EMERGING MARKETS RESEARCH 22 July 2010

EM Views on a Page 2
EM Dashboard 18

THE EMERGING MARKETS WEEKLY EM FX Views on a Page 19

EM Credit Portfolio 20
Holding tight Data Review & Preview
Emerging Asia 21
„ Stronger-than-expected corporate earnings improved the equity market tone,
EMEA 22
but the reaction of EM assets, in particular FX, has been more subdued, pointing
Latin America 24
to a relative value re-pricing, more than a reassessment of macro fundamentals.
FX Forecasts and Forwards 26
„ We still believe that global growth – despite a slowdown – will continue at a
Official Interest Rates 27
relatively robust pace and, therefore, maintain our moderately bullish stance
towards EM assets supported by favourable technicals. What we like
Rates Hungary: 2s5s flattener
„ Against a short-term supportive backdrop, investors should keep in mind that
Rates 2yr US-HK spread widening
risks have not disappeared, as the recent episodes of “reform fatigue” in Hungary
Credit Turkey Spread Curve Flattener
and Romania suggest that sovereign risks for Southern Europe remain a threat.
Credit Argentina Long EUR Discount

Macro Outlooks Weekly EM Asset Performance

Emerging Asia: Gliding down gently 7 CLP/USD 2.7%
Even with the ongoing moderation in export momentum, we see upside risks to our EM ZAR/USD 1.4%
TRY/USD 0.8%
Asia Q2 GDP projections. Korea’s Q2 GDP next week is expected to indicate a strong pulse
RUB/USD 0.4%
to the economy. MXN/USD 0.1%
BRL/USD 0.0%
EMEA: Fiscal weakness with stable inflation 9 KRW/USD -0.1%
Fiscal adjustment pressures in Hungary have had negative market consequences and led to TWD/USD -0.2%
INR/USD -1.1% EM FX
political tensions in Romania. Expected fiscal improvements in Ukraine and the Czech
Republic are leading to improvements in market sentiment. Looser monetary policy persists, CLP 2yr IRS 26 bp
Hun 5yr IRS 23 bp
as Hungary and South Africa held rates unchanged, as expected, while Israel and Russia are India 2yr IRS 18 bp
likely to remain on hold. Indo 5yr Gov 8 bp
Pol 5yr IRS -2 bp
Mex TIIE 5yr -4 bp
Latin America: Moderation and its discontents 11 CZK 5yr IRS -4 bp
Despite ongoing slowdown fears epitomized by COPOM’s smaller-than-expected hike this SOAF 2yr IRS -9 bp
Kor 2yr IRS -12 bp
week, incoming data from the region have not been generally disappointing. We believe Braz Jan 12 -15 bp EM Rates
recent signs of growth moderation should be put into context, and we emphasize some
Hun 5yr CDS 29 bp
bright idiosyncratic stories underlying the larger countries’ trends. Thai 5yr CDS 14 bp
Indo 5yr CDS 11 bp
Phils 5yr CDS 11 bp
Strategy Focus Mex 5yr CDS 0 bp
SOAF 5yr CDS 0 bp
Hungary: No easy healing 13 Braz 5yr CDS 0 bp
The IMF and the Hungarian government failed to come to an agreement regarding the Turk 5yr CDS 0 bp
Rus 5yr CDS -3 bp
sixth review under the SBA, and we think the differences are substantial enough to Arg 5yr CDS -19 bp EM Credit
suggest that a quick fix is unlikely. While Hungary’s debt dynamics look better than
Shanghai 5.7%
those in the euro periphery, this is not a sufficient reason to go long Hungarian assets. Turkey ISE 3.9%
Bovespa 3.9%
Hong Kong: IPOs and loans to China not a concern, US-HK spreads to widen 16 FTSE JSE 3.2%
JSE All 2.9%
Concerns have arisen over Hong Kong’s ability to provide capital for China, given Russia RTS 2.6%
market liquidity. This has led to a rise in Hibor rates and a tightening of US-HK spreads. Sensex 1.1%
Bolsa -0.3%
We expect 2y US-HK spreads to widen to 35bp from 11bp in the coming months. S&P -0.4%
Kospi-0.9% EM Equity
Concurrently, we see Hibor rates moving lower, reflecting easing liquidity concerns.
NB: EM Assets Performance charts as of 22 July 2010
except CDS spreads, which are as of 21 July 2010.
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 28 Source: Bloomberg, Markit, Barclays Capital
Barclays Capital | The Emerging Markets Weekly

