barcap - the em weekly

EMERGING MARKETS RESEARCH 22 July 2010

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 28

THE EMERGING MARKETS WEEKLY Holding tight

Stronger-than-expected corporate earnings improved the equity market tone, but the reaction of EM assets, in particular FX, has been more subdued, pointing to a relative value re-pricing, more than a reassessment of macro fundamentals.

We still believe that global growth – despite a slowdown – will continue at a relatively robust pace and, therefore, maintain our moderately bullish stance towards EM assets supported by favourable technicals.

Against a short-term supportive backdrop, investors should keep in mind that risks have not disappeared, as the recent episodes of “reform fatigue” in Hungary and Romania suggest that sovereign risks for Southern Europe remain a threat.

Macro Outlooks

Emerging Asia: Gliding down gently 7 Even with the ongoing moderation in export momentum, we see upside risks to our EM Asia Q2 GDP projections. Korea’s Q2 GDP next week is expected to indicate a strong pulse to the economy.

EMEA: Fiscal weakness with stable inflation 9 Fiscal adjustment pressures in Hungary have had negative market consequences and led to political tensions in Romania. Expected fiscal improvements in Ukraine and the Czech Republic are leading to improvements in market sentiment. Looser monetary policy persists, as Hungary and South Africa held rates unchanged, as expected, while Israel and Russia are likely to remain on hold.

Latin America: Moderation and its discontents 11 Despite ongoing slowdown fears epitomized by COPOM’s smaller-than-expected hike this week, incoming data from the region have not been generally disappointing. We believe recent signs of growth moderation should be put into context, and we emphasize some bright idiosyncratic stories underlying the larger countries’ trends.

Strategy Focus

Hungary: No easy healing 13 The IMF and the Hungarian government failed to come to an agreement regarding the sixth review under the SBA, and we think the differences are substantial enough to suggest that a quick fix is unlikely. While Hungary’s debt dynamics look better than those in the euro periphery, this is not a sufficient reason to go long Hungarian assets.

Hong Kong: IPOs and loans to China not a concern, US-HK spreads to widen 16 Concerns have arisen over Hong Kong’s ability to provide capital for China, given market liquidity. This has led to a rise in Hibor rates and a tightening of US-HK spreads. We expect 2y US-HK spreads to widen to 35bp from 11bp in the coming months. Concurrently, we see Hibor rates moving lower, reflecting easing liquidity concerns.

EM Views on a Page 2

EM Dashboard 18

EM FX Views on a 9

EM Credit Portfolio 20

Data Review & Preview Emerging Asia 21

EMEA 22

Latin America 24

FX Forecasts and Forwards 26

Official Interest Rates 27

What we like

Rates Hungary: 2s5s flattener

Rates 2yr US-HK spread widening

Credit Turkey Spread Curve Flattener

Credit Argentina Long EUR Discount

Weekly EM Asset Performance

EM FX-0.2%-0.1%

0.0%0.1%

0.4%0.8%

1.4%

-1.1%

2.7%

INR/USDTWD/USDKRW/USDBRL/USD

MXN/USDRUB/USDTRY/USDZAR/USDCLP/USD

EM Rates-12 bp

-9 bp-4 bp-4 bp

8 bp18 bp

26 bp

-15 bp

-2 bp

23 bp

Braz Jan 12Kor 2yr IRS

SOAF 2yr IRSCZK 5yr IRSMex TIIE 5yr

Pol 5yr IRSIndo 5yr GovIndia 2yr IRSHun 5yr IRSCLP 2yr IRS

EM Credit-3 bp

0 bp0 bp0 bp0 bp

11 bp11 bp

29 bp14 bp

-19 bpArg 5yr CDSRus 5yr CDS

Turk 5yr CDSBraz 5yr CDS

SOAF 5yr CDSMex 5yr CDS

Phils 5yr CDSIndo 5yr CDSThai 5yr CDSHun 5yr CDS

EM Equity-0.4%-0.3%

1.1%2.6%

2.9%3.2%

3.9%

5.7%

-0.9%

3.9%

KospiS&P

BolsaSensex

Russia RTSJSE All

FTSE JSEBovespa

Turkey ISEShanghai

NB: EM Assets Performance charts as of 22 July 2010 except CDS spreads, which are as of 21 July 2010. Source: Bloomberg, Markit, Barclays Capital

https://live.barcap.com/go/research/content?contentPubID=FC1614810�


Barclays Capital | The Emerging Markets Weekly

22 July 2010 4

Another European development that has helped restore some confidence to markets has been the reassuring results of recent bond auctions of Southern European governments and banks. Restoring market access is critical to providing some guise of normality to the most affected economies and helping reduce the risks (overblown, in our assessment) of near-term credit events. However, against these positive developments, markets seem to have shrugged off the difficulties that countries such as Hungary and Romania are having with IMF-sponsored programs. Indeed, they have treated these cases as isolated events, rather than drawing some illustrative lessons from them.

The “easy” successes of the early phase of the implementation of the hastily put-together programs in Hungary and Romania are now giving way to more traumatic discussions – and reforms. Reform fatigue has set in in those countries, as growth is lacking, fiscal performance is hampered by the lack of growth, and the politicians’ willingness to accept further harsh reforms has diminished; in Hungary, it is the administration that is reluctant to go along, in Romania, it is the opposition. This is the typical EM experience with IMF programs where the magnitude of the needed adjustment is large and distributed over a long period. In Hungary, the IMF left the country without approving the sixth review of the existing Stand-by Agreement and PM Orban seemingly closed the door on further negotiations. The sharp market reaction (CDS spreads rose 60bp; the HUF lost more than 2%) is telling about risks of negative feedback loops if “stabilisation fatigue” sets in. It remains to be seen whether Hungary is on the same frequency as Romania or Ukraine, countries that eventually recognised that IMF support is key for credibility and to continue accessing capital markets to refinance debt. Despite constitutional obstacles, the Romanian government eventually pushed through a large VAT hike and massive public sector wage cuts in early July. A few weeks later, the Ukraine agreed with the IMF to deliver new spending cuts and a very large (50%) increase in the domestic price of gas to shore up the state-owned energy company. These episodes highlight that investors need to remain mindful that the early successes with fiscal adjustments are no guarantee of their staying power. Unlike Romania, Ukraine and Hungary since late 2009, Greece and most Southern European countries do not face general elections anytime soon. Yet “stabilisation fatigue” is a common phenomenon that sets in a year or two into a tough program, and the outcome of that process is extremely difficult to predict. In short, the recent early success of the Greek courageous efforts should be applauded, but investors would be well advised to keep in perspective that sovereign risks very much remain a reality.

