Economic Summary of the week ended 24th Aug 2012

Emerging Markets - Emerging-market stocks headed for the biggest gain in two weeks on Thursday, following that speculation policy makers in the U.S. and China will ease monetary policy to boost growth in the world's largest economies.

The MSCI Emerging Markets Index climbed 0.8%, bound for the steepest rise since Aug. 9.

"Everybody is waiting for easy money to come to lift up all asset prices," Pankaj Kumar, who helps manage 1.8bn ringgit ($580mn) as chief investment officer at Kurnia Insurans (Malaysia). "When you have more money being printed in the system, it encourages risk-taking and equities will be the direct beneficiaries."

China - Property prices in China rose in July amid cuts in borrowing costs and after some local governments eased restrictions on purchases. Beijing has been trying to curb speculation in the property sector to prevent the formation of asset bubbles.

New home prices rose in 50 cities, compared to the previous month, figures released over the weekend showed.

"A new trend does appear to be materialising as home prices continue on an upward trajectory after the Chinese government began to loosen certain levers to address concerns around a slowing economy," said Mark Budden, of consultancy firm EC Harris.

Thailand - Thailand's economy grew more than forecast in the April to June period helped by domestic consumption and continued recovery in manufacturing.

Growth was 3.3% in the second quarter, analysts had forecast growth of 1.7%.

Thailand has taken various measures to boost domestic demand to help recover from last year's devastating floods. Analysts said the steps had helped offset a decline in global demand for exports. "Thailand is one of the more resilient economies compared with its Asian peers with regards to the risk and headwinds from the U.S. and Europe," said Philip Wee, of DBS bank.

U.S. - Spending cuts and tax rises due to take effect in 2013 could trigger a sharp slowdown in the U.S. economy, Congress's budget office has said.

It warned that unless Congress acts to avert a "fiscal cliff", the U.S. could see its gross domestic product (GDP) shrink by 0.5% next year.

In its report, the CBO said it expected the U.S. recovery "to continue at a modest pace" for the rest of 2012 and estimated that unemployment would remain stuck at above 8%.

But it warned that "substantial changes to tax and spending policies" would cause the U.S. to tip back into recession in 2013.

Russia - Russia finally entered the World Trade Organisation (WTO) on Wednesday after 19 years of negotiations that meant the country was the last big economy outside the global trade body.

World Bank economists estimate a boon for Russia's economy of $49bn a year, or about 3% of GDP, over the mid-term from the increased competition and greater foreign investment that entry is expected to bring.

"In terms of overall economic impact, it will be relatively low. Russia is a country where most of its exports are not products that other countries want to keep out," said Roland Nash, chief strategist at Verno Capital, a Moscow hedge fund.

"But this is a watershed moment that is much more about signalling that Russia is open for business and is adopting an institutional framework that it can't change and that the rest of the world can trust."

Australia - Australian Resources Minister Martin Ferguson said the nation's mining boom has ended as BHP Billiton Ltd. delayed approval of its Olympic Dam expansion that Deutsche Bank AG estimated at A$33bn ($34.7bn) of spend.

"You've got to understand, the resources boom is over" Ferguson told Australian radio. "It has got tougher in the last six to 12 months."

Australia's economy has been powered by the biggest resource bonanza since a gold rush in the 1850s as Chinese-led demand for iron ore, coal and natural gas brought investment projects the government estimated to be worth A$500bn. BHP, the world's biggest mining company, said it doesn't expect to approve any spending on major projects this fiscal year as metal prices decline amid sluggish global growth.

Commodities - The spot price of gold climbed by over 1% to $1,655 an ounce onThursday as the Federal Reserve said it is likely to ease monetary policy soon unless there is a sharp change in economic data.

It is the first time the precious metal has risen above the $1,660 an ounce mark since early May, as investors waited for clarity on Fed policy.

Spotlight on: Latin America - reasons to be optimistic

Will Landers, senior portfolio manager of the BlackRock Latin American investment trust (the underlying asset to C08, available in HIL & HEL), shares his thoughts on why the region has much to offer canny investors who are prepared to think long term.

For many investors, Latin America evokes memories of hyperinflation, debt defaults, less than ideal corporate governance, and an investment universe that is mostly correlated with commodities (and therefore China).

On the other hand, those investors who have been involved with Latin America over the last decade, have experienced one of the best regional equity performances in the world, with a ten-year accumulated return of over 450% to the end of July 2012 - hardly the type of reward to be expected from the former.

The reality is that Latin America has come a long way during the past decade, placing the region as a core component of global asset allocators given its attractive risk reward for those with more than a very short-term investment horizon. So what has changed? Plenty.

For starters, hyperinflation is a thing of the past. Brazil was the poster child of hyperinflation during the 1980s and 1990s - at one point inflation surpassed 80%, on a monthly basis, in 1989. The Real Plan, started by then finance minister Fernando Henrique Cardoso in July of 1994, marked the end of hyperinflation.

