EM DAILY

Emerging Markets • 28 July 2010

Another day of positive sentiment

 Central European currencies are still supported by a more positive sentiment about the euro
zone
 Turkey (BUY): the central bank lowered its inflation forecast
 South Africa (BUY): today inflation data for June will be released
 The Mexican central bank will release its quarterly inflation report today.
EM Daily - Overview
Tuesday’s European trading showed positive undertones, and particularly the Central European
currencies strengthened against the euro. The Central European currencies still benefit from the
more positive sentiment about the euro zone and the euro. US consumer confidence came out
slightly lower than expected, and therefore the positive sentiment weakened as the evening pro-
gressed. This morning Asian equity prices were up by 0.5-1%. The market expected a doveish Turkish
inflation report, so Turkish yields were only fractionally affected by the reduced inflation forecast in
the central bank’s inflation report. The Brazilian real underperformed yesterday due to a combina-
tion of a higher-than-expected current-account deficit (Monday) and speculation about central-bank
initiatives aimed at preventing the lira from appreciating further. The USD/COP rate closed yester-
day below 1850. This means that the cross is approaching a level where there is higher risk that
BanRep may intervene to prevent further appreciation. The most important events in the emerging
markets today are the announcement of South African consumer prices and the release of Mexico’s
inflation report.
Publisher:
Jyske Markets
Today’s economic indicators and events
Vestergade 8 -16 Time Country Event Exp. Prior
DK - 8600 Silkeborg 09:00 Hungary Unemployment June 11,4 %
11:00 Iceland Consumer prices July 5.7 % y/y
Analyst: 11:30 South Africa Consumer prices June 4.5 % y/y 4.6 % y/y
Linda Vestergård
+45 89 89 76 62
Linda.Vestergaard@ EMBI Global Diversified 299 -7 Chart of the day
jyskebank.dk
Return year-to-date 9,52% South Africa, CPI % y/y
Translation: 375
Translation Services Credit spread 15,0

Read more research 325

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225 3,0
feb-2010 apr-2010 jun-2010 jan-2006 jul-2007 jan-2009 jul-2010

Shares Daily change Government b onds (10 year) Daily change

S & P 500 1.114 -0,10% Germany 2,77 0,01
Brazil Bovespa 66.674 0,35% Mexico 6,59 0,05
Poland WSW WIG index 42.611 -0,24% Hungary 7,28 -0,11

Emerging Markets FX Targets (updated 27th July)