Figure 1: Despite the bottom in money market outflows, EM funds keeps receiving inflows

Figure 2: Hungary CDS and the HUF have corrected sharply

1500

2000

2500

3000

3500

4000

2008 2009 201020

40

60

80

100

120

140

160

ICI: Total Assets: Money Market Mutual Funds (Bil.$) EM Bond Funds AUM (USD bn, RHS)High Yield Fund AUM (USD bn, RHS)

100

150

200

250

300

350

400

450

Jul-09 Oct-09 Jan-10 Apr-10 Jul-10260

265

270

275

280

285

290

295

HUF 5yr CDS EURHUF (RHS)

Source: ICI, EPFR Global, Barclays Capital Source: Barclays Capital

Against this fairly supportive backdrop, investors should be

aware of “reform fatigue” risks


22 July 2010 6

steepeners, although outright bearish trades might be more sensible. Bad technicals (foreigners hold large exposures to PLN bonds) are supportive.

In EMEA credit, we remain cautious on Hungary credit and think that risk/reward is better elsewhere in the region (Romania and Croatia in particular, while Bulgaria $15s also look expensive to us). The front end of the Hungarian CDS curve looks too flat, however, and we recommend selling short-dated CDS for carry/roll-down. As for the Ukraine, our recommendation to sell short-dated CDS is very close to its target after the rally. We still like the short end of the Ukrainian bond curve and expect further normalisation of the curve shape. Finally in Turkey, the cash credit curve has re-steepened and the long end of the curve offers value versus the belly for spread-oriented investors, in our view.

In Asia credit, the Philippines, despite the very tight spread level relative to its rating, has continued to outperform other sovereigns in the region. We attribute this to the strong technical bids (the proportion of ROP bonds held by residents is over 40%) but are somewhat sceptical that it will continue since the bonds are looking very rich. We prefer taking exposure to Indonesia’s bond curve, especially the belly of the curve (2014s, 2015s and 2017s).

Finally, in LatAm, low beta credit Colombia remains our favourite pick, as we have highlighted in our previous weeklies (we prefer CO41s). We reached our z-spread target from 200bp to 180bp. The high beta space in LatAm remains attractive. Venezuela has lagged Argentina and, once uncertainty over potentially imminent supply is resolved, the “beta” convergence story could re-emerge, given the current extraordinarily wide spread differential (ie, Venezuela should move tighter simply from the improvement in the market tone). In particular, we think that after a strong run, Argentine yields may be approaching their tights, as the country may be near the levels at which new supply becomes possible. PDVSA bonds (especially local law) appear very attractive for those more accepting of supply risk. We have calculated that the recovery-adjusted spread for PDSVA 14s, 15s, and 17s are 300-450bp wider than similar-maturity Venezuela bonds.

Credit: cautions on Hungary, switch out from Philippines into Indonesia, still favor Argentina

versus Venezuela; Colombia remains our favourite pick in the

low beta space


22 July 2010 7

MACRO OUTLOOK: EMERGING ASIA

Gliding down gently Even with the ongoing moderation in export momentum, we see upside risks to our

EM Asia Q2 GDP projections.

Korea’s Q2 GDP next week is expected to indicate the strong pulse of the economy.

EM Asia: Moderating export momentum remains favourable for growth Over the past two months, Asian exports data have shown signs of increased moderation, consistent with softer US ISM and China PMI readings. For example, in Taiwan growth in export orders continues to decelerate to a more sustainable pace, with 6m/6m momentum (seasonally adjusted) easing to 31.3% in June, down from the 50.4% peak in November 2009. Part of the reason is the relatively large decline in benchmark memory chip prices, which fell by 27.6% in Q2. However, we expect rising export volumes to continue to offset the dampening impact of price falls.

In Thailand, export momentum remains robust. June exports surprised significantly to the upside, rising 46% y/y. On a 3m/3m saar basis, the momentum is starting to build again, as demand for electronics, machinery and automobiles remains elevated. This is likely to support manufacturing production in the coming months and indicates upside risks to our growth target of 6% in 2010. This is also corroborated by the rising capacity utilisation in these sectors, which has risen above pre-crisis levels.

Even with the moderation, we still see risks to our Q2 growth projections as biased to the upside. Next week, Korea’s Q2 GDP is expected to post another strong print, rising 7% y/y. With rising employment (Korea adding 272k jobs in the private sector in Q2 compared with 194k in Q1), we expect domestic demand to continue to rise. This we believe will fuel concerns that demand-pull pressures will mount further. We expect the BoK to hike the policy rate by an additional 25bp, to 2.5%, in August.

Rahul Bajoria +65 6308 2153

[email protected]

Prakriti Sofat +65 6308 3201

[email protected]

Export momentum has slowed to a more sustainable pace

Figure 1: Asian exports likely to moderate further in the coming months…

Figure 2: …as export orders come down to more sustainable levels


22 July 2010 8

India: RBI credit policy review Anchoring inflation expectations is likely to remain a key policy concern for the RBI. Indeed, we think the RBI is set to continue its calibrated exit from the accommodative monetary stance by hiking its policy rates by 25bp at the credit policy review next week. Given the tight liquidity situation, we believe it is unlikely that the RBI will raise the cash reserve ratio. In terms of the statement, we expect the RBI to reinforce its commitment to maintain price stability without hurting growth momentum.

On inflation, we expect the WPI to remain above 10% until July and above 8% until October. By December, assuming normal monsoon rainfall, reduced food price inflation and lower non-energy commodity prices should bring WPI inflation close to 6% and give the RBI enough policy room to pause. Even if the monsoons fail and food inflation flares up, we see the probability of aggressive monetary action as quite low. We expect the RBI to hike its policy rate once more by 25bp in October, and then remain on hold until the end of FY 10-11 (see India: Monsoons to douse the inflation fire, 8 July 2010).

Philippines: BoP remains supportive of currency Philippines saw another month of robust balance of payments with a surplus of USD502mn in June. For the first half of the year, the country has posted a BoP surplus of USD3.2bn (BarCap forecast: USD3.3bn) compared with USD2.2bn in the same period of 2009. The bulk of the support has come from remittances, which increased by 6.6% up to May, with exports also turning around sharply in line with the global electronics cycle. We expect remittances to grow by 10% through 2010 and exports to remain supported. We also expect foreign direct investment flows to rise gradually and equity inflows to continue given attractive valuations. This provides a favourable backdrop for the currency and we continue to expect USD/PHP to drift towards 45.25 in 3-months, with our 12-month forecast being 44.