Its three pillars of inflation targeting as the only mission for its central bank, a free trading currency, and running a primary surplus to reduce the country's debt levels have helped to bring Brazil today to a situation where the central bank is conducting monetary policy to manage the decimal point of the annual inflation rate.

Other serious countries in the region like Mexico, Chile, Colombia and Peru have a similar policy on the inflation targeting mission, allowing all these countries to have annual inflation rates in the single digits.

The biggest impact of the low inflation rate has been on the growth of domestic demand in these economies. It is well documented that inflation is a tax burden on economies overall, but especially on the less affluent segments of the population. Falling inflation allowed domestic interest rates to fall, while also allowing for wages to grow in real terms.

Again, this has been evident to an extreme in Brazil, where income distribution has improved to levels not seen in many economies - the poorest 10% of Brazil's population enjoyed a 69% growth in annual income from 2001 to 2009 (vs. 13% for the wealthiest 10%).

This wealth effect is multiplied by the fact that the region sports one of the most attractive demographic pyramids in the world, with 55% of its population being below the age of 30 years.

As a result, not only does the region enjoy a young population, but this population is reaching peak earnings years at a time of economic prosperity, which should give continuity to its growth.

Furthermore, the growth in domestic consumption moves Latin America away from being "just" a commodity story. Commodities are certainly important for many countries in the region, and many companies listed on its exchanges. From oil in Mexico and Venezuela to copper in Chile and Peru, commodities can be an important factor for economic growth. Brazil's stock market is also led by two commodity giants - Petrobras on petroleum and Vale on mining (especially iron ore, but also copper and nickel).

Exports overall (and not just commodities) account for approximately 11% of Brazil's GDP - a smaller participation in GDP than even the U.S. Exports in general, and China specifically, are more important growth factors for countries like Chile and Peru where copper represents a larger portion of gross domestic product.

Overall, Latin America has come a long way to now becoming an interesting investment alternative for investors, local or global. While no market has proven to be a safe haven in periods of high stress, the region has proven its ability to differentiate itself when fundamentals are driving the market, outperforming global markets when the focus is on country and company-specific fundamentals. Are we entering another one of those phases? Only time (and Europe) will tell.

Economic Summary for the week ended 18th Aug 2012

China - Chinese Premier Wen Jiabao has said the world's second largest economy can meet its growth target this year in an effort to allay concerns over recent economic data. "We have the conditions and capabilities to fulfil this year's economic and social development target," said the Chinese Premier.

He acknowledged downward pressure remained "relatively large" and difficulties were set to continue for some time, China National Radio reported. Meanwhile China Central Television quoted him saying that rising prices were easing and there was "growing room for monetary policy operation".

Brazil - Brazil's government has unveiled the first phase of a major economic stimulus package designed to boost growth in the flagging economy.

More than $60bn will be invested in the country's roads and railways over the next 25 years, with more than half in the next five years. The government's recent measures, such as the recent devaluation of the currency, the real, and the progressive reduction in interest rates, have so far failed to stimulate growth.

"The measures unveiled by the Brazilian government this afternoon are good news insofar as they will help tackle some of the supply-side problems that are holding the economy back," said Neil Shearing at Capital Economics.

U.K. - Financial firms in London, under pressure with Europe's sovereign-debt crisis, will most-likely shrink their workforce this year, as a hiring rebound from 2008's credit crisis as New York's industry attempts to create job growth.

Banks, insurers and other financial-services firms may eliminate a total of about 3,000 jobs across greater London as companies in the New York region add 9,000, according to U.K.- based researcher Oxford Economics Ltd. Reductions will be particularly acute in London's financial district, where the industry may cut 25,200 positions, according to the Centre for Economics and Business Research Ltd.

Asset Trends - Global fund managers have taken allocations to eurozone equities to their highest in more than a year as sentiment builds that the European Central Bank (ECB) will unveil new policy measures to preserve the single currency.

The latest Bank of America Merrill Lynch global fund manager survey shows that 13% of asset allocators are running an underweight position in eurozone equities during August.

BofA ML Global Research head of European equities strategy Gary Baker says: "August's surge in confidence seems to be more a triumph of policy projection and potential than positive economic data.

"As indicated by the survey, the risk is now that inaction by policymakers would lead to a negative reaction in global markets."

Commodities - The U.S., France and Mexico are planning talks to consider whether an emergency meeting is needed to tackle the soaring price of grain.

The three will hold a conference at the end of this month after the worst U.S. drought in 50 years threatens to cause a sharp rise in the cost of staple crops.

It will be decided whether to convene the first meeting of the newly-formed G20 Rapid Response Forum, formed to promote united action.

A French agriculture ministry official said: "If the situation requires it, a meeting of the Rapid Response Forum could be called as soon as the start of September.

"The aim is to talk about the situation and avoid measures like export embargoes which would be damaging for everyone."

Commodities - Global demand for gold is seeing a significant slowdown as top consumers in India and China cut purchases amid weak economic growth, abruptly halting a consumption boom that started five years ago with the onset of the financial crisis.

The consumption slowdown is driving prices downward, denting the profitability of gold miners such as Barrick Gold of Canada and New York-listed Newmont, and hurting top hedge funds managers such as John Paulson and George Soros.

