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ESG appendix D – Full ESG breakdown for top/bottom EM companies

Figure 84: Top/bottom 10 EM stocks by ESG scores

Renaissance Capital

14 January 2019

ESG

	Ticker			Name			Country	Sector			MktCap, $mn		Top/Bottom 10 EM		E score	S score		G score
													stocks on RenCap ESG
	NATU3 BS				Natura Cosmeticos Sa		Brazil	Consumer Staples		4,708			80.1		97.0	61.5		81.7
	LREN3 BS			Lojas Renner S.A.			Brazil	Consumer Discretionary	7,212				78.3		83.5	62.8		88.5
	601668 C1				China State Construction -A		China	Industrials		36,012			77.0		97.5	68.3		65.3
	032830 KP			Samsung Life Insurance Co Lt			South Korea	Financials	15,170				76.4		74.7	65.4		89.0
	ISA CX				Interconexion Electrica Sa		Colombia	Utilities		4,777			76.0		97.2	76.4		54.4
	BSAN CC			Banco Santander Chile			Chile	Financials	14,473				75.7		72.3	64.5		90.4
	SANB11 BS				Banco Santander Brasil-Unit		Brazil	Financials		41,991			73.8		92.7	55.4		73.2
	8299 TT			Phison Electronics Corp			Taiwan	Information Technology	1,495				72.0		88.7	59.0		68.3
	LPPF IJ				Matahari Department Store Tb		Indonesia	Consumer Discretionary		1,036			71.9		83.5	68.1		64.0
	DELTA TB			Delta Electronics Thai Pcl			Thailand	Information Technology	2,629				71.8		60.2	85.9		69.3
	817 HK			China Jinmao Holdings Group			China	Real Estate	5,056				32.4		0.8	68.0		28.5
	SMGR IJ				Semen Indonesia Persero Tbk		Indonesia	Materials		4,862			32.2		0.7	59.3		36.4
	TITK GA			Titan Cement Co. S.A.			Greece	Materials	1,890				31.8		1.1	49.3		44.9
	002380 KP				Kcc Corp		South Korea	Industrials		2,655			31.1		12.4	31.4		49.4
	SIME MK			Sime Darby Berhad			Malaysia	Industrials	3,738				30.3		17.3	39.8		33.7
	2002 TT				China Steel Corp		Taiwan	Materials		12,119			30.1		11.4	53.8		25.0
	ACEM IS			Ambuja Cements Ltd			India	Materials	5,695				29.7		3.2	41.3		44.5
	GAIL IS				Gail India Ltd		India	Utilities		10,481			29.3		45.5	8.8		33.6
	2610 TT			China Airlines Ltd			Taiwan	Industrials	1,859				27.2		4.0	62.9		14.6
													Source: MSCI, Bloomberg, Renaissance Capital
Figure 85: Top/bottom EM ESG scores by sector
	Ticker	Name					Country	Sector			MktCap, $mn		Top/Bottom 10 EM		E score	S score		G score
													stocks on RenCap ESG
	TIMP3 BS		Tim Participacoes Sa				Brazil	Communication Services			7,324		64.5		72.4	62.0		59.2
	LREN3 BS	Lojas Renner S.A.					Brazil	Consumer Discretionary	7,195				78.3		83.5	62.8		88.5
	NATU3 BS		Natura Cosmeticos Sa				Brazil	Consumer Staples			4,697		80.1		97.0	61.5		81.7
	010950 KP	S-Oil Corp					South Korea	Energy	10,630				57.3		36.8	61.7		73.5
	032830 KP		Samsung Life Insurance Co Lt				South Korea	Financials			15,176		76.4		74.7	65.4		89.0
	LHC SJ	Life Healthcare Group Holdin					South Africa	Health Care	2,655				51.1		26.8	48.6		77.9
	601668 C1		China State Construction -A				China	Industrials			36,018		77.0		97.5	68.3		65.3
	8299 TT	Phison Electronics Corp					Taiwan	Information Technology	1,496				72.0		88.7	59.0		68.3
	CMPC CC		Empresas Cmpc Sa				Chile	Materials			8,324		58.0		55.9	30.0		88.1
	RDF SJ	Redefine Properties Ltd					South Africa	Real Estate	3,896				65.6		51.9	82.3		62.7
	ISA CX		Interconexion Electrica Sa				Colombia	Utilities			4,836		76.0		97.2	76.4		54.4
	MAXIS MK		Maxis Bhd				Malaysia	Communication Services			10,049		34.3		17.0	59.4		26.5
	MM IS	Mahindra & Mahindra Ltd					India	Consumer Discretionary	12,190				47.5		40.9	31.1		70.4
	600887 C1		Inner Mongolia Yili Indus-A				China	Consumer Staples			19,856		33.7		23.2	33.8		44.1
	ROSN RX	Rosneft Oil Co Pjsc					Russia	Energy	67,904				32.6		23.3	50.8		23.8
	DHBK QD		Doha Bank Qpsc				Qatar	Financials			1,918		35.0		55.0	20.1		29.8
	2196 HK	Shanghai Fosun Pharmaceuti-H					China	Health Care	9,197				42.8		13.6	60.2		54.5
	2610 TT		China Airlines Ltd				Taiwan	Industrials			1,860		27.2		4.0	62.9		14.6
	2337 TT	Macronix International					Taiwan	Information Technology	1,153				36.2		11.3	59.6		37.9
	UTCEM IS		Ultratech Cement Ltd				India	Materials			14,312		26.1		2.2	29.6		46.6
	817 HK	China Jinmao Holdings Group					China	Real Estate	5,056				32.4		0.8	68.0		28.5
	GAIL IS		Gail India Ltd				India	Utilities			10,439		29.3		45.5	8.8		33.6

