Emerging markets hit highs

Emerging markets rose last week, boosted by rising oil prices that lifted index heavyweights such as Russia's Gazprom and Brazil's Petroleo Brasileiro, the latter hitting a fresh high.

Brazil's economy expanded 4.3% year-on-year in the first quarter, as consumer demand and corporate investment rose on the back of 16 interest rate cuts.

China's industrial output growth accelerated to 18.1% year-on-year in May, driven by the recovery in fixed asset investment. This contributed to a sharp rise in inflation, up 3.4% in May from a year earlier, fuelling fears of further tightening measures. The trade surplus rose 73% in May from a year earlier to US$22.5bn, adding pressure on the government to speed up currency reforms.

A stronger-than-expected increase in India's industrial output in April also stoked inflationary pressures.

Taiwan's newly passed Insurance Bill increases the overseas investment limit to 45%, from 35%, enabling life insurance companies to benefit from higher yields on overseas fixed income securities.

Turkey kept interest rates unchanged at 17.50%, as inflation remained well above the central bank's target range. Separately, political uncertainty increased after the president called for a referendum on how his successor is to be chosen by popular vote or by the parliament.

Hungary's inflation rate fell less than expected in May, as the annual rate declined to 8.5% from 8.8% in April, which may prompt policymakers to postpone interest rate cuts.

The Czech Republic's central bank may need to tighten monetary policy further to ward off inflation triggered by household spending and a weaker currency. Separately, Poland's inflation rate stayed unchanged in May.

Thai consumer confidence fell for a seventh consecutive month to hit a five-year low in May, following the dissolution of the Thai Rak Thai party and worsening terrorist attacks in the troubled Southern provinces; whilst new vehicle sales dropped for the fifth straight month in May. Meanwhile, political tensions increased amid calls from supporters of ousted premier Thaksin Shinawatra for the junta to resign. The government froze US$1.5bn of Thaksin's assets, pending a probe into the legality of his wealth.

China/Hong Kong: The chairman of ICBC said the bank is seeking licenses for investment banking, insurance and leasing to diversify away from its traditional lending business. Meanwhile, China Construction Bank, another state-owned Chinese bank, plans to raise about HK$5.5bn via Shanghai's A-share market.

India: HDFC Bank will raise US$688m through a fresh public issue of American Depository Receipts (ADRs). ICICI Bank unveiled plans for a domestic float and an ADR issue to raise up to US$4.3bn for capital adequacy requirements and to fund future expansion. Separately, its insurance and asset management subsidiary, ICICI Financial Services, intends to sell a 5.9% stake to five investors for around Rs26.5bn. Elsewhere, Satyam Computer Services forged an alliance with US-based JDA Software Group, a provider of supply and demand chain solutions, to focus on the Asia-Pacific market. We hold HDFC, ICICI Bank and Satyam Computer.

Philippines: Bank of the Philippine Islands (BPI) reported a 26% year-on-year increase in first-quarter net profits on the back of strong trading gains and income from its insurance subsidiary. We hold BPI. Russia: Lukoil proposed forming a consortium to develop gas fields in Eastern Siberia.

Sri Lanka: Two of our holdings - John Keells (partnering Pembinand Ridzai Bhd) and Aitken Spence (partnering Port of Singapore Authority) - were among five groups bidding for the development of a terminal in the South Harbour Port of Colombo.

Aberdeen Asset Management Asia Limited