Spotlight on: Brazil's plan to kick-start growth

Brazilian President Dilma Rousseff has announced plans to stimulate economic growth through high level investment in the country's infrastructure network.

What has happened?

President Dilma Rousseff has announced a $66bn package to stimulate the economy through infrastructure developments on highways, airports, ports and railways.

Designed to improve the transport system in order to aid trade and commuting, the money will also help strengthen its infrastructure ahead of the 2014 FIFA World Cup and 2016 Olympics Games in Rio.

Commentators have questioned how much of the plan is actually new developments, with elements of it echoing her $50bn PAC-2 infrastructure project currently held up in Brazilian government bureaucracy.

Why has Rousseff announced this now?

Growth is a major factor. From obtaining 7.5% GDP growth in 2010, current projections for this year sit at 2% and Rousseff has seemingly taken a proactive step to foster investment in the country.

Sceptics could view the timing as an attempt to put Rio on the same footing as London as a city able to cope with major sporting events by improving its infrastructure base.

However, the need for improvement in the Brazilian infrastructure cannot be dismissed, with fund managers such as Franklin Templeton's Marco Freire and Ashmore's Jerome Booth both previously stating the need for $1tn worth of foreign and private investment in the country.

Will it deliver?

Brazilian equity investor Michael Konstantinov, who runs five Brazil and BRIC equities on behalf of Allianz including the Allianz Brazil fund, said infrastructure developments in the Latin American powerhouse are very much a case of seeing is believing.

'The announcement is one thing and the implementation is another,' he said. 'We don't know whether these plans will actually happen. It looks like they are asking for much lower internal rates of return, so these projects could be a bit less profitable.'

'On the other hand, they have got quite strong support from the BNDES - the Brazilian Development Bank - which will offer funding at below market rates.'

Does this affect what the Brazilian central bank is doing?

In short, no and Konstantinov said the majority of projects outlined by Rousseff will be set on a five-to-six year time horizon, while the Brazilian central bank is working on a much more near-term basis.

The central bank has drawn both praise and criticism for its decision to undertake systematic cuts to its benchmark interest rate - the SELIC - since the end of last year.

In a move designed to stave off a global economic downturn, the central bank's monetary board, known as Copom, has cut the rate from a 30-month high of 12.5% in August 2011 to a record-low of 8% last month.

Economic Summary for the week ended 10th Aug 2012

Emerging Markets - Emerging-market stocks rose to a 13-week high on Thursday as China's inflation cooled for a fourth consecutive month in July, providing policy makers with more room to stimulate the world's second-largest economy.

The MSCI Emerging Markets Index climbed 0.8% on Thursday, gaining for a fifth day and set for its strongest close since May 10.

"China's inflation numbers triggered speculation that there will be more leeway for action and that market-friendly rhetoric by policy makers could continue," said Lee Jin Woo, a fund manager at Seoul-based KTB Asset Management Co., which oversees $5.8bn in assets. "Interest in emerging-market assets will continue for a while following their under-performance." he added.

China - China's inflation dipped to a 30-month low in July, giving policymakers a bigger cushion to boost stimulus measures to spur economic growth.

Consumer prices rose by 1.8% in July, from a year earlier. That was down from a 2.2% growth rate in June and a 3% rise in May. China has been looking to spur domestic consumption amid a slowing global demand for its exports.

Analysts said the slowdown in the growth of consumer prices may see policymakers introduce further measures to boost growth.

"This number gives more room for policy easing," said Zhang Zhiwei, chief China economist at Nomura in Hong Kong. He added that the rate of inflation was "likely be below the official 4% percent target for the year, so the policy focus for the government can stay clearly on growth".

France - France's economy will fall back into recession this quarter, the country's central bank has predicted.

The Bank of France estimates that the economy will contract by 0.1% in July to September. It has already predicted a fall of the same level for April to June. France posted zero growth in the first quarter of the year.

France's economy has been hit by the eurozone debt crisis, which has weakened demand for its exports.

U.K. - The Bank of England has cut its forecast for economic growth this year to almost zero and has predicted inflation will be below target in the medium term.

In its quarterly inflation report, released on Wednesday, the Bank said it expects to see no growth in the economy for 2012, down from the 0.8% predicted in the May report.

At a press conference on Wednesday, Bank governor Mervyn King described "storm clouds" rolling over the U.K. from the euro area.

U.S. - The U.S. trade deficit narrowed more than forecast in June as the biggest drop in crude oil prices in more than three years helped cut the nation's import bill.

The gap shrank 11% to $42.9bn, the smallest since December 2010, from $48bn in May, Commerce Department figures showed.

"For all the talk about the troubles in Europe and China slowing, what's going on around the world is not make or break for the U.S. recovery," said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. "This report is a positive in the sense that growth in the first half of the year was a little better than reported."

Commodities - Stockpiles of the biggest crops will decline for a third year as drought parches fields across three continents, raising food-import costs already forecast by the United Nations to reach a near-record $1.24tn.