Currency Spot 3m 6 m 12 m Currency Spot 3m 6m 12 m
EURCZK 25,04 25,60 25,50 25,50 EURZAR 9,55 9,53 9,53 9,64
Disclaimer:
EURHUF 283,06 280,00 270,00 270,00 EURMXN 16,49 15,68 15,88 15,63
please read the last page.
EURPLN 4,01 3,95 3,90 3,80 USDCNY 6,78 6,70 6,60 6,45
EURTRY 1,96 1,91 1,91 1,93 EURBRL 2,30 2,25 2,29 2,26
EM DAILY
Emerging Markets • 28 July 2010 • Jyske Markets
Other countries
South Africa
Our recommendation for bonds denominated in
South African rands (ZAR) is BUY. We expect
South African market rates to fall, so we recom-
mend long-term rand-denominated bonds (SAGB
7.25% 2020 which offers a y-t-m of about 8.3%).
The y-t-m of this bond has actually fallen by
about 45 bp since early July, but in our view there
is potential for additional yield falls. If today’s
inflation numbers come out lower than expected,
speculation about another interest-rate cut will
increase.
Over the past week, the rand has appreciated by
3.5% against the euro and by 4% against the dol-
lar. The rand depends extensively on the general
risk appetite, and therefore the past week’s gen-
erally happier sentiment and rising share prices
have supported the rand. But then the rand will
also be vulnerable to a gloomier sentiment in the
financial markets. Going forward we are neutral
about the rand (see the FX Targets on page 1).
USD/ZAR and S&P500
12,0
11,5
11,0
10,5
10,0
9,5
9,0
8,5
8,0
7,5
7,0
6,5
jan maj sep jan maj sep jan
08 09
USD/ZAR S&P500
The path of the inflation rate is extra uncertain
for the coming months. That is due, among other
things, to the FIFA World Cup. There is a risk that
it may boost inflation. Another factor is the in-
crease of duties implemented in July by ESKOM,
the large national utility. That will boost inflation
over coming months, though not the June num-
bers. There is also a risk of second-round effects.
Inflation declined to 4.6% y/y in May, down from
4.8% in April. This means that the downtrend
seen in recent months continues, and it seems
that inflation is solidly within the central bank’s
target range of 3-6%. However, it is still the very
low food prices that keep inflation down, and
food prices often fluctuate widely. Inflation ex-
clusive of food prices was 5.4% y/y for May.
Central and Eastern Europe
Turkey
Our recommendation for bonds denominated in
the Turkish lira is BUY. Because of the prospects
of interest-rate hikes, we recommend short-term
Turkish bonds.
Yesterday the Turkish central bank (CBRT) pub-
lished its quarterly inflation report. The inflation
report often affects Turkish market rates, but
yesterday the market reaction was modest.
Yields have fallen by about 60 bp (9% EIB 2013)
since early July, so it would seem that market
participants had already discounted the lower
inflation forecast.
According to its inflation report, the CBRT has
lowered its inflation forecast, expecting the infla-
tion rate to be 7.5% by the end of 2010, 5.3% by
the end of 2011 and 5.0% by the end of 2012
600 (earlier 8.4%, 5.4% and 5%, respectively). The
700 reduction was mainly due to lower expectations
800
of foreign demand, particularly from the euro
zone in consequence of the debt problems of
900
Greece, Spain and Portugal. The CBRT notes that
1000
domestic demand, by contrast, is developing as
1100
expected.
1200
1300 The lower inflation forecast means, according to
1400 the CBRT, that the time for starting monetary-
1500 policy restrictions has been postponed. The CBRT
maj
earlier expected the next interest-rate hike in Q4
10
Source: Reuters EcoWin
2010, but now the hike seems to have been
postponed to 2011 (although the CBRT men-
tioned no definite quarter).
In connection with the latest monetary-policy
meeting in Turkey on 15 July, we adjusted our
expectation of the timing of the first interest-
rate hike to the beginning of 2011 from Q4 2010.
We maintain that view, but there is a risk that
the hike is postponed further. We still find that
the next major movement in Turkish yields will
be up, and we therefore prefer short-term lira-
denominated bonds.
2
EM DAILY
Emerging Markets • 28 July 2010 • Jyske Markets

EMBI Global Diversified Index

Instrument Daily Ret. (%) MTD Ret. (%) YTD Ret. (%) Credit Spread Market Cap. (%)
(bp)

