap has significant upside potential". 'Banking Sector Instability Playbook', July 13 2011
View: In early August, we warned that despite an improvement in sentiment towards Egyptian stocks, particularly given the cheaper valuations on offer, further losses would be on the cards. In our view, the market was not properly pricing in the difficulties inherent in the country's democratic transition.
Result: Since the time of writing, Egypt's benchmark stock index, the EGX30, has lost a further 11.4% of its value, bringing year-to-date losses in 2011 to 42.2%.
Quote: "From a more fundamental medium-term perspective, we maintain our long-held view that there is too much uncertainty surrounding the country's post-crisis transition to hold a bullish outlook on the index. Although some investors have certainly been enticed by the relatively attractive valuations on offer in some cases, in our view the ongoing democratic transition taking place remains fraught with risks which have not yet been priced into the market. From a macroeconomic perspective, growing fiscal and current account deficits, weak investment inflows, and a period of significantly lower growth will weigh heavily on corporate profitability through end-2011." (From 'Stocks: Outlook Varies Depending On Time Horizon', August 10 2011)
View: In February at the onset of the Arab Spring, we highlighted several countries we thought were at risk of experiencing a similar type of popular uprising as had just been witnessed in Egypt. Yemen and Bahrain stood out as particular flashpoints of instability in our view, particularly given the ethnic and sectarian cleavages that existed in each state.
Result: Bahrain experienced the worst unrest witnessed in the Gulf Cooperation Council in many years, with several dozen deaths recorded in the process. The popular uprising of the country's Shi'as against the Sunni al-Khalifa regime was a particularly notable moment in the Arab Spring, as it forced investors to reassess their fundamental views that states in the GCC were inherently insulated from such unrest due to their oil wealth. As of mid-October, the country's political crisis is far from being resolved, with almost daily anti-government demonstrations continuing to take place
Quote: "Moreover, it is also important to note that underlying political stability in the Gulf Cooperation Council (GCC) should not be taken for granted, with Bahrain in particular standing out as potential flashpoint of unrest. As we previously noted (see our online service, 28 January, 'Contagion Effect: Will Regional Protests Reach Bahrain?'), ongoing tensions between the country's Shi'a majority and Sunni rulers, in addition to a relatively weaker economic growth outlook, make Bahrain a likely candidate to see an increase in protest activity this year. Tentatively scheduled protests for February 14 should be monitored closely in this regard, as it may portend a more pronounced period of unrest" (From 'Stability Increasingly In Doubt', February 10, 2011).
View: In early February we outlined our core views on how the regional political unrest would shape MENA's macroeconomic landscape. Among our main themes was a forecast for governments to aggressively ramp up spending in the face of large-scale demonstrations. We highlighted the GCC as being in a particularly strong position in this respect, and noted that such stimulus measures would help support growth in the current environment.
Result: As of October, every single government in the Middle East and North Africa had announced a new set of fiscal stimulus measures. New spending plans in the Gulf in particular have been unprecedented, with Saudi Arabia alone pledging over US$130bn in expenditures over the coming years. Other fiscal stimulus measures have included one-off cash grants, subsidies on food and fuel, promises of public sector jobs, and plans to construct new housing units.
Quote: "As rising food prices, low living standards, and a lack of job opportunities have hitherto been among the most prominent grievances driving large-scale demonstrations, regimes across the region will not only be more likely to maintain costly subsidies (particularly on food and fuel) in an effort to quell the risk of unrest, but could in fact aggressively ramp up their spending plans" (From 'Egypt Unrest To Alter Regional Growth Trajectory', February 11, 2011).
View: In April, we highlighted our view for a rally in GCC international bonds. In particular, we singled out Qatar's US$2020 and Abu Dhabi's US$2019 sovereign bonds as looking ripe for further gains in the months ahead. Our view was predicated on the belief that these two economies were increasingly being seen as safe havens in the Middle East, and would therefore benefit from a fundamental reappraisal of risk perceptions in their favour
Result: Over the next few months, both sovereign notes experienced a pronounced rally, while benchmark international bonds in other MENA states sold off. Qatar's US$2020 went from 104.9 in April to a high of 115 in August, while Abu Dhabi's US$2019 went from 115.0 to 123.0 in the same time period.
