Within CEEMEA1, short term attention is likely to be focused on Hungary, where the government and European Union (EU) appear to be headed for negotiations on a lending facility from the EU/IMF (International Monetary Fund). Meanwhile Citi analysts have upgraded their Polish GDP forecast to 2.7% this year, but still believe a slowdown is coming in 2013.
Meanwhile in Latam, despite improvements in the global outlook over the past couple of months, growth is likely to be weaker than in 2011, although a rebound is expected during the second half of 2012. Inflation should continue slowing in the second half of the year.
CEEMEA currencies, with the exception of Hungarian Forint (HUF), have held up in light of recent USD strength. Medium-term though this trend is unlikely to last as the region remains vulnerable to the EU crisis. Within Latam the Mexican Peso (MXN) could outperform in the near term, gaining from a positive confluence of factors including a better US outlook, improving Mexican data; limited China exposure; and positive relationship with oil prices.
Despite the recent rally, Citi analysts still favour companies in Latam that have margin improvement, a resilient earnings outlook and attractive valuations. Citi's preferred markets are Brazil and Peru, while favoured sectors are Financials and Telecoms.
CEEMEA faces a more challenged economic outlook mainly because of the weakness in Central and Eastern Europe, which are heavily dependent on the crisis-ridden, contracting Euro Area. Under such conditions, Citi analysts prefer stocks with pricing power, sustainably high margins, low leverage and dividends.
1. CEEMEA is the collective term for Central and Eastern Europe, Middle East and Africa.