The speed of the destruction drove corn prices to a record high on Thursday and soybean prices to an all-time high last month, while wheat went to a four-year high. For investors, crops are the best-performing commodities this year, and Goldman Sachs Group Inc., Macquarie Group Ltd. and Credit Suisse Group AG say the trend will continue.

Commodities - Gold edged up on Thursday after China's economic data added to hopes for more monetary easing there, though most investors remained on the sidelines, looking for clear signals on possible economic stimulus in Europe and the U.S.

Trading interest has been sluggish in the past few days as market participants wait for the European Central Bank to announce details of a bond-buying programme, while the U.S. Federal Reserve gave few hints on further easing at its last policy meeting in early August.

Spotlight on: Keeping faith in China

The much-publicised slowdown in the Chinese economy should not cause investors to "push the panic button" just yet, emerging markets fund manager Mark Mobius argues.

In his latest blog post, Mobius says the slowing expansion should be expected in an economy that is undertaking significant changes to move towards a more sustainable economic model.

"Slowing growth is a natural part of the evolution of an emerging economy, particularly one as large as China, the second-largest economy in the world," he says.

"China is also undergoing structural changes that often come with the side-effect of a few growing pains."

Mobius, manager of the GBP1.9bn Templeton Emerging Markets investment trust, notes that China is building a more consumption-focused economic model and is gradually loosening controls on its economy, which will pay off in the long term.

The manager points out that the Chinese authorities have a number of policy levers to help support the economy. These include the ability to lower interest rates further, ease limits on bank lending and channel investment in infrastructure projects.

In addition, Mobius sees the structural changes as creating investment opportunities, even as headline growth rates slow.

"Consumers and commodities are particular areas of interest, because we believe a transition to a more consumption-based economy should help support these sectors," he writes.

"I have every reason to believe this transition should be successful and still believe China could continue powering ahead."

This appraisal echoes the support that risk rating agency Fitch announced recently, saying "Official figures indicate that the Chinese economy is likely to avoid a hard landing in the short term. Fitch maintains its 8%projection for Chinese growth in 2012, implying annualised growth of 8% in the second half of the year."

The group cites supportive monetary policy, better-than-expected banking lending rates in June, export growth out-pacing imports and a recent rise in fixed asset investment as positives for the country.

Economic Summary for the week ended 2nd August 2012

Europe - Investors are looking for the European Central Bank (ECB) President to deliver on his promise to do whatever is needed to protect the euro, interpreted by most as a signal that the ECB will intervene in bond markets. Should Mario Draghi fail to overcome the objections of Germany's Bundesbank to such action, the disappointment could spark a sell-off in stocks.

"If Draghi just comes out with a do-nothing, markets are going to react extremely badly and the ECB will have a full- blown crisis on their hands," said James Nixon, chief European economist at Societe Generale SA in London. "I can't see what form of words Draghi can come up with that would replace concrete intervention."

Germany - Germany retained a stable outlook for its top credit rating at Standard & Poor's (S&P) just over a week after Moody's Investors Service warned that the nation's AAA grade was at risk.

The long-term debt sovereign rating for Europe's largest economy was maintained at AAA, S&P said in a statement on Wednesday.

"In our view, Germany has a highly diversified and competitive economy with a demonstrated ability to absorb large economic and financial shocks," S&P said. "The outlook on the long-term rating remains stable, reflecting our view that Germany's public finances and strong external balance sheet will continue to withstand potential financial and economic shocks."

Spain - Standard & Poor's has kept Spain's credit rating at BBB+ in light of ongoing reforms but maintained the country's negative outlook.

Last month, the Spanish government reaffirmed its commitment to its fiscal consolidation and structural reform programme after securing a loan of up to EUR100bn from the eurozone to support its stricken banking sector.

In its appraisal of the country, S&P says: "In our view, Spain's commitment to the ongoing implementation of a comprehensive fiscal and structural reform agenda remains strong."

The ratings agency adds: "Our BBB+ long-term foreign currency rating on Spain is supported by our view of its diversified prosperous economy, stable political system, and the ongoing implementation of a comprehensive fiscal and structural reform agenda."

Global - Manufacturing in most of the world is in a slowdown, a raft of reports for July has suggested.

U.S. manufacturing growth shrank for the second month in a row, a survey by the Institute for Supply Management suggests.

In the U.K., the manufacturing sector shrank at its fastest rate for more than three years, while in the eurozone, factory output contracted at its fastest pace in three years.

And manufacturing activity in China had its slowest increase in eight months.

The ISM, a trade group of U.S. purchasing managers, said on Wednesday that its index of manufacturing activity rose to 49.8, from 49.7 in June (a reading below 50 indicates contraction).

U.S. - The Federal Reserve moved a step closer to pumping more stimulus into its struggling economy, suffering with weakening growth and a jobless rate that has stayed at 8% or higher for more than three years.

Central bankers led by Ben Bernanke concluded their two-day meeting on Wednesday saying they "will provide additional accommodation as needed" to bolster the expansion. The Federal Open Market Committee also said it will "closely monitor" economic data and financial developments, suggesting it is focused on the economy's near-term performance.