RBI to hike policy rate by 25bp next week

Figure 3: RBI expected to hike policy rates further next week

Figure 4: Philippines: Robust balance of payments

3

4

5

6

7

8

9

04 05 06 07 08 09 10 11-5

0

5

10

15

20

IN: Repo rate (%)Reverse Repo rate (%)WPI: Non-food manufacturing (%6m/6m, saar, RHS)

-18

-12

-6

0

6

12

18

24

04 05 06 07 08 09 10 11

USD

bn

Trade balance Transfers FDI Leakage Portfolio flows

Source: CEIC, Barclays Capital Source: CEIC, Barclays Capital

Gradually easing inflation will give the RBI an opportunity to

pause after October credit policy review

Strong remittances and exports providing positive backdrop to

PHP



22 July 2010 10

they have a solid majority of 118 seats in the 200 seat chamber. The government has pledged to bring the deficit to below 3% of GDP more rapidly than promised in the EU Convergence Report. It is contemplating cutting administration costs, freezing wages, and cutting back on pension indexation awards. Moody’s recently indicated that it expects to raise its A1 foreign currency credit rating on the Czech Republic if deficit improvements are successfully implemented. Fitch already has a Positive outlook on its A+ sovereign rating. The currency has been strengthening, with the yield curve shifting down as a result of these positive developments, notwithstanding the large government issuance.

Muted inflation pressures keep policy rates low Global conditions have proved to be quite favourable for inflation targets. EMEA wage inflation fell sharply in 2009 as a result of the global recession (Figure 1). Wages have started to recover, but wage inflation remains at 1/3 to ½ its former levels. Both food and energy prices were stronger in 2010 because of a very low base in 2009 (Figure 2). The base is now flat and no longer pushing prices up.

Last week, both Hungary and South Africa kept their rates on hold, as expected, and we are predicting that South Africa headline inflation fell further in June, as food inflation remains muted due to a bounce in agricultural output.

We expect the Bank of Israel to remain on hold for the fourth consecutive month in a shift towards slower rate adjustment. One factor behind this shift is delays in policy rate increases by major global central banks. Another is that monetary policy tightening has been going on for almost a year now. With the policy rate up 100bp and money supply stable, they have moved towards policy normalisation. Finally, recent indicators point to a worrisome growth deceleration led by declines in exports.

Russia inflation is under pressure from higher food prices as they are experiencing the hottest summer in 130 years. The heat is reducing crop yields by an estimated 10%. Nevertheless, we expect the CBR to keep its policy rate on hold at 7.75% next week and we retain our view that it will cut rates at its August meeting as it concentrates more on general trends rather than this temporary factor.

Figure 1: Wage pressures have been limited

Figure 2: Agriculture and energy inflation likely to be low on base effects

05

1015202530354045

2005 2006 2007 2008 2009 20100

2

4

6

8

10

12

Russia and Ukraine: Average wage (% y/y)

CE3: Average wage (% y/y, RHS)

-80%-60%-40%-20%

0%20%40%60%80%

100%120%

2005 2006 2007 2008 2009 2010

Agriculture prices (% y/y) Energy prices (% y/y)

Source: National Sources, Bloomberg Source: CME, Bloomberg

Low inflation pressure from wages, energy, and food prices

We predict Israel will keep its policy rate on hold next week

Russia central bank expected to remain on hold


22 July 2010 11

MACRO OUTLOOK: LATIN AMERICA

Moderation and its discontents Despite the ongoing slowdown fears epitomized by Copom’s smaller-than-expected

hike this week, incoming data from the region have not been generally disappointing.

We believe recent signs of growth moderation should be put into context and we emphasize some positive idiosyncratic stories underlying the larger countries’ trends.

The recent string of disappointing activity data in the US and China, along with soft numbers in Brazil – crowned by a smaller-than-expected 50bp hike by Copom this week–have brought the threat of a slowdown in global activity, and in Latin America specifically, to the forefront of investor attention. In reality, incoming data from the region have not been generally disappointing; outside the eye-catching and admittedly important Brazil, they have actually surprised on the positive side on average in the past few weeks (Figure 1).

First Copom: Its decision to hike a softer-than-expected 50bp is in our view a fine-tuning of the pace of tightening and not a signal that the end of the cycle is near. Although inflation has surprised on the downside, most of the action is driven by food deflation, which is temporary. Regarding activity, we had been expecting an economic slowdown and see it as a healthy consolidation of growth following the cyclical and stimulus-led rebound. The outlook for GDP growth remains on track to round up a strong 7.3% this year. Hence, we do not see Copom’s change in pace as a signal of a pause or the end of the cycle, but instead a move to spread the tightening through the second half of the year when growth will likely be softer, but still well sustained (see Brazil: Copom watch: It is not the end, 22 July 2010).

How about the rest of the region? Just this week, May retail sales in Mexico posted an encouraging 5.0% y/y gain, close to our forecast (5.5%) but well above the consensus expectations (3.4%). While boosted by the favourable base associated with last year’s influenza, the number also underscored a meaningful 0.8% m/m gain. In Colombia, industrial production expanded a somewhat lower-than-expected 7.5% y/y (Barclays Capital: 8.6%, consensus: 8.5%) but nothing as compelling as the upside surprise in retail sales growth at 13.1% y/y (Barclays Capital: 10.5%, consensus: 8.2%.)

Jimena Zuniga +1 212 412 5361

[email protected]

In Brazil, we see the Copom’s move to hike 50bp as a decision

to spread out the tightening cycle in H2 and not a signal

of its end

Incoming data this week, rather than disappointing, continued to

give proof of ongoing recovery

Figure 1: Surprise, surprise

Figure 2: Big economies’ growth has moderated through H1



22 July 2010 12

These numbers hint that whatever signs of growth moderation may be appearing in the region, these seem to have been less, and not more, meaningful than expected. Outside Brazil (where incoming data are tracking our relatively unimpressive 4.0% q/q SAAR projection) we believe this is likely to pave the way for a stellar round of Q2 GDP releases as of next month and possibly invite further upward revisions in this year’s growth projections. Chile is likely to lead the way with an astounding 18.0% q/q SAAR gain (which we are revising from 15.0% to account for a faster-than-expected rebound after the earthquake); Mexico should follow suit with a strong 9.5% q/q SAAR expansion after a soft Q1; Colombia’s recent figures suggest upside risks to our 5.0% q/q SAAR projection; and Argentina’s private estimates point to a robust 7.5% q/q SAAR expansion, while official numbers track a utopian 15%.