EM VIEWS ON A PAGE

What happened

Global markets Stronger-than-expected corporate earnings supported equity markets. EM assets, while responding favorably, evidenced
and macro a more cautious approach, particularly in EM FX. These patterns point, we think, to a re-pricing of relative values more
than a fundamental reassessment of the proper answer to the many questions bearing on the economic outlook.
Monetary policy Brazil’s Copom surprisingly raised Selic 50bp, to 10.75% (analysts expected 75bp, while markets priced a 65% chance of 50bp).
The unanimous decision reflected lower perceived inflation risks. We (partially) disagree. Meanwhile, South Africa’s Reserve
Bank kept its benchmark rate unchanged, with a statement that did not change much from previous versions, noting balanced
risks for inflation and a somewhat uncertain economic context. In Poland, MPC officials continue to warn that interest rates
may be hiked. Some indicate prudential reasons, while others point to the need to accommodate loose fiscal policy.
Hungary The IMF mission left Hungary without passing the sixth review of the SBA and PM Orban seemed to have closed the door
to further negotiations after stating that any future long-term policy agreement would only take place with the EU. This
contradicts indications from government officials earlier this week that IMF negotiations could resume in September.

What we think

EM assets We expect the positive momentum on EM markets to continue next week. While priced in to a large extent, stress test
results should dissipate concerns about the state of the inter-bank market. EM assets should benefit through lower risk
aversion, given supportive technicals and strong momentum in US dollar inflows into EM funds.
Monetary policy In Brazil, we continue to expect 75-100bp of additional hikes spread through the remainder of the 2010. Our 7.3% growth
forecast for 2010 already incorporates the softening in activity through which the country is transiting. In Poland, we do not
see hikes until March, but uncertainty about MPC voting commands risk premia in local rates. In South Africa, we think the
statement supports our view that the policy rate troughed in March and that it will be kept at 6.5% through mid-2011.
What we like

Asset class Trade Rationale

Rates Hungary: 2s5s flattener We remain cautious, so hold onto tail risk trades. The flattener should benefit from upside

22 July 2010 2
Barclays Capital | The Emerging Markets Weekly

EMERGING MARKETS OUTLOOK

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.

Stronger-than-expected US corporate earnings

22 July 2010 3
Barclays Capital | The Emerging Markets Weekly

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.

Against this fairly supportive
backdrop, investors should be
aware of “reform fatigue” risks
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 Figure 2: Hungary CDS and the HUF have corrected sharply
funds keeps receiving inflows

4000 160 450 295

140 400 290
3500
120
350 285
3000 100
300 280
2500 80
250 275
60
2000 200 270
40
1500 20 150 265
2008 2009 2010
100 260
ICI: Total Assets: Money Market Mutual Funds (Bil.$) Jul-09 Oct-09 Jan-10 Apr-10 Jul-10
EM Bond Funds AUM (USD bn, RHS)
High Yield Fund AUM (USD bn, RHS) HUF 5yr CDS EURHUF (RHS)
Source: ICI, EPFR Global, Barclays Capital Source: Barclays Capital

22 July 2010 4
Barclays Capital | The Emerging Markets Weekly

What we like
With a fairly positive external context and su

22 July 2010 5
Barclays Capital | The Emerging Markets Weekly
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
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.
6
Barclays Capital | The Emerging Markets Weekly

MACRO OUTLOOK: EMERGING ASIA

Gliding down gently

Rahul Bajoria „ Even with the ongoing moderation in export momentum, we see upside risks to our
+65 6308 2153 EM Asia Q2 GDP projections.
rahul.bajoria@barcap.com
„ Korea’s Q2 GDP next week is expected to indicate the strong pulse of the economy.
Prakriti Sofat
+65 6308 3201 EM Asia: Moderating export momentum remains favourable for growth
prakriti.sofat@barcap.com 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.