Quote: "We expect the recent rally in sovereign bonds for a host of states throughout the Gulf Cooperation Council (GCC) to continue in the near term, despite having seen few signs that the regional political crisis across the Middle East and North Africa (MENA) is in any way nearing its end....We hold a particularly constructive outlook on the prospects for Abu Dhabi and Qatar's benchmark sovereign bonds. Indeed, contrary to the trend seen across MENA since the onset of public unrest in Tunisia and Egypt, the growth outlook for both of these economies has actually strengthened since the start of the year. Not only will these states stand to benefit from higher oil prices, but strengthened perceptions surrounding Doha and Abu Dhabi's standings as relative safe havens in a volatile region has also bolstered the outlook for growth in their respective non-hydrocarbon private sectors." (From 'GCC Bonds: Rally To Continue...For Some', April 15)
View: Following a series of measures enacted by the Central Bank of Syria in May to bolster the value of the Syrian pound, government officials touted the success of their efforts in the following months. In July 2011, however, we stated our scepticism that the policies introduced would have the desired effect, and we noted our wariness that the unit could depreciate further.
Result: The measures kept the exchange rate stable at approximately SYP47.00/US$ until September 14, when the unit began to depreciate. From July 15 (when the story was published) until October 13, the unit fell from SYP47.43/US$ to SYP49.37/US$ (implying depreciation of 3.9%).
Quote: While it appears that the exchange rate has stabilised (with the pound trading at the official exchange rate of SYP47.43/US$ on July 15), we caution that depreciatory pressures remain.[...] If the CBS continues to bolster the currency through foreign exchange intervention, we would expect those reserves to decline precipitously. At that point, the central bank would be forced to either continue its policy of intervening until reserves are completely depleted (a scenario we see as unlikely), or to stop supporting the currency and allow a sharper depreciation to occur. (From 'SYP: Still Wary Of Depreciation Risks', July 15 2011).
View: In June 2011, we outlined our view that Tunisia's TUNINDEX equity index would outperform Egypt's EGX30 equity index. Tunisia's favourable technical picture, more homogeneous demographics, and lack of an entrenched military presence in politics were primary factors underpinning our relatively optimistic outlook on the country's transition and, in turn, its equity market.
Result: This view has played out extremely well over the course of the third quarter. The TUNINDEX gained 8.3% from June 30 (when we published the view) until September 30, while over the same period the EGX30 lost 23.0% of its value.
Quote: "Indeed, ongoing uncertainty regarding the political transitions in Egypt and Tunisia, along with public unrest in Morocco, will weigh on the Morocco All Share Index (MASI), Tunisia's TUNINDEX, and Egypt's EGX30 over the coming months. For the moment, we prefer the TUNINDEX over the EGX30....We see scope for minor gains for the [TUNINDEX] index going forward owing to the generally positive technical outlook, as well as still-positive sentiment regarding the political transition, and we set a target of 4,500, though noting the possibility of a short-term retracement of the current uptrend." (From 'Equities: North African Markets Neutral At Best', June 30 2011)
View: In July 2008 we thought that oil prices were significantly overextended to the upside.We initially targeted a move from US$140/bbl area to US$80-90/bbl. Then in August, we set a target of US$50/bbl.
Result: This has been one of BMI's best commodities calls as we picked the top of the market before it collapsed. Oil eventually even traded well below US$50.00/bbl.
Quote: "The likely cooling of economic activity in EM, the taming of inflation and the bottoming of the dollar could well see oil prices turn sharply at some point over the coming quarters." (from "Oil: Bubble Forming" July 2 2008)
Bullish View: In August 2009 we targeted a move in sugar prices from USc20/lb to USc32/lb.Supply side issues in India, the world's second largest sugar producer and largest consumer, led us to believe that sugar could head significantly higher.
Result: Sugar prices surged to a high of USc30/lb in January 2010, just shy of our USc32/lb target.
Quote: "Sugar has posted a weekly close above multi-decade trendline resistance at USc20.52/lb and could be heading significantly higher. We have been bullish sugar since mid-February, when it became increasingly apparent that supply side issues would come to the fore this year" (From 'Sugar To Average USc19.30/lb In 2009', August 10 2009)
Bearish View: After significant gains, we turned bearish sugar in February 2010. A bounce off the USc30/lb level combined with the imminent onset of the 2010/11 Brazilian sugar harvest underpinned our view.
Result: Sugar prices collapsed from USc25/lb to USc18/lb within days and eventually bottomed out around USc13/lb two months later.
Quote: "We believe that the technical picture is deteriorating, and this combined with expectations of a loosening market in 2011 suggests that the rally in sugar prices is over.' (From 'Sugar: Deteriorating Picture Suggests Additional Downside' February 22 2010)
Bearish View: Despite a move up to 30-year highs at the end of 2010, we consistently called for a bearish reversal and significant correction over 2011.