Moreover, we believe it is warranted to qualify the moderation that, predictably, we have begun to observe in some economies, particularly Brazil and Mexico. Figure 2 shows, that, indeed, some moderation in the pace of sequential expansion of the largest economies has already taken place by the end of H1 10, less meaningfully in Brazil until Q2, more so in Mexico. Our main observation is that an indefinite continuation of the blistering sequential growth rates of H2 09 in these economies would have been utterly unsustainable, and was never expected, in our view. These rates benefited from the colossal cyclical impulse associated with spare capacity, unemployment, and depleted inventories; and are only naturally moderating as the economies narrow their output gaps. On the same grounds we are expecting further, slight moderation in the sequential pace of expansion of these economies in H2 10.

What is puzzling is the absence of any signs of moderation in the other main inflation-targeting economies, Chile and Colombia. In part, we believe this reflects a less spectacular cyclical bounce relative to those observed in H209 in Brazil and Mexico. However, there are also specific idiosyncratic factors supporting this pattern.

In the case of Chile, the fast pace of expansion we are tracking for H1 is remarkable, given that the economy had to overcome a colossal shock from the February 27 earthquake, which subtracted roughly 1pp from GDP in March alone. In addition to the significant recovery from that plunge, we expect activity to continue to accelerate in H210 as the reconstruction stimulus kicks in against the backdrop of still very accommodative, though rapidly normalizing, monetary policy.

In the case of Colombia, recent acceleration reflects in part the tardiness with which the economy joined the recovery trend, in our view, held back by the drag implied by trade disputes with Venezuela last year. Since that drag ran its course, the economy has been benefiting from high oil prices and significant monetary stimulus, and we believe the risks for Q2 and H210 are tilted to the high side. In addition to this cyclical recovery, GDP growth prospects are boosted by a bright outlook in the energy sector.

Overall, we believe recent signs of growth moderation in the region should be put into context and we emphasize some of the appealing idiosyncratic stories underlying the larger country trends. These stories support our bullish FX calls in CLP and COP relative to the bigger economies’ currencies and highlight that moderation in the region is not all about discontents.

This signals moderation has not been as stark and augurs strong

Q2 GDP readings

Although some moderation is indeed taking place in the

biggest economies, it needs to be qualified, in our view

Interestingly, no signs of moderation are to be seen in the

smaller economies

Chile’s outlook remains upbeat given the required

reconstruction

Colombia’s growth risks also seem tilted to the high side

Overall, signs of moderation seem to have caused more discontent than warranted


22 July 2010 13

STRATEGY FOCUS: HUNGARY

No easy healing The IMF and the Hungarian government failed to come to an agreement regarding the


22 July 2010 15

start to hurt households, as unemployment remains high and wage growth is still slowing. This, in turn, could lead to more pressure on the exchange rate.

Strategy outlook – not a time to go long We remain cautious on Hungarian markets. Risk premia have risen on Hungarian assets, but in some parts they are hardly stretched, in our view. Further price adjustments are possible, and given the fundamental background, we do not think this is the time to go long. The relative performance Z-scores in local swaps, bonds and FX vol look more attractive for positions in new bearish trades than in credit and spot FX. Our tail-risk recommendations, as outlined in our Emerging Markets Quarterly, 22 June 2010, should still be appealing to investors, namely owning a 2s5s IRS flattener and a HUF-put spread.

Local rates – further flattening We look for catch-up pressure on the local rates, particularly at the front end of the curve and on bonds. The pressure on the front end is justified by the expressed willingness of the NBH to hike interest rates if “risk premia” were to move higher. While we think this would have little effect on stabilising the forint, we certainly would not rule out such a move by the NBH. 2y swaps are currently 90bp above the (5.25%) policy rate, but this spread has been 60bp higher during previous periods of unchanged policy rates (Q1 08 and Q1 09). Rather than paying 2y, we prefer a 2s5s flattener, given that on a multi-year basis, the curve is still steep and has attractive market dynamics on 2s5s (gradual steepening/sharp flattening).

Foreign exchange – other challenges beyond the negative feedback loop The risk premium on HUF spot is high, but the fundamental challenges are significant. In addition to the negative feedback loop from the CHF loans, the currency is facing a steadily growing squeeze on foreign funding. This was already evident last Friday with the -190bp 1y HUF-EUR cross-currency basis swap – the widest since March 2009. Trading liquidity in these instruments is low but the pressure to widen continues, in our view, on FX volatility and concerns about local corporate and household balance sheets from the past currency weakness. Risk premia on FX options are, surprisingly, not high yet, which probably reflects fears of FX intervention. This gives investors an opportunity to add to bearish HUF option structures such as the 6m 290-310 put-spread that we recommended in the Emerging Markets Quarterly, 22 June 2010.

Credit – Better value elsewhere, but valuations impede outright bearish trades We reiterate our cautious stance on Hungarian credit and think investors are better compensated for risks elsewhere in the region. We highlight Croatia and Romania in this context. However, despite our cautious stance, we think outright short Hungary credit positions do not look appealing from a risk/reward perspective at current levels. Hungary credit spreads have not only underperformed significantly over the past months in a global context but also within the region. The comparatively high relative performance Z-score suggests there are better ways to express a negative view towards Hungary than buying CDS protection outright. Our overall cautious stance on Hungarian credit notwithstanding, we highlight that short-term default risks remain limited, in our view. In particular, given the Hungarian government’s significant deposits (c.USD6.5bn at the central bank and mostly in foreign currency), 2010 bond maturities should easily be covered. We therefore continue to think the aggressive flattening of the Hungarian CDS curve is overdone and that selling short-dated CDS (up to 1y) offers value from a carry/rolldown perspective.