Source: MSCI, Bloomberg, Renaissance Capital

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ESG appendix E – Full ESG breakdown for top/bottom EM EMEA companies

Figure 86: Top/bottom 10 EM stocks by ESG scores

Renaissance Capital

14 January 2019

ESG

Ticker	Name			Country	Sector		MktCap, $mn		Top/Bottom 10 EM		E score	S score		G score
									stocks on RenCap ESG
CLS SJ		Clicks Group Ltd		South Africa	Consumer Staples		3,424		66.3		57.9	59.8		81.4
RDF SJ	Redefine Properties Ltd			South Africa	Real Estate	4,042		65.6			51.9	82.3		62.7
AKBNK TI		Akbank T.A.S.		Turkey	Financials		5,412		62.4		67.0	56.0		64.2
MIL PW	Bank Millennium Sa			Poland	Financials	2,969		61.8			61.2	70.4		53.8
LBH SJ		Liberty Holdings Ltd		South Africa	Financials		2,217		61.7		89.5	46.7		49.0
SLM SJ	Sanlam Ltd			South Africa	Financials	13,031		56.8			89.5	30.3		50.6
GARAN TI		Turkiye Garanti Bankasi		Turkey	Financials		6,127		56.7		59.1	52.8		58.3
ATT PW	Grupa Azoty Sa			Poland	Materials	949		56.1			51.5	74.7		42.0
MRP SJ		Mr Price Group Ltd		South Africa	Consumer Discretionary		4,822		54.6		38.2	65.6		60.2
TBS SJ	Tiger Brands Ltd			South Africa	Consumer Staples	3,624		54.5			37.6	60.7		65.2
FAB DH	First Abu Dhabi Bank Pjsc			UAE	Financials	42,545		39.8			61.2	30.4		28.0
LTS PW		Grupa Lotos Sa		Poland	Energy		4,583		39.3		35.7	34.3		48.0
VTBR RX	Vtb Bank Pjsc			Russia	Financials	6,796		37.6			61.2	37.9		13.6
TKG SJ		Telkom Sa Soc Ltd		South Africa	Communication Services		2,420		37.1		17.1	57.9		36.2
SAHOL TI	Haci Omer Sabanci Holding			Turkey	Financials	2,723		36.9			3.1	43.7		63.9
KGH PW		Kghm Polska Miedz Sa		Poland	Materials		4,933		36.5		32.1	26.5		50.9
DHBK QD	Doha Bank Qpsc			Qatar	Financials	1,833		35.0			55.0	20.1		29.8
KCHOL TI		Koc Holding As		Turkey	Industrials		6,732		33.5		17.3	44.2		39.0
ROSN RX	Rosneft Oil Co Pjsc			Russia	Energy	67,906		32.6			23.3	50.8		23.8