Result: Sugar collapsed from USc30/lb to USc20lb between mid-March and mid-May.
Quote: "We are wary of a downside move by sugar and any decisive break below the USc30.00/lb area would see us turn short-term bearish, targeting a move down to the USc25.00/lb area... Our forecast for a moderation in prices is based on an expected improvement in global supply over the coming months." (From 'Sugar To Average USc25.00/lb In 2011' February 22 2011)
View: In April 2010, we highlighted that after a sustained bear trend, grains and particularly wheat, were forming a base and had upside potential.
Result: Grain prices bottomed soon after, before embarking on a multi-month rally. By Q111, wheat, corn and soybean markets were up between 50-100% from mid-2010 levels.
Quote: "Recent price action has bolstered our view that the grains complex could be forming a base around current levels...The S&PGS Grains Index has broken above multi-month trendline resistance that we have been highlighting and it appears increasingly likely that the index will respect its 2009 low......Meanwhile, we note that non-commercial net speculative positions for wheat are currently flirting with historic lows, which potentially indicates limited scope for the market to get significantly more bearish." (From 'Grains Forming A Bottom', April 26, 2010)
View: Although wheat prices stole centre stage with a significant spike in July 2010, we firmly expected that corn would be the outperformer in the grains complex over the medium term. We targeted a significant compression in the wheat-corn spread.
Result: Corn consistently outperformed other grains from mid-2010 and the wheat-corn spread narrowed from around USc370/bushel in July 2010 to parity by April 2011.
Quote: "We continue to expect corn to play catch up in the coming months. In particular, we see room for the elevated premium at which wheat is currently trading over corn to narrow considerably over the medium term. We have repeatedly highlighted corn's supportive underlying fundamentals and more recently, the technical picture has started to look increasingly promising." (From 'Grains: Assessing Relative Potential', August 19 2010)
View: We highlighted upside potential for coffee prices as early as February 2010, and became outright bullish in early May.
Result: Coffee prices exploded higher from the USc130/lb area in June 2010 and hit USc300/lb in May 2011, which implies a gain of approximately 130%.
Quotes: "Multi-month support around USc129.75/lb has proven fairly robust to date and given the relative tightness of international coffee supply, our bias is for an eventual break to the upside." (From 'Coffee To Average USc145/lb In 2010' May 13, 2010)
"While it is difficult to predict spikes, we caution that the recent price action could be setting up for such a move, particularly given that the market remains tight, and weekly momentum indicators suggest potential for additional upside." (From 'Coffee: Potential For A Major Spike In Prices', June 25, 2010)
View: We targeted tin as an outperformer in the base metal complex from early 2010 based on tin-specific supply-side prospects.
Result: Tin consistently outperformed the base metal complex from April 2010 through to April 2011, when prices hit a record high of US$33,600/tonne. Over that period, the LMEX to tin ratio moved (in tin's favour) from around 5.0x to 7.6x.
Quotes: "We also believe that tin could also outperform the LMEX index in coming quarters as supply side issues come to the fore... These dynamics will likely help buoy prices going forward." (From 'Metals Relative Performance', April 20, 2010)
View: We turned outright bearish Brent Crude in May 2011 and targeted significant downside, from around US$121/bbl to US$110/bbl.
Result: Brent crude collapsed over 12% in subsequent trading to trade around US$105/bbl in a matter of hours.
Quotes: "We see little scope for a sharp move higher in Brent at the present juncture and believe that fundamental and technical risks to the oil price are now skewed firmly to the downside. As the chart illustrates, oil appears to be running out of momentum, and we believe a medium-term reversal may be afoot." (From 'Short-Term Picture Deteriorating', May 5 2011)
View: On March 25 2009, we stressed that risk appetite was back on, indicating that a major bullish reversal was likely across global assets. In particular, we highlighted US financials stocks as having major upside potential. With the S&P Financials index at 129.00, we set a medium-term target of 280.00.
Result: Risk appetite came back in force through the second and third quarters of 2009, with benchmark equity indices rising by 50-150% globally. The S&P Financials Index was one of the best performing developed world indices, at one point up by 62.7% in Q309. It has subsequently risen further to average 200.00 In Q110.
