JUL 16 Danske EM Briefer

Investment Research General Market Conditions
16 July 2010
Emerging Markets Briefer

FX: PLN and CZK rebound
• With market concerns shifting slightly from Europe to the US, the downtrend in
EUR/USD seems to have been halted for now, which has given some support to the Contents
EUR-sensitive EM currencies over the past month. Most notable have been the
rebounds in PLN, CZK and HUF and we think that especially PLN and CZK could Poland ................................................................................. 2
Czech Republic .......................................................... 3
see further gains. On the negative side have been the USD-sensitive currencies like
Hungary ............................................................................. 4
MXN, KZT, EGP, INR and ILS. It is also notable that the Asian currencies have not
Romania ............................................................................ 5
performed especially well despite continued talk about Chinese revaluation.
Bulgaria ............................................................................. 6
Stock markets: Chinese stocks continue to underperform Estonia ................................................................................ 7
• The past month has been relatively good for the EM stock markets. A notable Latvia .................................................................................... 8
exception is the Chinese stock market that continues to slide on concerns about how Lithuania ........................................................................... 9
sharp the expected slowdown in the Chinese economy will be. Russia.............................................................................. 10
Ukraine ........................................................................... 11
Risk adjusted FX change against EUR Turkey.............................................................................. 12
FX change against EUR and USD
and USD South Africa .............................................................. 13
4 1.0 Brazil................................................................................. 14
3
0.5
2 Mexico ............................................................................ 15
1 0.0
%
0
-0.5
%
China ................................................................................. 16
-1
-2 -1.0 Hong Kong .................................................................. 17
-3
-1.5
-4 Taiwan ............................................................................ 18
-5 -2.0
South Korea .............................................................. 19
SGD
EGP
PLN
UAH
MXN
HUF
ILS
CZK
IDR
TWD
PHP
RUB
KRW
MYR
BRL
ZAR
INR
TRY
CNY
RON
KZT
SGD
EGP
PLN
UAH
MXN
HUF
ILS
CZK
IDR
TWD
MYR
ZAR
PHP
RUB
KRW
BRL
INR
TRY
CNY
RON
KZT
(Simple average relative to EUR and USD) (Annualised return divided by 1-year) Thailand ......................................................................... 20
Source: Reuters Ecowin Source: Reuters Ecowin Malaysia ....................................................................... 21
Philippines .................................................................. 22
Indonesia ...................................................................... 23
India.................................................................................... 24
Change in 2 year swap yield Stock market performance
FX Forecast ............................................................... 25
30
20
8 Forecasts vs. Forwards ................................ 28
6
10 4 Monetary Policy Calendar ......................... 29
0 2
bp -10 %0
-20 -2
-30 -4
-40 -6
-8
-50
UAH
HUF
ILS
IDR
TWD
PHP
RUB
INR
MYR
KRW
BRL
ZAR
SGD
TRY
CNY
RON
EGP
PLN
MXN
SKK
CZK
HKD
PLN
HUF
IDR
CZK
INR
KRW
ZAR
BRL
(Local
Source: Reuters Ecowin Source: Reuters Ecowin
www.danskeresearch.com
Poland
Macro outlook
• The outlook for the Polish economy continues to be bright. Taking into account the
data on Q1 GDP growth, we have revised our growth forecasts up for this year and
PLN
next year on the back of a more promising outlook for private consumption. We now Credit rating:
expect the Polish economy to grow 3.0% y/y in 2010 and 4.0% y/y in 2011.