Source: MSCI, Bloomberg, Renaissance Capital

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Take five

Renaissance Capital

14 January 2019

ESG

Using our five-factor framework, we look at which markets screen best and worst over 2019. In EM, Egypt, Greece, Mexico, South Africa and Brazil screen best, while Pakistan, Chile, Indonesia, Korea and Thailand screen worst. In Frontier, Nigeria and Kazakhstan screen best, while Pakistan and Bangladesh screen worst.

Figure 87: Model scores – EM

Figure 88: Model scores – Frontier

5			2019 score (ex-EMEA)		2019 score (EMEA+Pakistan)
4
3
2
1
0
-1
-2
-3
-4
Egypt Mexico Greece South Africa Brazil Czech Republic Russia UAE Saudi Arabia Philippines Colombia Malaysia Peru Qatar Poland Taiwan India Turkey Hungary China Thailand Korea Indonesia Chile Pakistan

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

2019 score (Frontier+Pakistan)

2

1

0

-1

-2

-3

-4

Nigeria

Kazakhstan

Kuwait

Argentina

Morocco

Sri Lanka

Kenya

Oman

Vietnam

Romania

Jordan

Georgia

Pakistan

Bangladesh

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

Renaissance Capital’s five-factor framework looks at: 1) growth acceleration; 2) lending acceleration; 3) currency valuation; 4) interest rate changes; and 5) credit rating changes. These factors have been associated with outperformance over the past 23 years. Below, we look at each factor to see where countries rank on each component.

Where is the growth (accelerating)?

Figure 89: EM 2019-2018 real GDP growth differential, ppts

Figure 90: FM 2019-2018 real GDP growth differential, ppts

2019 - 2018 real GDP growth differential, ppts

1.5

1.0

0.5

0.0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0 -3.5

SouthSaudiCzech BrazilColombiaUAEAfricaMexicoGreeceArabiaEgyptIndiaQatarPhilippinesPeruRepublicIndonesiaMalaysiaKoreaTaiwanChinaRussiaChileHungaryThailandPolandPakistanTurkey

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

2019 - 2018 real GDP growth differential, ppts

4.0

3.0

2.0

1.0

0.0

-1.0

-2.0

-3.0

SriSaudi OmanKuwaitArgentinaLankaNigeriaJordanArabiaKenyaMoroccoKazakhstanVietnamBangladeshGeorgiaRomaniaPakistan

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

In EM, Brazil is set to see the strongest growth acceleration over 2019 with real GDP growth rising to 2.4% from 1.4% (according to the IMF) over 2018; Colombia and the UAE are also forecast to have strong accelerations, with Colombia growing at 3.6% (vs 2.8%) and the UAE’s growth at 3.7% (vs 2.9%). Turkey, Pakistan and Poland are forecast to have the worst growth slowdowns: for Turkey 2019 growth is expected to be 0.4% (vs estimated 2018 growth of 3.5%); Pakistan will see growth fall to 4.0% (vs 5.8%); while Poland will see growth of 3.5% (vs 4.4%).