It will be a bumpy process to restore investor confidence

Risk premia are low on local rates – on swaps and bonds

Better value in Romania and Croatia, but the front end

of the Hungarian CDS curve looks too flat





22 July 2010 18

EM DASHBOARD

George Christou +44 (0)20 777 31472 [email protected]

Description Entry date Entry Current Tacrget Stop

P&L to target/ P&L to stop Analyst

Credit (9) Long 3mth ATMF put on BRA 37 06-Jul-10 2.75 2.25 7.25 0 2.20 Guarino

Buy Lithuania 5y CDS, sell Croatia 5y CDS 22-Jun-10 -18bp -30bp 100bp -100bp 1.86 Kolbe, Keller

Long Argentina EUR warrant 06-Jun-10 6.05 8.65 9.00 4.00 0.10 Guarino, Mondino

Buy Cote d'Ivoire 32 03-Jun-10 55.00 55.50 60.00 50.00 0.82 Kolbe, Markus

Long CO41s 25-May-10 281bp 214bp 180bp 320bp 0.32 Guarino, Zuniga

Long PE33 Short PE 19 22-Apr-10 73bp 64bp 45bp 85bp 0.90 Guarino

Sell Ukraine 1y CDS 16-Mar-10 720bp 525bp 500bp 575bp 0.50 Kolbe

Romania 5s10s CDS steepener (DV01-neutral) 30-Oct-09 -2bp 11bp 30bp -25bp 0.53 Kolbe, Keller

Brazil 1s10s DV01 steepener 19-Aug-09 68bp 85bp 120bp 50bp 1.00 Guarino

FX (14) Sell 1M JPY/KRW 08-Jul-10 13.75 13.81 12.85 14.10 3.29 Redward

Sell 4m USDCNY NDF outright 06-Jul-10 6.78 6.77 6.68 6.81 2.36 Redward

Long EUR call/HUF put spread (290;310 strikes) 22-Jun-10 280 286 310 - 3.50 Chow, Keller

Long TRY vs USD (0.5) EUR (0.5) 22-Jun-10 1.74 1.74 1.70 1.81 0.57 Chow

Long TRY/ short ZAR Cash 22-Jun-10 4.80 4.92 4.99 4.70 0.32 Badsha, Chow, Keller

Short BRL put spread (1.90-2.05); finance: sell US 22-Jun-10 1.79 1.78 2.05 - - Melzi

Sell USD/PHP 3m NDF 14-Jun-10 46.81 46.72 45.50 47.20 2.54 Redward

3M USD/MYR put spread 18-May-10 1.05% 0.80% 3.00% 0% 2.76 Rachapudi

short EUR/CLP 13-May-10 667 670 615 701 1.77 Melzi

Long EGP (3m Tbill, 80% USD,20% EUR funded) 17-Mar-10 5.89 6.03 5.75 6.10 5.00 Chow, Christou, Moubayed

Long UAH (6m T-bills, USD funded) 17-Mar-10 7.97 7.91 7.75 8.15 0.60 Chow

9m Ibovespa bear put spread (strikes: 50k, 60k) 15-Jan-10 70,800 64,462 50,000 - 7.70 Loureiro, Melzi, Salomon

9m USD call/BRL put spread (strikes: 1.9, 2.1) 14-Jan-10 1.76 1.78 2.10 - 1.79 Loureiro, Melzi, Salomon

Sell basket/RUB 08-Dec-09 37.07 34.36 33.00 35.00 2.13 Chow, Vogel

Rates (16) Long Chile 6M2Y DV01-neutral steepener 13-Jul-10 135% 128% 200% 100% 2.57 Melzi, Zuniga

2y US-HK spread widener 12-Jul-10 15bp 9.8bp 35bp 3bp 3.71 Huang

Long Indonesia 5y bond 05-Jul-10 7.89% 7.63% 7.40% 8.50% 0.26 Rachapudi

PLN 2s10s IRS DV01-N steepener 30-Jun-10 80bp 78bp 120bp 60bp 2.33 Chow, Hewitt

Brazil: Buy 1y BE inflation 22-Jun-10 4.88% 4.96% 6.00% 4.15% 1.28 Loureiro, Melzi

Hungary: 2s5s IRS DV01-N flattener 22-Jun-10 53bp 31bp 0bp 70bp 0.79 Chow, Keller

Long RUB Jan'13s funded 45:55 EUR, USD 22-Jun-10 6.18% 6.27% 5.50% 6.60% 2.33 Chow, Pantyushin

Long TRY Mar'12s funded 50:50 EUR,USD 22-Jun-10 8.60% 8.21% 7.50% 9.00% 0.90 Chow, Keller

Rec ILS 5Y IRS 22-Jun-10 3.80% 3.64% 3.50% 4.00% 0.43 Chow, Hewitt

Pay 10y TIIE 11-Jun-10 7.25% 6.91% 7.80% 6.85% 14.83 Melzi

India OIS: 2x5 flattener 14-Apr-10 122bp 72bp 70bp 140bp 0.03 Rachapudi

TWD: Sell 1y1y payer 23-Feb-10 20.0% 11.1% 0% 32.0% 0.53 Huang

ZAR IRS 2v10 payer 19-Feb-10 126bp 125bp 160bp 110bp 2.33 Badsha

Long NTN-F 17s 07-Dec-09 13.29% 12.10% 11.70% 12.30% 2.00 Melzi

KRW Long 10y bond pay 10y swap 03-Sep-09 86bp 68bp 40bp 105bp 0.73 Huang

Closed trades (1) Date closed 3m long MXN/short BRL 25-Mar-10 6.99 7.23 6.36 7.31 21-Jul-10 Melzi

Pay Jan11 Pre-DI 21-Jul-10 10.98% 10.88% 11.10% 10.93% 21-Jul-10 Melzi

Note: As of 21 July 2010. Methodology: P&L to target/P&L to stop is a measure of how much can be gained relative to how much can be lost. Both are calculated from the current value and reported in dollars. This measure does not take probabilities into account. Source: Barclays Capital