"The Fed is ready to act if things don't improve," said Roberto Perli, managing director of policy research at International Strategy & Investment Group in Washington and a former Fed economist. Policy makers probably want to build a "stronger case" for action, he said. "You need more data to do that."

Spotlight on: Managing Lat Am

A slowing economy, poor corporate earnings and macroeconomic fears have put Brazil under intense scrutiny from investors, according to BlackRock's Will Landers.

The manager of the GBP224m Latin American investment trust, who oversees about $7bn in Latin American equities, said the proportion of analysts cutting forecasts for Brazilian corporations last month stood at its worst level since April 2009, presaging a disappointing Q2 earnings season.

Brazil's stock index, Bovespa, has fallen 5% this year to add to the 18% decline seen in 2011. "Brazil has not delivered on growth for the second year in a row, and there are now an unprecedented number of companies missing results," Landers said.

"Everything is being questioned now by global investors, from company management to the quality of balance sheets."

Brazil has cut rates eight times since last autumn, bringing the benchmark rate down from 12.5% to 8%, in an effort to kick start its economy. But GDP rose by just 0.2% on the quarter in the first three months of 2012 as the country failed to shake off its 2011 slowdown.

Landers said there will be two further 50bps rate cuts in the current cycle, but has concerns over exchange rate policy, calling on the government to drop its focus on weakening the Brazilian real.

He labelled such tactics "unmanageable" in the long run. Instead, he said, Brazil should focus on fiscal and labour reforms to limit the impact of tax complexity and labour laws on the country's corporate sector.

Landers is wary of rising global grain prices bringing about a resurgence in inflation, which he said would lead to the government shifting its priorities from growth to price stability.

"The government has spent too long earning its credibility on inflation to give it up that easily. But it is also important to note that the benchmark Selic rate often does not represent the real cost of financing for corporations and consumers."

For now, Landers is looking to corporations with U.S. dollar earnings streams, such as miner Vale, to capitalise on currency weakness.

Elsewhere, he has cut his position in Itau Unibanco, the country's second largest bank by assets, once the largest position in the portfolio but now an underweight relative to his benchmark, as part of a wider paring of financials.

The manager has added to Brazilian retailers, viewing consumer strength as being relatively resilient, and has also moved overweight Mexico, whose stock market has benefitted from its close links to the U.S.

Economic Summary for the week ended 27th July 2012

Europe - European stocks were climbing on Friday after a four day sell-off in the week, following a pledge from European Central Bank (ECB) president Mario Draghi that the ECB will "do whatever it takes to preserve the euro".

Indices across Europe surged as Draghi repeated comments made to Le Monde newspaper last week that the euro is "irreversible". He added: "Within our mandate the ECB is ready to do whatever it takes to preserve the euro, and believe me, it will be enough.

"When people talk about the fragility of the euro, very often non-euro members underestimate the political capital that has been invested".

Germany - Credit ratings agency Moody's has changed its outlook for Germany's AAA credit rating to negative, the first step towards a possible downgrade.

Moody's said the country was at risk from the increased likelihood of a Greek exit from the euro and the need to provide more support to Spain.

Concerns are growing that Spain will have to seek a full bailout.

The Netherlands and Luxembourg, both AAA rated economies, were also put on negative watch.

Spain - France and Spain have called for European Union (E.U.) leaders to accelerate a rescue plan for Spanish banks to calm fears of a full international bailout.

Spain said there had been a "worrying delay" in executing plans agreed by eurozone leaders last month.

The main provision would allow the future European bailout fund, the ESM, to pour money directly into ailing banks.

China - The International Monetary Fund (IMF) has warned that the worsening debt crisis in the eurozone poses a "key risk" to China's growth.

The IMF added that China also faces domestic risks, not least from a sharper-than-anticipated decline in the property market.

However, the fund said China had ample room and the fiscal tools "to respond forcefully" to any such developments.

Commodities - Gold held steady above $1,600 an ounce on Friday, on course for its biggest weekly gain in almost two months, after ECB President Mario Draghi signalled the bank would do whatever was necessary to hold the euro zone together.

Gold in the past few months has moved largely in tandem with the euro and riskier assets, with a relentless debt crisis in the euro zone chipping away at bullion's safe-haven appeal and investors piling into assets perceived safer, such as the dollar, yen and U.S. Treasuries.

Spotlight on: Hosting the biggest sporting event in the world

Neptune fund managers Douglas Turnbull, Mark Martin and Thomas Smith consider the economic impact of the upcoming London Olympic Games & also the plans afoot in South America to host the 2016 games.

London 2012

The London Olympics is projected to rank alongside Beijing, Barcelona and Montreal as the most expensive in history. The total London 2012 sports-related budget has increased by 101% from GBP4.2 bn in the 2005 bid to GBP8.4bn in real terms, according to research by the Said Business School.

The benefit of much of this expenditure, however, will already have been felt by construction companies. Looking forward, house builders appear to be the construction companies poised to benefit most from the upgrade in facilities and infrastructure at the Queen Elizabeth Olympic Park: as many as 5,000 new homes could be built in the area after the Olympics.