In Frontier, Oman, Kuwait and Argentina show the strongest growth accelerations: Oman is forecast to grow at 5.0% over 2019 (vs 1.9% over 2018); Kuwait is expected to grow at

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4.1% (vs 2.3%); while Argentina sees a relative acceleration, with 2019’s contraction expected to be just 1.6% vs the 2.6% contraction estimated for 2018. On the other end of the spectrum, Pakistan is set to see the worst slowdown among the expanded Frontier countries – i.e. MSCI Frontier plus Georgia and Pakistan – with growth of 4.0% vs 5.8%. Romania will see growth fall to 3.4% (from 3.9%) while Georgia will see growth fall to 4.8% from 5.2%.

Where is the lending (accelerating)?

Figure 91: EM lending growth differential, ppts				Figure 92: FM lending growth differential, ppts
8%			2019 - 2018 lending growth differential, ppts	6%				2019 - 2018 lending growth differential, ppts
6%				4%
4%
				2%
2%
				0%
0%
				-2%
-2%
-4%				-4%
-6%				-6%
-8%
				-8%
-10%

CzechSaudiSouth BrazilEgyptGreecePeruRepublicArabiaUAEPolandAfricaColombiaThailandMalaysiaKoreaQatarHungaryRussiaMexicoPhilippinesTaiwanIndonesiaChinaChileIndiaTurkeyPakistan

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

-10%

Kenya

Kuwait

Romania

Morocco

Kazakhstan

Oman

Nigeria

Vietnam

Jordan

Sri Lanka

Georgia

Argentina

Bangladesh

Pakistan

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

Turning to lending growth, Brazil, Egypt and Greece are forecast to see the largest lending accelerations over 2019 in EM. Lower interest rates and a recovering economy are the main drivers of the lending acceleration in Brazil, while Egypt should benefit from disinflation; for Greece, while lending is still contracting, the relative movement is upwards, giving a positive credit impulse. On the other end of the spectrum, Pakistan, Turkey and India are set to see the greatest slowdowns in lending as interest rate hikes, currency weakness and issues around banking sector NPLs take their toll.

In Frontier, Kenya, Kuwait and Romania should see lending growth pick up over 2018, while Pakistan, Bangladesh, Argentina and Georgia Senegal will see lending growth slow.

What about the currency?

Figure 93: EM REERs vs long-term averages (high = overvalued)

Figure 94: EM REERs vs long-term averages (high = overvalued)

			These countries have large external
	1.2		surpluses/high levels of reserves, so REER
			valuation less important
	1.1
	1.0
	0.9
	0.8
	0.7
	0.6
		India Philippines Peru Colombia Chile Hungary Indonesia Poland Russia Pakistan Brazil Greece Taiwan Malaysia South Africa Egypt Mexico Turkey China Czech republic UAE Qatar Thailand Saudi Arabia Korea

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

These countries have large external 1.3 surpluses/high levels of reserves, so REER valuation less important

1.2

1.1

1.0

0.9

0.8

0.7

0.6

SriSaudi BangladeshJordanKenyaOmanNigeriaRomaniaLankaGeorgiaMoroccoPakistanArgentinaKazakhstanVietnamKuwaitArabia

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

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14 January 2019

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Focusing on currency valuation, we see that India, the Philippines and Peru have the most expensive currencies in EM, while Turkey, Mexico and Egypt have the cheapest. For this measure, we tend to exclude countries which have large C/A surpluses and/or high levels of reserves (e.g. China, the Gulf countries), as REERs can be significantly above long-term averages in these countries for very long periods of time without any adjustment taking place on the exchange rate.

In Frontier, Bangladesh, Jordan and Kenya screen worst on currency valuation, while Kazakhstan, Argentina and Pakistan and Nigeria screen best. For Kenya, we note that this partly reflects issues in inflation calculation before 2010; using just the post-2010 data, the Kenyan shilling closer to fair value (though this is an admittedly short window).

Where might rates be falling?