22 July 2010 20

EM CREDIT PORTFOLIO

OAS (bp) OAD Weights (%) Returns (%) Bonds we recommend…

31-Dec 21-Jul 3mF Benchmark Model 1w YTD Buying Selling

EM Portfolio 269 304 288 6.8 100 100 0.8 6.0 Arg, Ven, Ukr 888 959 941 6.2 11 15 over 1.6 5.9 Other 191 220 206 6.9 89 85 under 0.7 6.0 EM Asia 207 212 205 7.2 15 15 under 0.9 9.5 Philippines 178 189 190 7.6 7.5 5.1 under 1.0 9.0 Indonesia 196 196 190 7.3 5.9 8.0 over 0.8 10.1 Indo 14s, 15s, 16s Vietnam 324 323 300 5.8 0.5 0.5 neutral 0.1 9.3 Pakistan 681 661 500 4.9 0.3 0.6 over 0.2 12.5 Sri Lanka 434 405 400 2.9 0.3 0.3 neutral 1.3 6.9 EMEA 235 275 258 5.8 39 40 over 0.5 2.9 Turkey 185 233 215 6.9 13.2 15.0 over 0.7 3.8 Turkey 14s, 15s, 16s, 30s, 34s, 36s, 38s, 40s Turkey 19s,19Ns,20s,21s Russia 187 257 180 6.3 9.8 14.0 over 0.1 4.6 Russia 15s,30s,28s Lebanon 331 333 295 3.9 2.8 2.9 neutral 0.3 5.4 Leb 4% 17s (amort.) South Africa 160 175 200 5.5 3.0 1.5 under 0.8 2.9 SoAf 20s,22s Ukraine 1031 527 475 4.0 1.1 2.2 over 3.0 24.5 Ukr 11s, 13s, Nafto 14s Hungary 224 387 415 4.9 4.6 2.5 under -0.3 -8.3 Hungary 15s Lithuania 347 326 390 4.5 2.6 0.4 under 1.2 0.6 Bulgaria 215 278 360 3.1 0.7 0.7 neutral 0.5 -2.5 Bulgaria 15s Egypt 205 214 265 5.6 0.7 0.1 under 0.2 2.9 Egypt 40s Egypt 20s Serbia & Montenegro 281 376 350 4.6 0.3 0.1 under 0.3 3.2 Tunisia 231 148 115 1.7 0.2 0.4 over 0.1 4.7 BTUN 12s Qatar 146 181 130 6.9 0.0 0.2 over -0.3 6.9 Qatar 19s,30s, 40s Abu Dhabi 166 152 130 4.4 0.0 0.0 neutral 0.1 7.0 Latin America 317 356 340 7.5 46 46 under 1.1 7.6 Brazil 137 153 146 7.2 13.6 12.5 under 1.0 7.2 BR37, BR41 BR19, BR A Mexico 149 163 148 7.7 10.2 9.0 under 0.8 8.2 MX41, MX33 Venezuela 1032 1181 1225 5.4 5.2 5.0 neutral 1.3 3.2 VE23, VE28, VE34 VE16, VE27 Argentina 708 825 750 7.5 5.0 7.6 over 1.6 4.6 Bonar 13, EUR Warrants, EUR disc, G17 Boden 15 Colombia 177 180 153 7.2 3.8 3.8 neutral 0.9 10.1 CO41 CO19 Peru 155 173 156 10.3 2.7 1.5 under 1.7 10.0 PE 33, PE 19 Panama 154 181 163 9.3 2.5 2.0 under 1.7 10.2 PA36 Uruguay 215 207 175 9.7 1.9 2.5 over 1.5 13.3 UY25 El Salvador 353 352 321 6.8 1.2 0.4 under -0.5 8.2 ELSALV 35 Dominican Republic 438 416 300 5.5 0.4 1.3 over 0.8 10.5 DR18, DR27 DR 21

Note: Changes in view denoted in bold. Source: Barclays Capital


22 July 2010 21

DATA REVIEW & PREVIEW: ASIA Rahul Bajoria

Review of last week’s data releases


22 July 2010 22

DATA REVIEW & PREVIEW: EMERGING EUROPE & AFRICA Eldar Vakhitov, Jeffrey Schultz, Daniel Hewitt, Alia Moubayed, George Christou, Christian Keller, Vladimir Pantyushin

Review of last week’s data releases

Main indicators Period Previous Barclays Actual Comments

Poland: Average Gross Wages (% y/y) Jun 4.8 - 3.5 Low wage growth implies little inflation pressure

Poland: Employment (% y/y) Jun 0.5 1.0 1.1 Labour markets recovering

Israel: Unemployment rate (%) May 6.9 6.8 6.5 Recovered to pre-recession levels

Hungary: Base Rate Announcement Jul-20

5.25 5.25 5.25 Unchanged, as expected. We think further cuts will be postponed into 2011 given recent events

Poland: Sold Industrial Output (% y/y) Jun 14.0 14.0 14.5 Production is expanding on higher exports

Russia: Retail Sales (Real, % y/y) Jun 5.1 5.5 5.8 Welcome acceleration of consumer sector

Russia: Unemployment Rate (%) Jun 7.3 7.3 6.8 Higher employment will support future growth

Russia: Disposable Income (% y/y) Jun 2.8 3.6 1.4

Russia: Real Wages (% y/y) Jun 7.0 6.9 5.5

Weaker income growth may slow consumer sector recovery

Poland: Core Inflation (% y/y) Jun 1.6 1.5 1.5 Downward inflation momentum

South Africa: Interest Rate Announcement

Jul 6.50 6.50 6.50 Unanimous decision citing still balanced inflation risks and uncertain global environment

Preview of week ahead

Friday 23 July Period Prev 2 Prev 1 Latest Forecast Consensus

09:00 Poland: Retail sales (% y/y) Jun 8.7 -1.6 4.3 4.0 4.2

09:00 Poland: Unemployment Rate (%) Jun 12.9 12.3 11.9 - 11.6

Ukraine: Current Account (USD mn) Q2 -68 -898 -184 50 -

Poland: Unemployment should continue to decline gradually while domestic demand remains weak.

Ukraine: The external conditions remain favourable for Ukraine, while the domestic demand is just beginning to recover. We expect the current account to post a positive balance for the first time since Q3 2006.

Monday 26 July Period Prev 2 Prev 1 Latest Forecast Consensus

08:00 Hungary: Retail Trade (% y/y) May -4.3 -4.0 -5.0 - -3.5

15:30 Israel: Base Rate Announcement (%) Jul-29 1.50 1.50 1.50 1.50 1.50

Hungary: We look for a gradual recovery in retail sales

Israel: We predict that the BoI will remain on hold for a 4th consecutive month.

Wednesday 28 July Period Prev 2 Prev 1 Latest Forecast Consensus

09:00 Lithuania: Real GDP (% y/y) Q2 P -14.2 -12.1 -2.8 - -

10:30 South Africa: CPI (% y/y) Jun 5.1 4.8 4.6 4.4 4.5

South Africa: We look for a further moderation in headline inflation, largely as a result of goods prices which are likely to have slowed further in June.

Thursday 29 July Period Prev 2 Prev 1 Latest Forecast Consensus

07:00 South Africa: Money Supply (% y/y) Jun 1.6 1.7 1.4 - 1.9

07:00 South Africa: Private sector credit (% y/y) Jun -0.7 -0.9 0.8 1.1 1.2

10:30 South Africa: PPI (% y/y) Jun 3.7 5.5 6.8 6.1 7.0

Egypt: Deposit rate Jul-29 8.25 8.25 8.25 8.25 -

South Africa: Fading base effects should see headline growth in producer prices moderate marginally in June. We look for a mild improvement in headline PSCE growth in June, owing in part to favourable base effects.