Quote: "Bank stocks are looking good. Having promoted the bearish view of the S&P financials index back in Q107 around the 440.00-450.00 area, we are now turning bullish at the 129.00 mark. We believe the index can jump to 280.00 over the coming months. In this regard, shares like Citigroup and RBS have major upside potential from very low levels." ('From Risk Appetite Is Back... For Now,' March 25 2009)
View: We went bearish US bank stocks from early on in the global recession and highlighted several opportunities to take advantage of an over-extended market. In particular, we highlighted the January 2009 Citigroup put option as likely to appreciate dramatically.
Result:The put option traded as high as US$7.50 before expiration, a 17-fold gain.
Quote: "With regards to bank stocks, we highlight the negative technical outlook for Citigroup , which paints a somewhat worrying picture of the company's valuation over the coming months, despite the extent of the past twelve months' decline. In fact, we would not be surprised by a move towards the US$15.00 area. As a result, we have run the chart of the premium price of the January 2009 US$12.50 Citigroup put option. Trading at present at US$0.43 the chart would indicate that the price is cheap, and has the potential to move substantially higher, in line with our bearish view of the underlying stock price, and of higher volatility in general." (From 'Banks On The Run' May 27 2008)
View: In March 2007 we highlighted the risks posed by overleverage in the US market and the risks from an asset price bubble in real estate. We specifically highlighted weakness in two key lenders: Countrywide Financial and Washington Mutual.
Result:Following several months of financial deterioration, Countrywide and Washington Mutual were eventually acquired by larger institutions. The US mortgage market collapsed, dragging the economy into a severe recession.
Quote: 'Despite assurances from various major US investment banks that losses in the subprime mortgage sector are manageable in respect to the overall size of their respective businesses, the charts below paint an interesting picture. The charts show the short- and long-term price action of two key subprime mortgage lenders. Indeed, Countrywide Financial and Washington Mutual came in at number 3 and 9 respectively of the top ten lenders in Q406...The [recent] bounce is clearly encouraging and suggests further short-term upside. However, the long-term charts suggest a somewhat different outlook, with both share prices having experienced spectacular gains over recent years. From a technical analysis perspective, valuations look somewhat stretched, with the potential for significant medium-term losses. The risk, of course, is the spill-over effect on the rest of the US mortgage market, and by extension the US economy.' (From 'Subprime Lender Charts', March 15 2007)
View: In late 2010, we outlined a financial markets strategy favouring developed over emerging market equities, particularly highlighting, US and stocks as outperformers.
Result: From December 2010 until late February 2011, the ratio of the MSCI World over the MSCI EM index (a proxy for developed/EM relative performance) rallied 10% in developed market's favour. The German DAX and US Dow also rallied commensurately during this period.
Quote: "...one view taking shape is that developed state equity markets will outperform their emerging market counterparts next year (2011)."
View: At the beginning of 2010 our core Eurozone outlook was predicated on two key views: 1) That growth would be highly divergent with France and Germany stabilising and Spain, Ireland and Greece would be among the world's worst performing economies. 2) That the existential crisis risks facing the eurozone were overblown.
Result: Our out-of-consensus bullish forecast for German real GDP growth played out with the country recording a multi-decade high 3.6% growth rate. France also stabilised, while the peripheral economies of Ireland and Greece continued to contract in the year. The euro bounced back strongly as multilateral financing facilities sharply mitigated the risks of a break up.
Quote: "Some of the most moribund growth stories going into 2010 lie within the eurozone bloc. These are Spain and Ireland, both of which are forecast by BMI to contract in 2010 before staging tentative recoveries in 2011, with deflation reigning all the while. Slightly tighter monetary policy might arguably be appropriate for the likes of Germany and France, which are showing signs of stabilisation, but it would not be appropriate for the Spanish or Irish. The potential death of the euro is greatly exaggerated, but internal divergence will certainly put the principle of monetary union to the test in 2010."
View: On July 4, 2011, we placed a bullish Peruvian equities position in our Key Market Views, based on our belief that investor concerns towards recently-elected President Ollanta Humala's policy trajectory were overblown.
Result: Following his cabinet selection, comprised mainly of economic moderates, the IGRA index rallied strongly, as investors became more optimistic towards Peru's business environment. We removed our bullish IGRA position from our Key Market Views on July 22, with implied gains of 15.4%.