Figure 95: EM Interest rate changes: 1 = 50 bpts or more of rate cuts, -1 = 50 bpts or more of rate hikes

Figure 96: EM Interest rate changes: 1 = 50 bpts or more of rate cuts, -1 = 50 bpts or more of rate hikes

2019

1

0

-1

CzechSouthSaudi EgyptTurkeyMexicoRepublicPolandAfricaGreeceChinaIndiaMalaysiaPhilippinesTaiwanRussiaQatarHungaryUAEIndonesiaKoreaArabiaThailandPeruChileColombiaPakistanBrazil

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

2019

1

0

-1

Argentina

Kazakhstan

Nigeria

Morocco

Kenya

Vietnam

Sri Lanka

Georgia

Kuwait

Oman

Jordan

Romania

Pakistan

Bangladesh

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

Our work on interest rate cuts showed that both direction and magnitude are important: small hikes or cuts (i.e. less than 50 bpts) do not show a substantial link with market performance, while large movements do. With this in mind, Egypt, Turkey and Mexico should see the largest interest rate cuts (i.e. 50 bpts or more) over 2019; Brazil and Pakistan are expected to have the largest rate hikes (more than 150 bpts), and a further 10 EM countries (Colombia, Chile, Peru, Thailand, Saudi Arabia, Korea, Indonesia, UAE, Hungary and Qatar) are expected to hike rates by more than 50 bpts over the year. The rest of EM is expected to see moderate interest rate changes.

In Frontier, Argentina, Kazakhstan, and Nigeria are expected to see rate cuts over 2019; while Pakistan, Bangladesh, Romania, and Jordan are expected to see the steepest rate increases.

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Who’s getting a (credit) upgrade?

(This section is adapted from Thoughts from a Renaissance man – Reclaiming ESG in EM and FM, 19 October 2018)

Figure 97: EM credit rating changes (1 = upgrade, -1 = downgrade)

Figure 98: Frontier credit rating changes (1 = upgrade, -1 = downgrade)

Credit rating changes (1 = upgrade, -1 = downgrade)

1

0

-1

CzechSouthSaudi EgyptRussiaRepublicHungaryGreecePolandAfricaQatarUAEChinaIndiaIndonesiaKoreaMalaysiaPhilippinesTaiwanThailandBrazilChileColombiaMexicoPeruArabiaTurkey

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

Credit rating changes (1 = upgrade, -1 = downgrade)

1

0

-1

Kazakhstan

Morocco

Kenya

Kuwait

Oman

Vietnam

Jordan

Nigeria

Romania

Bangladesh

Sri Lanka

Georgia

Argentina

Pakistan

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

We have seen upgrades for Poland (reversing that slightly surprising downgrade in January 2016), Greece and the Czechia this year. We expect no further change in Poland, but expect upgrades for Greece, Hungary and the Czech Republic by the end of 2019. Russia has been upgraded in 2018 and given the two positive outlooks on the rating, and the determination to run twin surpluses to make it bulletproof to sanctions risk, we assume another upgrade is likely by end-2019. We also expect another upgrade in Egypt too.

Qatar we wrongly expected to be downgraded in 2018. Instead two of its three negative outlooks have been taken off. We assume no change, albeit with downside risk. We assume no change in the UAE.

SA is where we are particularly uncertain. Weak growth is clearly a negative, but the effort to get corruption under control particularly in the SoEs is a positive. We assume the rating agencies will wait until after the 2019 elections to make a call on this, and providing President Cyril Ramaphosa can deliver reform, the country should keep its investment grade rating.

The negative story in Emerging Europe is obviously Turkey, which has been downgraded by all agencies this year, and where two negative outlooks and high contingent liabilities mean we expect at least one other downgrade by end-2019.

We expect at least one downgrade in Pakistan, even if it does a deal with the IMF.

FM sovereign ratings

We are pretty unadventurous going into 2019. We assume upgrades in Croatia and Lithuania, after upgrades to Slovenia and Estonia in 2018. We assume a downgrade from S&P for Argentina.