Export momentum has slowed to
a more sustainable pace
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.

Figure 1: Asian exports likely to moderate further in the Figure 2: …as export orders come down to more sustainable
coming months… levels

22 July 2010 7
Barclays Capital | The Emerging Markets Weekly

India: RBI credit policy review

RBI to hike policy rate by 25bp
next week
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.

Gradually easing inflation will
give the RBI an opportunity to
pause after October credit policy
review
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

Strong remittances and exports
providing positive backdrop to
PHP
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.

Figure 3: RBI expected to hike policy rates further next week Figure 4: Philippines: Robust balance of payments

20 24
9
18
8 15
12
7 10
USD bn

6
6
5 0
5
0 -6
4
-12
3 -5
04 05 06 07 08 09 10 11 -18
IN: Repo rate (%) 04 05 06 07 08 09 10 11
Reverse Repo rate (%)
Trade balance Transfers FDI Leakage Portfolio flows
WPI: Non-food manufacturing (%6m/6m, saar, RHS)
Source: CEIC, Barclays Capital Source: CEIC, Barclays Capital

22 July 2010 8
Barclays Capital | The Emerging Markets Weekly

MACRO OUTLOOK: EMERGING EUROPE, MIDDLE EAST & AFRICA

Fiscal weakness with stable inflation

„

22 July 2010 9
Barclays Capital | The Emerging Markets Weekly

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

Low inflation pressure from
wages, energy, and food prices
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 predict Israel will keep its
policy rate on hold next week
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 central bank
expected to remain on hold
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

45 12 120%
40 100%
10
35 80%
30 8 60%
25 40%
6
20 20%
15 4 0%
10 -20%
2
5 -40%
0 0 -60%
2005 2006 2007 2008 2009 2010 -80%
2005 2006 2007 2008 2009 2010
Russia and Ukraine: Average wage (% y/y)
CE3: Average wage (% y/y, RHS) Agriculture prices (% y/y) Energy prices (% y/y)

Source: National Sources, Bloomberg Source: CME, Bloomberg

22 July 2010 10
Barclays Capital | The Emerging Markets Weekly
MACRO OUTLOOK: LATIN AMERICA
Jimena Zuniga
+1 212 412 5361
jimena.zuniga@barcap.com
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
22 July 2010
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%.)
Figure 2: Big economies’ growth has moderated through H1
11
Barclays Capital | The Emerging Markets Weekly
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
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.
12
Barclays Capital | The Emerging Markets Weekly

STRATEGY FOCUS: HUNGARY

No easy healing
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

22 July 2010 13
Barclays Capital | The Emerging Markets Weekly

streamlining the size of government, there has been little indication thus far that the
government has plans for wider-reaching expenditure reforms.

The IMF could in principle be willing to show some “lenience” by allowing for a slightly wider
2011 deficit (say 3.5%), but we doubt that the EU would agree to this given the emphasis on
reining in deficits across the entire bloc. The IMF cannot overrule the EU in this matter.
Hence, we believe the 3.0% target is actually “cast in stone”. Again, this may not be easy to
accept for a Fidesz party that just won two-thirds of the parliament seats and whose leader
pledged to end the “dictate of the IMF and EU”. Overall therefore, we beliel -14tecessar4(y)3-8( )]TJ -0.00

22 July 2010 14
Barclays Capital | The Emerging Markets Weekly
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
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.
15
Barclays Capital | The Emerging Markets Weekly

STRATEGY FOCUS: HONG KONG

tracted from0.27 0 .0392 .188 43 0003 Tf -030009 Tc -0.0

22 July 2010 16
Barclays Capital | The Emerging Markets Weekly

This will materially reduce demands on system liquidity.