22 July 2010 23

Egypt: We think CBE is likely to keep rates on hold for a while, encouraged by a strengthening USD. We do not expect the first hike to occur before early 2011 unless inflation surprises upwards in sustained manner ahead of that date.

Friday 30 July Period Prev 2 Prev 1 Latest Forecast Consensus

08:00 Turkey: Trade Balance (EUR bn) Jun -5.0 -5.5 -4.8 - -

13:00 South Africa: Trade Balance (Rand bn) Jun 0.5 -1.9 -0.3 - -2.0

13:00 South Africa: Budget (Rand bn) Jun -11.0 -25.1 -20.9 - -

Russia: Refinancing Rate Announcement Jul-30 8.00 7.75 7.75 7.75 -

Turkey: With our forecast of robust growth and gradually rising oil prices, we now expect the current account to reach 35 USD bn in 2010 (roughly 5% GDP), driven by the trade balance.

Russia: Bank of Russia will likely keep the rates unchanged. However, we still expect another 25 bps cut in August on the back of declining inflation.


22 July 2010 25

Brazil IGP-M inflation: The end of iron ore pressures, along with unchanged food price behaviour, are the highlights of the low IGP-M release. Construction costs probably will continue to gr


22 July 2010 26

FX FORECASTS AND FORWARDS

FX forecasts Forecast vs outright forward

Spot 1m 3m 6m 1y 1m 3m 6m 1y

G7 countries

EUR 1.28 1.20 1.20 1.25 1.25 -6.4% -6.4% -2.5% -2.4%

JPY 87 92 94 96 98 6.3% 8.7% 11.2% 13.9%

GBP 1.52 1.48 1.52 1.60 1.60 -2.7% -0.1% 5.2% 5.3%

CHF 1.04 1.13 1.17 1.14 1.16 8.8% 12.1% 9.3% 11.9%

CAD 1.04 1.00 1.00 1.03 1.07 -4.2% -4.3% -1.6% 1.8%

AUD 0.88 0.90 0.90 0.84 0.82 2.4% 3.2% -2.6% -2.7%

NZD 0.72 0.72 0.72 0.69 0.67 0.7% 1.2% -2.2% -3.2%

Emerging Asia

CNY 6.778 6.760 6.710 6.630 6.480 -0.3% -0.9% -1.9% -3.1%

HKD 7.78 7.78 7.78 7.80 7.80 0.0% 0.1% 0.4% 0.6%

INR 47.27 46.50 45.50 46.25 46.50 -2.0% -5.0% -4.3% -5.3%

IDR 9052 9000 9000 8900 8800 -0.7% -1.8% -4.2% -7.8%

KRW 1204.5 1175 1150 1100 1075 -2.5% -4.8% -9.2% -11.5%

LKR 112.8 113.2 113.0 113.0 112.5 0.0% -1.0% -2.2% -2.6%

MYR 3.2140 3.19 3.17 3.12 3.05 -0.8% -1.8% -3.8% -6.6%

PHP 46.53 45.50 45.25 45.00 44.00 -2.4% -3.5% -4.8% -8.1%

SGD 1.3717 1.3800 1.3750 1.3600 1.3500 0.6% 0.3% -0.8% -1.4%

THB 32.29 32.25 32.10 32.00 31.75 -0.1% -0.7% -1.1% -2.1%

TWD 32.13 31.75 31.00 30.75 30.00 -1.1% -3.1% -3.4% -4.9%

VND 19074 19000 19500 19500 19000 -1.2% -0.5% -3.2% -10.6%

Latin America

ARS 3.93 3.94 4.05 4.30 4.60 -0.5% 0.8% 3.7% 4.1%

BRL 1.76 1.80 2.00 1.90 1.90 1.5% 11.3% 3.5% -0.7%

CLP 517 510 500 480 480 -1.4% -3.4% -7.7% -8.8%

MXN 12.75 12.70 12.60 12.65 12.70 -0.8% -2.2% -2.8% -4.4%

COP 1,864 1,850 1,840 1,800 1,800 -0.8% -1.6% -4.3% -6.0%

PEN 2.83 2.85 2.85 2.87 2.87 0.9% 0.8% 1.2% 0.5%

EMEA

EUR/CZK 25.12 25.20 25.60 25.40 25.40 0.4% 2.0% 1.1% 1.2%

EUR/HUF 285 288 290 285 283 0.9% 1.1% -1.3% -3.4%

EUR/PLN 4.10 4.10 4.15 4.12 4.05 -0.1% 0.8% -0.4% -3.0%

EUR/RON 4.26 4.30 4.35 4.30 4.30 0.5% 0.7% -1.8% -4.4%

USD/RUB 30.48 30.80 30.30 29.50 29.50 0.8% -1.3% -4.8% -6.7%

BSK/RUB 34.35 33.57 33.03 32.82 32.82 -2.08% -4.13% -5.83% -7.73%

USD/TRY 1.52 1.55 1.55 1.55 1.50 1.1% 0.1% -1.4% -7.6%

USD/ZAR 7.55 7.70 7.60 7.80 7.90 1.5% -0.8% 0.4% -1.1%

USD/ILS 3.86 3.81 3.80 3.75 3.70 -1.3% -1.5% -2.9% -4.3%

USD/EGP 5.70 5.65 5.66 5.60 5.55 -1.4% -2.3% -4.8% -9.4%

USD/UAH 7.90 7.90 7.90 7.80 7.80 0.0% -0.6% -3.5% -6.0%

Source: Barclays Capital


22 July 2010 27

OFFICIAL INTEREST RATES

Start of cycle Forecasts as at end of

Official rate Current Date Level Last move Next move expected Q3 10 Q4 10 Q1 11 Q2 11

% per annum (unless stated)

Advanced

Fed funds rate 0-0.25 Easing: 17 Sep 07 5.25 Dec 08 (-75-100) Apr 2011 (+25) 0-0.25 0-0.25 0-0.25 0.75

BoJ overnight rate 0.10 Easing: 30 Oct 08 0.50 Dec 08 (-20) Q2 12 (+20) 0.10 0.10 0.10 0.10

ECB repo rate 1.00 Easing: 8 Oct 08 4.25 May 09 (-25) Q2 11 (+25) 1.00 1.00 1.00 1.25