We are more ambitious in the CIS. Aside from Russia, we think upgrades are possible in Georgia and Ukraine (by Moody’s, but elections may delay this).

We assume Saudi support and high oil prices has stopped the downgrade cycle in the Gulf.

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ESG

What might be priced in?

Plotting the model score vs 2018 YtD performance, we can get a sense of what may already be priced in. Ideally we would want to find high-scoring markets that have fared badly this year, while avoiding low scoring markets that have done well. Greece, South Africa and Mexico screen best for this in EM, while Qatar screens worst.

Figure 99: EM performance vs scores

YtD performance ($) vs Model score - EM

30
				Qatar
20
					Saudi Arabia
10
0				Peru
					Russia	Brazil
			Thailand HungaryI dia			Czech Republic
-10					Malaysia
			Indonesia	Taiwan	UAE
				Poland Colombia			Mexico		Egypt
					Philippines
-20				China
		Chile	Korea
-30							South Africa
-40	Pakistan						Greece
				Turkey
-50
-4	-3	-2	-1	0	1	2	3	4	5

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

In Frontier, Argentina screens best on this measure, while Romania screens worst.

Figure 100: FM performance vs scores

YtD performance ($) vs Model score - Frontier

20
10					Kuwait
0				Oman
			Romania		Kazakhstan
-10			Jordan		Morocco
	Bangladesh		Vietnam		Kenya	Nigeria
-20				Sri Lanka
-30
-40	Pakistan
-50					Argentina
-60
-4	-3	-2	-1	0	1	2

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

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14 January 2019

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Conclusion – EMEA to see a good year?

Figure 101: EM regional scores

Regional scores - 2018 data

2.0

1.5

1.0

0.5

0.0

-0.5

-1.0

-1.5

-2.0

EMEA	LatAM	Asia
		Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

Aggregating the scores by region, we see EMEA scores best in 2019, followed by LatAm, with Asia screening worst. Our last iteration of the model suggested LatAm would outperform; since then, LatAm has beaten MSCI EM by 15.8% while EMEA and Asia have both underperformed. We look forward to seeing if the model’s success holds out into 2019.

The scores from the model are one component of our country recommendations, which also look at less quantitative issues.

Looking for the risks

Of course, it’s not just about the good news. Using Renaissance Capitals’s risk score – which combines several vulnerability metrics: C/A, budget balance, FX overvaluation (for those countries with a C/A deficit), short-term debt to FX reserves, external debt to GDP and recent real credit growth – we can screen which countries investors might want to avoid if the market environment goes sour.

Figure 102: RenCap ‘risk score’ – EM (high = more risky)

Figure 103: RenCap ‘risk score’ – FM (high = more risky)

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

SouthCzech PakistanIndiaIndonesiaAfricaColombiaMalaysiaChileHungaryPolandTurkeyPhilippinesEgyptQatarMexicoGreeceBrazilPeruRepublicChinaUAETaiwanThailandKoreaRussia

Source: IMF, Renaissance Capital

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

SriIvorySaudi ArgentinaMauritiusKenyaTunisiaLankaJordanLebanonOmanSenegalCoastBangladeshRomaniaLithuaniaMoroccoSerbiaVietnamKazakhstanNigeriaEstoniaSloveniaCroatiaArabiaKuwait

Source: IMF, Renaissance Capital

Overleaf, we present the components of the overall score (which we calculate by normalising each variable and summing them to get an overall score. Scores are measured within a universe – e.g. the EM risk score measures risk relative to other EM countries, while for Frontier it is measured relative to other Frontier countries).