It is estimated that 500,000 extra people a day will descend on the UK capital and as a result there will undoubtedly be an impact on businesses. Companies exposed to London tourism, such as pub companies like Fuller Smith Turner and Greene King should benefit, especially if they have patriotic brands like Spitfire, London Pride and other UK drinks on tap.

Hotel companies exposed to London and the South should also benefit - Whitbread and Fuller Smith Turner [again] should profit from more people seeking London accommodation who are prepared to pay a premium price. Also we should not forget support service companies like UK-listed Berendsen, which supplies linen to the catering and hotel trades, which could also see increased demand for its products.

Unfortunately, not all businesses will be as well positioned. For theatres and cinemas the month of the Olympiad and the recent Euro 2012 fixture means that cinema admissions are likely to be depressed. Indeed cinema operators such as Cineworld have specifically structured their film release schedule this summer.

However, for all but the shortest-term investors, the beneficial impact of the Olympics on individual stocks will likely be muted. Given that the majority of any stock's value is contained in earnings streams way into the future, the fundamental value of a company will be totally unaffected by a 'pop' in one quarter's earnings.

Rio de Janeiro 2016

The 2016 Games are of particular significance because although the Olympics were held in Mexico City in 1968, they have never been held in South America, giving further recognition of Brazil's arrival on the world stage.

The total benefit for a country hosting the Games is difficult to quantify due to the many indirect investments alongside the direct investments in Olympic stadiums and infrastructure.

A study by the Brazilian Ministry of Sport in conjunction with the University of Sao Paulo estimates that $14.4bn will be invested in Olympic preparations ranging from stadiums, sports pitches and water sports venues to roads, subways and airports.

However, the study also claims that the preparations will generate a 4.26 production multiplier, which will inject $51.1bn into the Brazilian economy from 2009 to 2027 and create over 120,000 jobs annually. This means that for every dollar invested in the organisation of the Olympic Games, private entities will invest an extra $3.26 in production chains related to the event.

The accelerated investment in projects such as airports and roads will help remove infrastructure bottlenecks and raise Brazil's trend growth rate over the medium term.

Rio also stands to benefit from the preparations for the 2014 Football World Cup and having the Olympic-standard facilities built prior to hosting the Pan-American Games in 2007 which will be used in both the Olympics and Paralympics.

Rio was the 2016 candidate requiring the smallest investment in venue construction, allowing it to focus on the much needed infrastructure to transform the city.

Transportation is a priority with new highways being built to link the airport to key points in the city as well as an extension to the city's subway. The sectors likely to benefit most include construction, real estate, oil and gas, transportation and communication.

A mega event such as this can be very positive for a country's economy but this is not always the case. Following the 2000 Summer Olympics, Australia was still paying around $40m a year to maintain under utilised stadiums and facilities a decade later.

Economic Summary for the week ended 22nd July 2012

China - China will be able to engineer a soft landing despite recent signs of a slowdown, according to Fitch Ratings.

Last week official numbers showed the the world's second largest economy as growing by just 7.6% in the second quarter of 2012, which is the slowest pace recorded for three years.

Fitch says: "Official figures indicate that the Chinese economy is likely to avoid a hard landing in the short term. Fitch maintains its 8% projection for Chinese growth in 2012, implying annualised growth of 8.1% in the second half of the year."

The group cites supportive monetary policy, better-than-expected banking lending rates in June, export growth outpacing imports and a recent rise in fixed asset investment as positives for the country.

China - Property prices in 70 Chinese cities rose slightly in June, compared to May, after eight months of decline. Home prices rose 0.3% in Beijing and 0.2% in Shanghai compared to the previous month, official data showed.

China had implemented two years of curbs on the real estate market in order to bring prices down. However, as the economy slowed to a three-year low in the second quarter, measures have been taken to boost growth. The Chinese central bank has cut key interest rates twice in recent months. Analysts said this and other steps have broken the trend of falling home prices.

U.S. - Ben Bernanke offered a gloomy outlook for the U.S. economy but the Federal Reserve chairman offered no hint of further monetary easing in testimony to Congress.

"We are looking very carefully at the economy, trying to judge whether or not the loss of momentum we've seen recently is enduring, and whether or not the economy is likely to continue to make progress," he said, warning that progress in reducing a 8.2% unemployment rate "seems likely to be frustratingly slow".

The testimony initially disappointed markets on Wednesday which are expecting a signal of further monetary easing from the Federal Reserve.

Europe - Eurozone economies are in critical danger and in dire need of expansive quantitative easing measures from the European Central Bank (ECB), according to an International Monetary Fund (IMF) staff report.

The report gave detailed recommendations to the ECB, calling on it to cut interest rates further (it cut the headline rate by 25 basis points to 0.75% earlier this month) and embark on a QE programme that should involve "sizeable sovereign bond purchases."

Italy - Moody has cut the credit rating for 13 Italian banks only a few days after cutting the Italian government's bond rating.