EMBI Global D iversified 0,15 3,75 9,52 299 100,00

Region
Asia 0,56 4,24 10,36 190 20,88
Europe 0,08 3,68 8,28 268 28,21
Latin 0,03 4,08 10,51 347 40,70
Middle East 0,02 0,72 7,30 375 4,89
Africa -0,02 2,55 7,09 329 5,32
Country
Vietnam 1,37 5,17 13,56 259 0,81
Belize 1,26 7,08 49,47 782 0,19
Philippines 0,88 5,67 11,64 187 6,99
Sri Lanka 0,77 3,59 7,15 345 0,46
Argentina 0,70 13,00 - 711 2,31
Lithuania 0,68 4,54 - 305 1,64
Venezuela 0,67 8,63 8,58 1110 4,10
Croatia 0,61 1,51 0,85 324 0,67
Indonesia 0,57 5,46 12,27 196 6,45
Ghana 0,48 3,34 9,92 460 0,35
Peru 0,33 4,60 12,44 160 3,65
Gabon 0,25 2,86 8,03 416 0,41
Kazakhstan 0,24 5,20 - 323 3,16
Pakistan 0,23 4,40 20,37 554 0,50
Egypt 0,18 3,35 3,68 263 0,65
South Africa 0,17 2,94 7,86 161 3,08
Poland 0,15 2,57 5,39 179 2,97
Serbia 0,15 0,01 3,13 440 0,43
Malaysia 0,13 1,59 6,80 145 3,55
Russia 0,09 3,23 5,95 241 7,38
Ukraine 0,06 5,11 29,85 497 2,47
Uruguay 0,03 4,25 14,54 208 2,68
Ecuador 0,03 0,71 0,34 1018 0,24
Jamaica 0,02 2,80 40,03 509 0,19
Dominican Republic 0,02 2,58 10,32 389 0,63
Bulgaria 0,02 2,44 2,76 281 0,61
Georgia 0,02 0,24 5,89 511 0,22
Iraq 0,02 1,81 11,94 445 0,95
Lebanon 0,02 0,46 - 342 3,94
Hungary 0,02 1,60 -0,19 346 1,46
El Salvador -0,02 -0,57 7,87 354 1,41
China -0,08 0,32 5,42 85 2,12
Mexico -0,08 1,68 10,22 183 7,15
Panama -0,10 4,39 - 165 3,47
Brazil -0,12 3,34 - 200 7,88
Turkey -0,20 4,21 7,83 223 7,20
Tunisia -0,21 0,22 4,28 112 0,30
Chile -0,25 0,31 4,57 136 2,02
Colombia -0,45 4,02 11,53 169 4,79

The EMBI Global Diversified

The EMBI Global Diversified Index is a JP Morgan Chase index, which covers the aggregate return on USD-denominated bonds
issued by emerging market countries and government bodies. This includes Brady bonds, loans, Eurobonds and local instru-
ments. 39 countries are covered. The expression ‘diversified’ means that the weightings of the individual countries are reduced,
and the Index is therefore an excellent tool for Danish institutional investors. All returns are in USD. Past performance is not a
reliable indicator of future performance. The gains may increase or decline as a result of exchange-rate fluctuations.

3
EM DAILY
Emerging Markets • 28 July 2010 • Jyske Markets

GBI EM Diversified
Instrument Daily Return DKK (%) MTD Ret. DKK (%) YTD Ret. DKK (%) Yield (%) Duration(y) Market Cap (%)
GBI EM Diversified 0,17 -0,81 17,86 6,38 4,48 100,00
Region
Europe 0,49 1,33 11,98 6,47 2,96 40,00
Mideast & Africa 0,19 1,20 19,99 8,30 5,64 10,94
Asia -0,07 -4,52 22,51 3,47 5,09 20,00
Latam -0,13 -1,96 21,85 7,34 5,73 29,06
Country
Hungary 1,54 1,93 1,15 7,15 3,78 10,00
Poland 0,61 4,14 7,60 5,37 3,91 10,00
South Africa 0,24 1,80 20,80 8,29 6,00 10,00
Brazil 0,06 -2,56 16,58 10,02 6,13 5,34
Malaysia 0,06 -3,62 22,88 3,70 4,37 10,00
Brazil Broad 0,01 -2,12 18,21 11,71 2,47 4,00
Colombia -0,02 -0,25 39,02 6,19 6,34 3,48
Turkey -0,04 0,99 19,31 8,26 2,04 10,00
Mexico -0,11 -2,19 26,85 6,46 4,79 10,00
Russia -0,15 -1,68 20,32 5,92 2,11 10,00
Thailand -0,20 -5,42 22,07 3,30 5,81 10,00
Egypt -0,35 -5,20 11,73 8,73 1,77 0,94
Peru -0,46 -1,94 14,60 6,17 8,66 6,24