The option to issue in China also eases Hong Kong liquidity. Capital raising between Hong
Kong and China are substitutes for Chinese banks. To the extent that liquidity is insufficient
to meet issuance demand, an issuer can simply increase the amount issued in China while

22 July 2010 17
Barclays Capital | The Emerging Markets Weekly

EM DASHBOARD

George Christou +44 (0)20 777 31472 george.christou@barcap.com

Entry P&L to target/

Description date Entry Current Tacrget Stop 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 18
Barclays Capital | The Emerging Markets Weekly

EM FX VIEWS ON A PAGE
Tactical Vol adj 6m Score
Currency bias Strategic directional view Current strategy/trades we like returns (1-5)
Emerging Asia
Cross-Strait agreement is still one of our favourite structural Sell USD/TWD
0.44 4.25
TWD Bullish transformation stories.
We expect an increase in two-way variations in the CNY Sell 4m USD/CNY NDF
0.50 4.00
CNY Bullish exchange rate, along with moderate appreciation.
Although still bullish, we are slightly more cautious on the Sell 1m JPY/KRW
KRW due to a smaller financial account surplus that reflects a 0.43 3.50
KRW Bullish more tepid interest rate outlook and tighter FX regulations.
Robust BoP and strong growth outlook indicate PHP strength Sell USD/PHP 3m NDF
0.38 3.30
PHP Bullish despite recent underperformance.
With INR being overvalued on the REER and a higher CA
deficit, we expect the currency to remain rangebound with a 0.27 3.30
INR Neutral weakening bias.
Structural reforms, putting the country on track to reach Buy 5y IDR bonds, FX unhedged
0.29 3.25
IDR Bullish investment grade, and robust BoP suggest IDR strength.
We remain bullish as the government pursues its multi-year Buy 3m USD/MYR put spreads
restructuring programme, with the key catalyst being 0.25 3.25
MYR Bullish privatisations.
With fewer rate hikes and larger equity outflows, we expect
0.14 3.15
THB Bullish slower THB appreciation.
Local equities markets and potential large IPOs will likely
-0.48 3.00
HKD Neutral drive HKD.
We expect SGD NEER to trade above the midpoint in the
0.09 2.65
SGD Neutral coming months as we near the October policy statement.
Latin America
Strong domestic demand due to reconstruction efforts is Short EUR/CLP
0.41 3.50
CLP Bullish supportive.
MXN Neutral Growth peaking already; more a global beta play now. 0.14 3.05
Bright energy sector outlook; above-consensus growth
0.21 2.40
COP Bullish expectations
Due to political noise. Search for yield supporting the 9m USD call/BRL put spread
-0.16 1.70
BRL Bearish currency. Better to trade via options.
Emerging EMEA

22 July 2010 19
Barclays Capital | The Emerging Markets Weekly

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 20
Barclays Capital | The Emerging Markets Weekly

DATA REVIEW & PREVIEW: ASIA

Rahul Bajoria

Review of last week’s data releases

Main indicators Period

22 July 2010 21
Barclays Capital | The Emerging Markets Weekly

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- 5.25 5.25 5.25 Unchanged, as expected. We think further cuts will
20 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 Weaker income growth may slow consumer sector
recovery
Russia: Real Wages (% y/y) Jun 7.0 6.9 5.5
Poland: Core Inflation (% y/y) Jun 1.6 1.5 1.5 Downward inflation momentum
South Africa: Interest Rate Jul 6.50 6.50 6.50 Unanimous decision citing still balanced inflation
Announcement 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 22
Barclays Capital | The Emerging Markets Weekly

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 23
Barclays Capital | The Emerging Markets Weekly

DATA REVIEW & PREVIEW: LATIN AMERICA

Alejandro Grisanti, Guilherme Loureiro, Marcelo Salomon, Sebastian Vargas, Jimena Zuniga