The ratings agency dropped seven banks by one notch and another six by two notches. They all remain investment grade.

Moody's says the action follows a weakening of the Italian government's credit profile.

Moody's said that banks are normally rated in line with the government, citing "multiple channels of shared exposure and contagion". The rating agency said Italian banks have substantial exposure to the domestic economy and high direct exposure to sovereign debt.

Spain - Spain sold EUR2.98bn of notes this week, in line with its maximum target, and its borrowing costs surged as demand for the securities weakened. The country's bonds fell after the sale.

The Treasury sold notes due in 2014 at an average yield of 5.204%, compared with 4.335% when they were last sold on June 7. It sold five-year notes at 6.459%, compared with 6.072% on June 21.

Commodities - Oil fell from a seven-week high this week on concern fuel demand may falter after China signalled more economic weakness and analysts cut their profit forecasts for European companies at the fastest rate since 2009.

Futures slid as much as 0.7% after advancing a fifth day yesterday, the longest run of gains since April. The labour situation in China, the world's second-biggest crude user, will become more "severe" Premier Wen Jiabao said, according to a statement on the government's website.

Commodities - Gold edged up on Thursday after two straight days of losses as the dollar weakened, although investors were less than convinced of its direction given the uncertainty over the Federal reserves' stimulus measures and persistent worries about Europe.

The strength in the dollar has been pressuring gold, which has risen barely 1% year to date and has been especially sensitive to signals from the U.S. Federal Reserve on its attitude towards monetary easing, which would lift inflation outlook and boost investor interest in bullion.

Spotlight on: Africa - foundations for growth

According to economic fundamentals, the 'factors of production' of land, labour and capital are regarded as the basic ingredients required for achieving profit. If this stands true then Africa is extremely well placed both now & in the future to sustain the truly explosive growth in the region's recent development.

Africa possesses the first factor, land, in abundance, accounting for 20% of the world's land mass. In addition, it is home to an array of the world's natural resources; 89% of the platinum group of metals, 74% of the chrome, 60% of the diamonds, 12% of the proven oil reserves, 9% of the natural gas and 40% of the gold.

The sheer volume of land is clear to see, but it is the relentless, global demand for natural resources that has meant that vast amounts of these resources are being continuously exported out of Africa, bringing wealth to the region. This growth has resulted in local industries booming and much-needed developments in domestic infrastructure, something which, until recently, was relatively unheard of.

With regards labour, Africa has a population of over 1 billion people, which is growing ever-faster. Unlike in previous periods, this isn't a burgeoning, dependent population. Instead it is a young, vibrant one where the number of people of working age is greater than those who are not.

Similar to the phenomenon in the USA when the so-called 'baby-boomers' came to working age, and also in China in the 1990s, this can create an environment which underpins an economic boom. A median age of 19.7 years in Africa compares to an equivalent age of 29.2 for Asia, 32 for the BRIC nations, and 40.1 for Europe.

In addition to the favorable demographic of the population is the fact that the youth is now in education for much longer than generations before, which may enable Africa to utilize this new, better educated workforce to herald the next BRIC style growth opportunity.

Finally, with regards capital. In a year when most developed economies are hoping to maintain positive growth, the International Monetary Fund is predicting that in 2012, Africa will achieve economic growth of almost 6%.

Further, it predicts that seven of the world's ten fastest growing economies between 2011 and 2015 will be in Africa.

The economic growth story is only one part of the 'capital' story though. In addition, and again dispelling a popular myth about Africa, the continent has very low debt levels compared to more developed regions. Africa's median debt-GDP ratio is 37%, as compared with G8 nations' median of 84%.

The factors above lead many industry commentators us to believe that the time is now to invest in Africa as it is ripe for an explosion of economic growth.

Economic Summary for the week ended 28th June 2012

Spain - Spanish Prime Minister Mariano Rajoy has said Spain cannot afford to finance itself for much longer at current rates. Spanish 10-year government bonds have been trading at yields above 6.8%, coming close to the 7% that is considered unaffordable.

Mr Rajoy was speaking ahead of this week's European Union (E.U.) summit. "The most urgent subject is the subject of financing," he said. Spain has asked for funding for its banks, but the country has not been bailed out.

Eurozone countries have agreed to lend up to EUR100bn to support Spain's banks.

China - The E.U. has asked the World Trade Organization (WTO) to arbitrate in a row about China's export restrictions on its "rare earth" minerals.

The E.U., along with the U.S. and Japan, has asked the WTO to set up a dispute settlement panel, arguing that China is being unfairly restrictive.

The term rare earth refers to a group of 17 elements that are used to make a range of hi-tech gadgets. These elements are used in products ranging from MP3 players to mobile phones, flatscreen TVs and hybrid batteries.

With those products becoming increasingly popular, the demand for rare earths has been rising.

China - China is to provide a GBP6.4bn credit line for Latin American countries to support infrastructure projects in the region. The proposal was made by China's Premier Wen Jiabao as he wrapped up his visit to the region.