Instrument Daily Return USD (%) MTD Ret. USD (%) YTD Ret. USD (%) Yield (%) Duration(y) Market Cap (%)
GBI EM Diversified 0,55 5,10 6,50 6,38 4,48 100,00
Region
Europe 0,87 7,37 1,19 6,47 2,96 40,00
Mideast & Africa 0,57 7,24 8,42 8,30 5,64 10,94
Asia 0,31 1,17 10,71 3,47 5,09 20,00
Latam 0,26 3,89 10,11 7,34 5,73 29,06
Country
Hungary 1,93 8,00 -8,60 7,15 3,78 10,00
Poland 0,99 10,35 -2,77 5,37 3,91 10,00
South Africa 0,62 7,87 9,16 8,29 6,00 10,00
Malaysia 0,44 2,12 11,04 3,70 4,37 10,00
Brazil 0,44 3,24 5,35 10,02 6,13 5,34
Brazil Broad 0,39 3,72 6,82 11,71 2,47 4,00
Colombia 0,36 5,70 25,63 6,19 6,34 3,48
Turkey 0,34 7,01 7,82 8,26 2,04 10,00
Mexico 0,28 3,65 14,64 6,46 4,79 10,00
Russia 0,23 4,18 8,73 5,92 2,11 10,00
Thailand 0,19 0,22 10,31 3,30 5,81 10,00
Egypt 0,03 0,45 0,96 8,73 1,77 0,94
Peru -0,08 3,90 3,56 6,17 8,66 6,24

The Global Bond Index – Emerging Markets Diversified is designed by JP Morgan Chase. It tracks local emerging market
debt and consists of regularly traded, liquid fixed-rate, domestic currency government bonds. 13 countries are included. The
expression “diversified” means that the weightings of the individual countries are reduced and is therefore an excellent tool
for Danish institutional investors. All returns are in DKK. Past performance is not a reliable indicator of future performance.

4
EM DAILY
Emerging Markets • 28 July 2010 • Jyske Markets

Disclaimer & Disclosure

Jyske Bank is supervised by the Danish Financial Supervisory Authority.

The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility
for the correctness of the material nor a ny liability for transactions ma de on the basis of the i nformation or the esti mates of
the report. The estimates and recommendations of the research report may be changed without notice. The report is for the
personal use of Jyske Bank's customers and may not be copied.

This is a recommendation and not an in-depth investment report.

Conflicts of interest
Jyske Bank has prepared procedures to prevent conflicts of interest. These procedures have been incorporated i n the business
procedures covering the research activi ties of Jyske Markets, a business unit of Jyske Bank.

Jyske Bank's emerging-market analysts may not hold posi tions in the instruments for which they indep endently prepare
research reports. Jyske Bank may, however, hold positions, have interests in or business relations with the instruments that
are analysed. The analysts receive no payment from persons interested in individual research reports.

Read more about Jyske bank's policy on co nflicts of interest at www.jyskebank.dk/terms.

Risk associated with the bond

Investment in an emerging-market bond involves risk. Many factors, including the country’s credit quali ty, willi ngness to pay,
liquidity, soci al conditions and economic development may affect the price of the bond. Indirect factors may also affect the
price of the bond, for instance global economic factors, global risk tolerance and geopolitical risks. See the research report for
our view on the risk. The risk facto rs stated i n the report should not be regarded as exhaustive.

FX risk
If the bond is traded in a currency other than the investor’s base currency (this is often the case), the investor accepts an FX
risk. The FX risk is in many cases affected by the same factors as the bond (see above). We will assess the FX risk where we find
it necessary. The FX risk factors stated in the research report should not be regarded as exhaustive.

Update of regular research reports

We update EM Daily every day. We update EM Outlook every week. We upda te EM Recommend ations at least once a week.
Our view of the individual countri es will be updated on a regular basis in these publicati ons. See the front page of the research
report for the date of the latest update.
http://www.jyskebank.dk/fi nansnyt/obligationer/emergingmarkets/markedskommentarer/dagenskommentar/emergi ng
marketsdaily/168988.asp?refId=118973
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http://finansnyt/_jb/default.asp#http://finansnyt/udlobligationer/emergingmarkets/emrecommendations/2324
90.asp

Update of separate research reports

Separate reports are not updated. A new research report will be published when we fi nd it necessary. This will often be the
case when there are significant changes which are relevant for investors. This includes changes in the recommendation, a
significant change of the risk associated with the bond or a significant change in FX risk. See the front page of the report for
the date when the research report was published. Separate recommendations are only published once.

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Trading prices
All prices stated are the latest trading prices at the time of the release of the research report, unless otherwise stated .