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	Figure 104: RenCap risk score – underlying data
		C/A balance,	Budget balance,	FX valuation,	ST debt to	External debt to		Real credit growth,	Score*
		2019E	2019E	current	reserves, latest	GDP, latest		% YoY, latest
	Pakistan	-5.3	-6.9	0.95	73%	31%		12%	4.3
	India	-2.5	-6.5	1.14	26%	19%		8%	3.8
	Indonesia	-2.4	-1.8	1.01	41%	35%		7%	3.6
	South Africa	-3.5	-4.5	0.88	75%	45%		1%	3.6
	Colombia	-2.4	-2.1	0.98	29%	37%		5%	3.4
	Malaysia	2.3	-2.6	0.91	107%	67%		6%	3.3
	Chile	-2.7	-1.9	1.02	45%	59%		5%	3.3
	Hungary	2.1	-2.0	0.99	56%	95%		6%	3.1
	Poland	-1.3	-1.5	0.98	45%	66%		3%	3.1
	Turkey	-1.4	-5.1	0.71	158%	64%		-17%	3.0
	Philippines	-1.5	-1.4	1.11	17%	22%		9%	2.9
	Egypt	-2.4	-7.9	0.86	30%	37%		-4%	2.9
	Qatar	6.6	10.5	1.11	173%	66%		13%	2.8
	Mexico	-1.3	-2.5	0.79	28%	37%		7%	2.7
	Greece	-0.4	0.0	0.94	na	211%		-6%	2.7
	Brazil	-1.6	-8.0	0.93	16%	34%		-3%	2.6
	Peru	-2.2	-2.4	1.07	16%	29%		2%	2.6
	Czech Republic	-0.9	1.1	1.15	66%	80%		4%	2.6
	China	0.7	-4.4	1.16	36%	14%		10%	2.4
	UAE	7.5	1.3	1.12	138%	83%		2%	2.2
	Taiwan	13.6	-1.9	0.94	42%	34%		4%	1.7
	Thailand	8.1	-0.5	1.11	28%	31%		5%	1.3
	Korea	4.7	1.5	1.05	32%	27%		5%	1.3
	Russia	5.2	1.8	0.97	14%	31%		5%	0.9
	Bahrain	-2.3	-8.2	1.04	697%	144%		9%	4.7
	Jordan	-8.6	-3.5	1.19	96%	69%		6%	4.6
	Georgia	-10.2	-1.6	0.99	76%	104%		19%	4.2
	Mauritius	-10.4	-3.5	1.10	80%	1434%		-12%	4.1
	Tunisia	-8.5	-3.7	0.68	142%	79%		6%	4.0
	Lebanon	-25.5	-10.5	1.17	26%	81%		-1%	4.0
	Sri Lanka	-2.7	-3.6	1.01	86%	58%		14%	3.9
	Kenya	-5.3	-5.8	1.19	58%	27%		-2%	3.5
	Bangladesh	-2.7	-4.5	1.27	38%	19%		9%	3.4
	Romania	-3.4	-3.5	1.06	44%	48%		2%	3.0
	Vietnam	2.0	-4.7	1.23	55%	36%		12%	2.9
	Ivory Coast	-4.2	-3.0	1.00	na	28%		8%	2.8
	Serbia	-5.6	-0.2	0.95	64%	35%		6%	2.8
	Oman	-0.5	0.8	1.09	43%	71%		6%	2.6
	Argentina	-3.2	-2.6	0.78	101%	55%		-11%	2.5
	Senegal	-7.1	-3.0	0.93	na	48%		0%	2.5
	Morocco	-4.5	-3.0	0.98	31%	43%		1%	2.3
	Lithuania	0.0	0.8	1.15	na	78%		4%	2.0
	Nigeria	1.0	-4.5	1.09	36%	12%		-10%	2.0
	Slovenia	5.5	-0.1	0.98	na	92%		0%	1.9
	Kazakhstan	0.2	1.4	0.79	47%	89%		-13%	1.8
	Estonia	1.1	-0.3	1.15	na	78%		-3%	1.7
	Croatia	2.3	0.2	0.99	23%	78%		0%	1.3
	Kuwait	11.0	12.1	1.18	43%	34%		2%	1.0
	Saudi Arabia	8.8	-1.7	1.09	12%	25%		-3%	0.7