Quote: "We are placing a bullish Key Market View on Peru's IGRA equity index, with a short-term target of 22,000 as the technical picture aligns with what we believe is an increasingly constructive medium-term outlook. This target implies 15% upside from the current level of 19,207. We strongly expect President-elect Ollanta Humala to appoint an investor-friendly cabinet soon, especially in the key roles of minister of finance and central bank president,restoring some of the investor confidence lost in the run up to and immediate aftermath of his electoral victory in June." (From 'Bullish Peruvian Equities', July 4 2011)
View: Towards the end of May 2011 we started highlighting our caution towards the Mexican peso, based on what we believed was a increasing reliance on short-term portfolio inflows to fund the current account shortfall. The bearish outlook towards the peso was reinforced in early June with the technical break of the MXN11.80/US$ level, which we argued pointed towards further downside for the unit.
Result: Following a break through technical resistance at MXN11.80/US$ in early June the peso sold off almost 20% against the US dollar to reach MXN14.00/US$ by late September. Although we had not expected the sell-off to be as severe, this took place alongside a significant re-pricing of domestic interest rate expectations, which as we had consistently argued was the main driving force of peso strength throughout 2010.
Quotes: "One currency where the fundamental story is becoming less compelling is Mexico. We first liked the unit back in mid-to-late 2009...but the 12 month horizon is no longer so rosy, with question marks about the shape and pace of the US recovery combining with what could be a quite divisive Mexican electoral cycle." (From 'FX: Holding In There', May 25 2011)
"...the staggering levels of short-term portfolio inflows [are] causing a substantial risk to external account stability. Indeed, 61% of the total US$34.9bn foreign investment into the country over the past two quarters has been into Mexico's money markets, proof if it were needed that the carry trade remains in full flow." (From 'No Improvement In External Account', May 27 2011)
"...as we have been highlighting increasingly of late, from a longer-term perspective there is plenty to be concerned about, with massive short-dated portfolio inflows posing serious risks to Mexico's external account stability. Therefore, while the daily chart suggests the peso could be in for a breather, our fundamental concerns combined with the RSI on the monthly suggest recent weakness may have much further to run. If the MXN11.95/US$ gets taken out, we see the next level of support at MXN12.20/US$." (From 'MXN/US$: Still Looking Weak', June 13 2011)
View: On July 6 we argued that the drop in Venezuela's credit default swaps (CDS) markets, following news the President Hugo Chávez was seriously ill, was an overreaction, as even without Chávez we believed the country would be unable to immediately improve its very weak fiscal position. Since we had not seen any improvement in the country's credit risk, and called for the CDS spread on the benchmark 5-year contract to reverse, back towards the 1100 basis points (bps) level.
Result: Between July 6 and August 8 2011 the spread on Venezuela's 5-year CDS contract widened 157bps, hitting our near-term 1100bps target. The spread continued to widen until early October, reaching 1226bps (255bps from when we first called for the spread to widen), before falling, although still remaining outside the 1000bps level.
Quote: "We believe that rapidly compressing spreads on Venezuelan benchmark 5 year credit default swaps (CDS) following the news of Venezuelan President Hugo Chávez's poor health are overdone, and we...expect to see a reversal in CDS spreads, targeting a move back to 1100bps in the near-term as investors wake to the grim reality of Venezuela's underlying fiscal problems." (From 'Overreaction In CDS Markets', July 06 2011)
View: In late 2009 we started highlighting our bearish outlooks towards Trinidad & Tobago (T&T)'s long-term growth story, despite what had been a very strong average real GDP growth rate of over 7% for the previous 15 years. Our view was based on what we what we saw as a major decline in the country's key energy sector, lack of dynamism in the non-energy sector and a weaker external environment outlook. We called for anaemic (albeit positive) growth in 2010, and deteriorating fiscal and debt dynamics.
Result: Recently-revised down 2010 growth estimates from T&T's central bank show real GDP growth was -0.6% in 2010, the second consecutive year of recession. In addition, the public sector debt burden increased 19.0% from 2009 levels, despite elevated energy prices, highlighting the borrowing requirements facing the government despite elevated energy prices.
Quotes: "Trinidad and Tobago's central government balance continues to deteriorate, with August figures showing a year-to-date deficit of TTD3.2bn, compared to a surplus of TTD8.3bn at the same point in 2008. With the islands set to post the first full-year fiscal deficit since 2001, and political reticence to rein in spending, we are concerned about a significant uptick in government debt levels going forward." (From 'Debt Pile To Rise As Fiscal Woes Continue', December 23, 2009)
"With Q309 data showing T&T's economy taking a further turn for the worse, we see limited potential for a strong recovery in 2010...Moreover, we are identifying signs of deepening structural economic problems stemming from the islands' ongoing overreliance on the petroleum sector (From 'Difficult Recovery Ahead', February 02 2010)