Review of the week’s data releases

Main indicators Period Previous Barclays Actual Comments

Colombia – Ind. production (% y/y) May 7.6 8.7 7.5 Consistent with a solid pace of expansion
Colombia – Retail sales (% y/y) May 7.9 10.5 13.1 Signalling strong domestic demand
Argentina – Consumer confidence Jul 47.6 NA 48.2 In line with consumer spending
Brazil – IPCA-15 inflation (% m/m) Jul 0.19 0.05 -0.09 Food deflation leading the way
Mexico – Retail sales (% y/y) May -0.1 5.5 5.0 Consistent with a solid 0.8% m/m sa gain
Brazil – BCB Selic target rate Jul 10.25% 11.00% 10.75% Sanctioning market expectations
Brazil – FGV Consumer confidence Jul 118.7 NA 120.0 Strong current situation was the highlight of the index
Brazil – Unemployment rate Jun 7.5% 7.5% 7.0% Labor force contraction explains most of the fall
Mexico – Bi-weekly CPI % 2w/2w Jul H1 -0.04 0.20 0.15 Core inflation still the culprit
Mexico – Bi-weekly core CPI % 2w/2w Jul H1 0.03 0.17 0.13 Benign prints concentrated in goods components
Argentina – Budget balance (ARS mn) Jun 3017 1200 2716 The relevant primary surplus is ARS 700mn
Mexico – Trade balance (USD mn) JunP 179 350
Mexico – Unemployment rate Jun 5.1% 5.1%
Argentina – Trade balance (USD mn) Jun 1905 1150
Colombia – Overnight lending rate Jul 3.00% 3.00%
Venezuela – Unemployment rate Jun 8.1% NA

Preview of the week ahead

Monday 26 July Period Prev 2 Prev 1 Latest Forecast Consensus
9:30 Brazil – Current account (USD mn) Jun -5067 -4583 -2020 -3200 NA

Brazil current account: The widening CA deficit reflects a weaker trade balance, along with higher interest payments (seasonal).
The focus remains on the capital flows, as the effect of higher risk aversion in June should be felt especially in portfolio flows.
Tuesday 27 July Period Prev 2 Prev 1 Latest Forecast Consensus

22 July 2010 24
Barclays Capital | The Emerging Markets Weekly

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 grind down, as wage bargaining in the sector is dissipating.

Brazil monetary policy minutes:

22 July 2010 25
Barclays Capital | The Emerging Markets Weekly

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 26
Barclays Capital | The Emerging Markets Weekly

OFFICIAL INTEREST RATES

Start of cycle Forecasts as at end of
Next move
Official rate Current Date Level Last 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
12.0
Sri Lanka: Reverse Repo 9.50 Easing: 20 Feb 09 Jul 10 (-25) Q2 11 (+25) 9.50 9.50
0 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
1.37
Taiwan: Rediscount rate 1.375 Tightening: 24 Jun 10 Jun 10 (+12.5) Q3 10 (+12.5) 1.50 1.50 1.625 1.625
5
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 27
Barclays Capital | The Emerging Markets Weekly

EMERGING MARKETS RESEARCH

Piero Ghezzi
Head of Global Economics, Emerging Markets and FX Research
+44 (0)20 3134 2190
piero.ghezzi@barcap.com