Note: Score is relative to peer group

Source: Bloomberg

Twin-deficit countries pose the worst risks, according to our score. Pakistan screens as the riskiest market in EM, thanks to high twin deficits – its C/A deficit is the worst in EM – and still-high real credit growth. India’s C/A is in better shape than Pakistan’s, but its budget deficit is still high and the exchange rate is overvalued on an REER basis (and unlike China, it does not have a C/A surplus or high levels of reserves). Indonesia, South Africa and Colombia also screen poorly. On the other end of the scale, Russia screens best thanks to its twin surpluses, low levels of short-term debt to reserves, modest real credit growth and a fairly low external debt burden; Korea has a similar profile, though with a slightly expensive currency. Thailand, Taiwan and the UAE also screen well. Back in May, Turkey screened as the most-risky country; the currency correction and C/A rebalancing now put it on a middling level of risk, though we remain wary of the high level of short-term debt relative to reserves. Egypt has also de-risked substantially, thanks to a narrowing of its twin deficits.

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14 January 2019

ESG

In Frontier, Bahrain screens as the riskiest country, with short-term debt standing at almost seven times reserves (though we note that Bahrain could probably count on support from some of its GCC partners if reserves proved insufficient), high budget deficit and high external debt burden. Jordan’s twin deficits and overvalued currency make it the second-riskiest country on our score, while Georgia comes third, thanks to its high C/A deficit and external debt (though we note that financial centres, such as Georgia and Mauritius and Lebanon, can often maintain C/A deficits and debt levels that above what would normally be considered risky). On the other end of the spectrum, Saudi Arabia, Kuwait and Croatia screen as least risky, thanks to C/A surpluses and modest levels of short-term debt to reserves.

Comparing our five-factor model with our risk score, we can get a sense of which countries look best on a risk-adjusted basis:

Figure 105: Model scores vs risk scores

Five-factor score

5

4

3

2

1

0

-1

-2

-3

-4

Five-factor score vs risk score

					Egypt
		Greece		Mexico
	Nigeria						South Africa
Kazakhstan			Brazil
				Czech Republic
	UAE
RussiaKuwait			Argentina
Saudi Arabia				Peru	Philippines	ColombiaKenya Sri Lanka
		Morocco			Malaysia
					Qatar Poland
	Taiwan		Oman
			Vietnam		Turkey Hungary		India
Thailand				China				Georgia Jordan
Korea				Romania
							Indonesia
					Chile
						Bangladesh		Pakistan

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Risk score

Source: IMF, Bruegel, MSCI, Bloomberg, Renaissance Capital

If EM does get a dose of the jitters, these graphs may prove useful:

Figure 106: EM external debt to GDP, latest (capped at 200%)

Figure 107: Frontier external debt to GDP, latest (capped at 200%)

200%

180%

160%

140%

120%

100%

80%

60%

40%

20%

0%

CzechSouth GreeceHungaryUAERepublicMalaysiaPolandQatarTurkeyChileAfricaColombiaMexicoEgyptIndonesiaBrazilTaiwanThailandRussiaPakistanPeruKoreaPhilippinesIndiaChina

Source: JEDH, IMF, Renaissance Capital

200%

180%

160%

140%

120%

100%

80%

60%

40%

20%

0%

Mauritius

Slovenia

Lebanon

Estonia

Croatia

Sri

Senegal

Morocco

Kuwait

Kenya

Nigeria

Ukraine

Uganda

Tanzania

Zimbabwe

Kazakhstan

Lithuania

Oman

Argentina

Romania

Serbia

Ivory

Bangladesh

Georgia

Rwanda

Saudi

Bahrain

Tunisia

Lanka

Coast

Ghana

Zambia

Arabia

Jordan

Vietnam

Source: JEDH, IMF, Renaissance Capital

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