He also proposed a free trade pact between China and South American trade bloc 'Mercosur', which includes Brazil, Argentina, Uruguay and Paraguay.

Many of the Latin American countries are still at a development stage and are building new infrastructure in a bid to boost growth in their economies.

Meanwhile, China, which has the world's largest foreign exchange reserves, has been looking to for new areas invest some of its cash.

India - Indian Prime Minister Manmohan Singh pledged to restore confidence in Asia's third-largest economy as he resumed control of the finance ministry after growth slowed to the weakest in almost a decade and the rupee slumped.

Singh, 79, urged senior ministry officials to act quickly to revive investor sentiment as he assumed the role vacated this week by Pranab Mukherjee, who resigned to run for president. India needs to address "problems on the tax front," as well as in the mutual funds and insurance industries, he said at a meeting in New Delhi.

"Don't expect a big change yet," said Ramya Suryanarayanan, a Singapore-based economist at DBS Group. "If until now there were bottlenecks and policy logjams it's not going to miraculously disappear."

Cyprus - Cyprus has told the European authorities that it intends to apply for financial assistance, the fifth eurozone member to do so.

It said it needs help to shore up its banks, which are heavily exposed to the Greek economy.

The country needs to find about approximately EUR1.8bn over the next few days to recapitalise its second largest lender, Cyprus Popular Bank.

In a short statement, the government said that it required assistance following "negative spill over effects through its financial sector, due to its large exposure in the Greek economy".

U.S. - Orders for durable goods climbed more than forecast in May, easing concern that U.S. manufacturing is faltering.

Bookings rose 1.1%, the first increase in three months, a Commerce Department report showed. Excluding the volatile transportation equipment, orders for goods meant to last at least three years advanced 0.4%.

"This comes as a relief that businesses aren't completely cutting back," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, who projected a 1 percent gain in orders. "We still have to be quite cautious as there is considerable uncertainty. U.S. growth will be moderate."

Russia - Russia's BBB debt rating was affirmed at Standard & Poor's this week, which cited low government debt levels balancing risks for the world's biggest energy exporter from commodity-price swings.

"The stable outlook reflects our assessment of balanced risks to the ratings," S&P said in a statement. "Vulnerability of the budget and the economy to fluctuations in key export prices are offset by low government debt levels and the country's slight net external asset position."

"The confirmation of the rating is a positive for Russia given the very adverse global backdrop and very significant fall in oil prices" said Ivan Tchakarov, Moscow-based chief economist at Renaissance Capital.

 

Spotlight on: looking past the past

In the run-up to 2012's halfway point, industry commentators have expressed concern that memories of last summer's crash are blinding long-term investors to the current low equity valuations.

There is a remarkable symmetry between the course of markets in the half-year to-date and their trajectory in the same period in 2011.

However, there is a massive difference in sentiment. In contrast to the optimism of last year, investors are far more sanguine about the prospects for the rest of 2012, and it seems that much of this is down to what happened last August.

In just a little over two weeks the FTSE fell 15%, as the European authorities finally admitted Greece would need a bailout, and IFAs say investors are still suffering the psychological scars.

Graham Toone, head of research at AFH Wealth Management, claims it is getting harder to persuade clients to look past temporary market reversals.

"We try to get our clients to look through these wobbles. There are people out there who get very nervous about short-term volatility," he said.

"We all feel the pain when the markets have a wobble, but you have to stand back and try not to get too caught up in the fear."

The eurozone crisis hasn't gone away, of course, and governments seem to move from summit to summit and from stop-gap to stop-gap, without any medium-term plan to calm markets.

"If the eurozone wasn't around there would be another issue I'm sure, but right now Europe is determining investor sentiment," said AWD Chase de Vere's Patrick Connolly.

"What we have seen is lots of volatility and we are in for more of the same."

"Markets are driven by macro events at the moment. The eurozone is pushing prices up or down with each announcement or downgrade."

One of the most obvious differences between sentiment last year and this is the general reluctance to make predictions.

News headlines claiming the eurozone will inevitably break up or stay together are not as common as they were.

Claims that China will pull the world out of recession or sink with it are also less forcefully expressed.

For example, Neither Toone nor Connolly wanted to make any predictions for the year ahead; however, Connolly believes cheap valuations mean there is only one winner in the equity versus bond debate for the long-term investor.

"I am sure there will be up and down periods, however I would not assume what happened last year will happen again. I wouldn't be surprised either way to be honest," he said.

"The safest assets have become more expensive and will likely get even more expensive, while the riskier assets meanwhile will get cheaper and cheaper."

Toone added: "The market seems to be relatively steady right now, but you find it hard to be too excited or frightened by things."

"We still favour the more defensive areas of the market in this tough macro environment."

"On a strategic level we are sanguine on our equity rating and we like high yield bonds. We are still very wary of gilts, we prefer high yield bonds."

Another reason for the general lack of enthusiasm for the year ahead may be the growing realisation that the difficulty will last for years to come.

"We're all waiting to see the E.U. come up with a plan to resolve the crisis, but I'm afraid the solution might not be too pretty either," said Connolly.