S&P: A- (stable)
• The outlook for Polish labour market conditions seems better than we previously
expected. Wage growth has picked up in recent months and we expect it to continue at Currency regime:
the current pace going forward. Furthermore, we do not expect unemployment to rise Free float (Freely convertible)
much further. According to our models, Polish unemployment should begin to drop
Inflation target:
from mid-2011. The positive development could lead to mounting pressure on Polish
inflation. 2.5% +/- 1%-point
Monetary policy outlook Macro forecasts:
• Polish inflation has ticked down in recent months and is now within the Polish central Macro monitor ( 25 June)
bank’s inflation target of 2.5% y/y +/-1pp. However, as unemployment reaches the
top and wage growth begins to speed up we should see pressure beginning to impact
Polish prices. We forecast inflation at 2.6% y/y this year and 3.0% y/y next year. FX forecast
• Recently Polish MPC member Bratkowski signaled that it might be necessary to hike EUR/PLN
rates in Poland soon. Our models indicate that inflation could move above 3% next Danske Forward
15-Jul 4.07
year - above the NBP's inflation target of 2.5% so we might see rate hikes in Poland
+3M 4.05 4.10
relatively soon. +6M 4.05 4.12
FX outlook +12M 4.00 4.15
USD/PLN
• The Polish zloty now trades at levels that we consider to be moderately undervalued
Danske Forward
from a longer-term perspective and we therefore see some potential for a 15-Jul 3.14
strengthening of the zloty on a 12-24 month horizon. Our short-term indicators for the +3M 3.52 3.17
zloty are also slightly bullish, but it should be noted that worries about the public debt +6M 3.43 3.18
situation in the euro area and Hungary add some short-term risks to the zloty. +12M 3.15 3.21
Source: Reuters Ecowin, Danske Markets
Growth still remains strong Inflation ticks up

Interest rate forecast
8 % y/y 8 6 % y/y 6
GDP, Poland % y/y %
7 7 5 Policy rate, NBP>> 5 National Bank of Poland (NBP)
6 6
4 4 Policy rate 3.50
5 5
4 4 3 3 Next meeting 26-30/7/2010
3 3 2
<< Inflation, Poland
2
Next change + 25 bp Q3, 2010
2 2 Year-end 4.00
1 1 1 1
0 0 0 0
02 03 04 05 06 07 08 09 06 07 08 09 10
Macro forecast
Source: Reuters Ecowin Source: Reuters Ecowin 2009 2010 2011
GDP (% y/y) 1.7 3.0 4.0
Inflation (% y/y) -1.6 -1.1 -0.5
Unemployment (%) 11.9 12.4 12.4
Current Account (% of GDP) 3.5 2.6 3.0
2| 16 July 2010
Czech Republic
Macro Outlook
• Economic activity improved further in Q1 10 with GDP growth of 1.1% y/y, CZK
compared with -3.2% y/y in Q4 09. On a quarterly basis the Czech economy
expanded by 0.5% in both Q4 09 and Q1 10. Economic growth was driven mainly by Credit Rating:
foreign trade while domestic demand and investment remain weak. We do not expect
S&P: A (stable)
a strong recovery in the Czech economy this year, but think that a more sustained
economic recovery can be expected in 2011. We expect the economy to grow around Currency regime:
0.5% y/y this year, around 2.4% y/y in 2011 and around 3.7% y/y in 2012.
Free float (Freely convertible)
• Industrial production continues to advance strongly. Industrial production in May Inflation target:
expanded by an impressive 16.9% y/y, partly helped by a base effect. Looking ahead,
we expect some slowdown in industrial production in the coming months, but it will 2010: 2% +/- 1%-point
not be dramatic. Macro forecasts:
• Inflation edged up in the past months. In June inflation surprised slightly on the Macro monitor (25 June)
downside when it remained flat at 1.2% y/y compared to May despite it generally
being expected that it would rise further. Overall, demand-led inflationary pressure is
practically absent as private consumption remains depressed and inflation is pushed FX forecast
up mainly by higher regulated prices, energy and food prices. EUR/CZK
Monetary Policy Outlook Danske Forward
15-Jul 25.38
• The Czech key policy rate is at an all-time low of 0.75%. Given the sluggish +3M 24.80 25.39
economic recovery this year with further downside risks posed by the debt crises in +6M 24.40 25.38
Eurozone – the Czech Republic’s main trading partner – the Czech central bank will +12M 23.60 25.34
be in no hurry to restart monetary tightening any time soon. That was confirmed by USD/CZK
the new Czech central bank governor Miroslav Singer and other board members. Danske Forward
15-Jul 19.63
FX Outlook +3M 21.57 19.63
• The Czech koruna is currently trading at levels that we consider to be undervalued +6M 20.68 19.63
relative to our ‘fair value’ assessment for CZK. We are bullish on CZK on both a +12M 18.58 19.60