EM Global
Michael Gavin
Head of Emerging Markets Strategy

22 July 2010 28
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, Jeffrey Schultz, Roberto Melzi and Jimena Zuniga, hereby
certify (1) that the views expressed in this
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.
Barclays Capital Inc., US registered broker/dealer and member of FINRA (www.finra.org), is distributing this material in the United States and, in
connection therewith accepts responsibility for its contents. Any U.S. person wishing to effect a transaction in any security discussed herein should do so
only by contacting a representative of Barclays Capital Inc. in the U.S. at 745 Seventh Avenue, New York, New York 10019. This material is distributed in
Canada by Barclays Capital Canada Inc., a registered investment dealer and member of IIROC (www.iiroc.ca).
Subject to the conditions of this publication as set out above, Absa Capital, the Investment Banking Division of Absa Bank Limited, an authorised financial
services provider (Registration No.: 1986/004794/06), is distributing this material in South Africa. Absa Bank Limited is regulated by the South African
Reserve Bank. This publication is not, nor is it intended to be, advice as defined and/or contemplated in the (South African) Financial Advisory and
Intermediary Services Act, 37 of 2002, or any other financial, investment, trading, tax, legal, accounting, retirement, actuarial or other professional advice
or service whatsoever. Any South African person or entity wishing to effect a transaction in any security discussed herein should do so only by contacting
a representative of Absa Capital in South Africa, 15 Alice Lane, Sandton, Johannesburg, Gauteng 2196. Absa Capital is an affiliate of Barclays Capital.
Non-U.S. persons should contact and execute transactions through a Barclays Bank PLC branch or affiliate in their home jurisdiction unless local
regulations permit otherwise.
In Japan, foreign exchange research reports are prepared and distributed by Barclays Bank PLC Tokyo Branch. Other research reports are distributed to
institutional investors in Japan by Barclays Capital Japan Limited. Barclays Capital Japan Limited is a joint-stock company incorporated in Japan with
registered office of 6-10-1 Roppongi, Minato-ku, Tokyo 106-6131, Japan. It is a subsidiary of Barclays Bank PLC and a registered financial instruments firm
regulated by the Financial Services Agency of Japan. Registered Number: Kanto Zaimukyokucho (kinsho) No. 143.
Barclays Bank PLC Frankfurt Branch is distributing this material in Germany under the supervision of Bundesanstalt fuer Finanzdienstleistungsaufsicht
(BaFin). This material is distributed in Malaysia by Barclays Capital Markets Malaysia Sdn Bhd.
Barclays Bank PLC in the Dubai International Financial Centre (Registered No. 0060) is regulated by the Dubai Financial Services Authority. Barclays Bank
PLC-DIFC Branch, may only undertake the financial services activities that fall within the scope of its existing DFSA licence.
Barclays Bank PLC in the UAE is regulated by the Central Bank of the UAE and is licensed to conduct business activities as a branch of a commercial bank
incorporated outside the UAE in Dubai (Licence No.: 13/1844/2008, Registered Office: Building No. 6, Burj Dubai Business Hub, Sheikh Zayed Road, Dubai
City) and Abu Dhabi (Licence No.: 13/952/2008, Registered Office: Al Jazira Towers, Hamdan Street, PO Box 2734, Abu Dhabi).
Barclays Bank PLC in the Qatar Financial Centre (Registered No. 00018) is authorised by the Qatar Financial Centre Regulatory Authority. Barclays Bank
PLC-QFC Branch may only undertake the regulated activities that fall within the scope of its existing QFCRA licence. Principal place of business in Qatar:
Qatar Financial Centre, Office 1002, 10th Floor, QFC Tower, Diplomatic Area, West Bay, PO Box 15891, Doha, Qatar.
This information has been distributed by Barclays Bank PLC. Related financial products or services are only available to Professional Clients as defined by
the DFSA, and Business Customers as defined by the QFCRA.
IRS Circular 230 Prepared Materials Disclaimer: Barclays Capital and its affiliates do not provide tax advice and nothing contained herein should be
construed to be tax advice. Please be advised that any discussion of U.S. tax matters contained herein (including any attachments) (i) is not intended or
written to be used, and cannot be used, by you for the purpose of avoiding U.S. tax-related penalties; and (ii) was written to support the promotion or
marketing of the transactions or other matters addressed herein. Accordingly, you should seek advice based on your particular circumstances from an
independent tax advisor.
© Copyright Barclays Bank PLC (2010). All rights reserved. No part of this publication may be reproduced in any manner without the prior written
permission of Barclays Capital or any of its affiliates. Barclays Bank PLC is registered in England No. 1026167. Registered office 1 Churchill Place, London,
E14 5HP. Additional information regarding this publication will be furnished upon request.