Emerging Asia

China: Working capital rate 5.31 Easing: 12 Sep 08 7.47 Dec 08 (-27) Beyond 2011 5.31 5.31 5.31 5.31

Hong Kong: Base rate 0.50 Easing: 19 Sep 07 6.75 Dec 08 (-100) Apr 11 (+25) 0.50 0.50 0.50 1.00

India: Repo rate 5.50 Tightening: 19Mar 10 4.75 Jul 10 (+25) Jul 10 (+25) 5.75 6.00 6.00 6.25

Indonesia: O/N policy rate 6.50 Easing: 4 Dec 08 9.50 Aug 09 (-25) Q4 10 (+25) 6.50 6.75 6.75 7.00

Korea: O/N call rate 2.25 Tightening: 9 Jul 10 2.25 Jul 10 (+25) Aug 10 (+25) 2.50 2.50 2.75 2.75

Sri Lanka: Reverse Repo 9.50 Easing: 20 Feb 09 12.0

0 Jul 10 (-25) Q2 11 (+25) 9.50 9.50

9.50 9.75

Malaysia: O/N policy rate 2.75 Tightening: 04 Mar 10 2.75 Jul 10 (+25) Q1 11 (+25) 2.75 2.75 2.75 3.00

Philippines: O/N lending 4.00 Easing: 18 Dec 08 6.00 May 09 (-25) Q4 10 (+25) 4.00 4.25 4.25 4.50

Taiwan: Rediscount rate 1.375 Tightening: 24 Jun 10 1.37

5 Jun 10 (+12.5) Q3 10 (+12.5) 1.50 1.50 1.625 1.625

Thailand: O/N repo rate 1.50 Tightening: 14 Jul 10 1.50 Jul 10 (+25) Aug 10 (+25) 1.75 1.75 1.75 2.00

Vietnam: Base rate 8.00 Tightening: 1 Dec 09 7.00 Dec 09 (+100) - 8.00 8.00 8.00 8.00

Emerging Europe and Africa

Czech R: 2w repo rate 0.75 Easing: 8 Aug 08 3.75 Apr 10 (-25) Mar 11 (+25) 0.75 0.75 1.00 1.50

Hungary: 2w deposit rate 5.25 Easing: 24 Nov 08 11.50 Apr 10 (-25) Beyond Q2-11 5.25 5.25 5.25 5.25

Poland: 2w repo rate 3.50 Easing: 26 Nov 08 6.00 Jun 09 (-25) Mar 11 (+25) 3.50 3.50 3.75 4.00

Romania: Key policy rate 6.25 Easing: 4 Feb 08 10.25 Apr 10 (-25) Jul 11 (-25) 6.25 6.25 6.25 6.25

Russia: refi rate 7.75 Easing: 24 Apr 09 13.00 Apr 10 (-25) Aug 10 (-25) 7.50 7.50 7.50 7.50

South Africa: repo rate 6.50 Easing: 11 Dec 08 12.00 Mar 10 (-50) Jul 11 (+50) 6.50 6.50 6.50 6.50

Turkey: 1wk repo rate 7.00 Easing: 20 Nov 08 16.75 Nov 09 (-25) Q2-11 (+50) 7.00 7.00 7.00 8.00

Egypt: Deposit rate 8.25 Easing: 13 Feb 09 11.50 Sep 09 (-25) Apr 11 (+25) 8.25 8.25 8.25 8.50

Israel: Discount Rate 1.50 Tightening: Aug 09 0.50 Mar 10 (+25) Oct 10 (+25) 1.50 2.00 2.25 2.50

Latin America

Brazil: SELIC rate 10.75 Tightening: 28 Apr 10 8.75 Jul 10 (+50) Sep 10 (+50) 11.25 11.75 11.75 11.75

Chile: Monetary Policy Rate 1.50 Tightening: 15 Jun 10 0.50 Jul 10 (+50) Aug 10 (+50) 2.50 3.50 4.25 5.00

Colombia Repo Rate 3.00 Easing: 19 Dec 08 10.0 Apr 10 (-50) Jan 11 (+25) 3.00 3.00 3.75 4.50

Mexico: Overnight Rate 4.50 Easing: 16 Jan 09 8.25 Jul 09 (-25) Jun 11 (+25) 4.50 4.50 4.50 4.75

Peru: Reference rate 2.00 Tightening: 6 May 10 1.25 Jul 10 (+25) Aug 10 (+25) 2.50 3.00 3.50 3.75

Note: Changes denoted in bold. Source: Barclays Capital


22 July 2010 28

EMERGING MARKETS RESEARCH

Piero Ghezzi Head of Global Economics, Emerging Markets and FX Research +44 (0)20 3134 2190 [email protected]

Analyst Certification(s) We, Piero Ghezzi, Michael Gavin, Guillermo Mondino, Peter Redward, Matthew Vogel, Jose Wynne, Rahul Bajoria, Prakriti Sofat, Daniel Hewitt, Koon Chow, Christian Keller, Andreas Kolbe, Matthew Huang, Teresa Lam, George Christou, Eldar Vakhitov, Je

This publication has been prepared by Barclays Capital, the investment banking division of Barclays Bank PLC, and/or one or more of its affiliates as provided below. This publication is provided to you for information purposes only. Prices shown in this publication are indicative and Barclays Capital is not offering to buy or sell or soliciting offers to buy or sell any financial instrument. Other than disclosures relating to Barclays Capital, the information contained in this publication has been obtained from sources that Barclays Capital believes to be reliable, but Barclays Capital does not represent or warrant that it is accurate or complete. The views in this publication are those of Barclays Capital and are subject to change, and Barclays Capital has no obligation to update its opinions or the information in this publication. The analyst recommendations in this report reflect solely and exclusively those of the author(s), and such opinions were prepared independently of any other interests, including those of Barclays Capital and/or its affiliates. Neither Barclays Capital, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. The securities discussed in this publication may not be suitable for all investors. Barclays Capital recommends that investors independently evaluate each issuer, security or instrument discussed in this publication and consult any independent advisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information in this publication is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. This communication is being made available in the UK and Europe to persons who are investment professionals as that term is defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion Order) 2005. It is directed at, and therefore should only be relied upon by, persons who have professional experience in matters relating to investments. The investments to which it relates are available only to such persons and will be entered into only with such persons. Barclays Capital is authorized and regulated by the Financial Services Authority ('FSA') and member of the London Stock Exchange. 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