short and long-term horizon. The short-term outlook is relatively bullish as valuation,
the technical picture and improving macroeconomic conditions support further CZK
gains on a one-to-three month horizon. On the long-term horizon CZK will be helped Interest rate forecast
by the improving current account situation given our expectation that the current Czech National Bank (CNB)
account will turn positive already this year. Policy rate 0.75
Next meeting 05 Aug 2010
Next change - Unchanged 2010
Real recovery started in Q1 Czech koruna gained some ground
Year-end 0.75
7 7 22 22 Source: Danske Markets
6 % y/y % y/y 6
5 5 23 23
4 4 EUR/CZK (reversed)
GDP 24 24
3 3
2 2
1 1
25 25 Macro forecast
0 0 26 26
-1 -1
-2 -2 27 27 2009 2010 2011
-3 -3
-4 -4
28 28 GDP (% y/y) -4.1 0.5 2.4
-5 -5 29 29
-6 -6 Inflation (% y/y) -1.1 1.3 2.1
-7 -7 30 30
96 98 00 02 04 06 08 10 Jul Oct Jan Apr Jul Oct Jan Apr Jul Unemployment (%) 9.1 10.1 10.7
08 09 10
Source: Reuters Ecowin Source: Reuters Ecowin Source: Reuters Ecowin, Danske Markets
3| 16 July 2010
Hungary
Macro outlook
• The Hungarian economy has moved up over the past couple of quarters. However, it HUF
is highly uncertain whether the recovery will continue in the coming quarters. There
are significant uncertainties surrounding the Hungarian debt situation which will Credit rating:
affect growth negatively. We have revised growth slightly down and now expect the
S&P: BBB- (stable)
economy to contract by 1.9% y/y this year and to grow by 3.0% y/y next year.
Currency regime:
• However, the European debt crisis adds significant downside risks to these forecasts.
Hungary in our view is among the countries in Central and Eastern Europe that are Free float (Freely convertible)
most sensitive to a further deepening of the euro crisis. Furthermore, the recent sharp Inflation target:
sell-off in the forint is likely to hit Hungarian households with FX loans, which could
in turn weigh on the already weak private consumption. 3% (medium term)
• We expect a continued deterioration of Hungarian labour market conditions. We still Macro forecasts:
expect unemployment to continue to rise over the next couple of years – to 13.6% in Macro monitor (25 June)
2010 and 14.7% in 2011, and consequently wage growth should remain low at 2.2%
y/y in 2010 and 3.4% y/y.
FX forecast
• The conservative Fidesz party won a landslide victory in the recent elections. It has
EUR/HUF
been a rather shaky start for Fidesz as governing party as rather misplaced comments
Danske Forward
from Fidesz’s top officials about the economic situation in Hungary shocked financial 15-Jul 279.72
markets. That on the positive side probably have made Fidesz’s “growth agenda” far +3M 285.00 282.07
too ambitious in the sense that the massive tax cuts Fidesz promised during the +6M 285.00 283.89
election campaign would have led to serious fiscal troubles. +12M 280.00 287.30
USD/HUF
Monetary policy outlook Danske Forward
• Hungarian inflation is currently at a fairly high level due to last year’s VAT hike. 15-Jul 215.67
However, this is only temporary and there is currently no inflationary pressure in +3M 247.83 218.04
+6M 241.53 219.55
Hungary so we expect a gradual decline going forward. We expect inflation on
+12M 220.47 222.27
average to be 5.2% y/y in 2010 and 4.6% y/y in 2011. The MNB has cut interest rates
relatively aggressively, but the recent sell-off in the forint and the increased Source: Reuters Ecowin, Danske Markets
uncertainty about the outlook for fiscal policy probably mean the easing cycle has
come to an end. That said, the Fidesz-led government has demanded aggressive rate Interest rate forecast
cuts from the NBP. There is a serious risk in our view that the conflict between the Hungarian Central Bank (MNB)
MNB and the government will intensify in the coming months. Policy rate 5.25
Next meeting 19 Jul 2010
FX outlook Next change - Unchanged 2010
Year-end 5.25
• We now expect a current account surplus in Hungary, which is positive for the longer-
Source: Reuters Ecown, Danske Markets
term outlook for the forint. However, most short-term indicators point in the opposite
direction. Hence, Hungarian growth remains lacklustre, interest rates levels no longer
provide attractive carry (to risk) and the short-term momentum is somewhat negative
Macro forecast
for the forint. Furthermore, we are concerned about the Hungarian comments about
the relationship with the EU and the IMF. It is clear that there is serious tension 2009 2010 2011
GDP (% y/y) -6.3 -1.9 3.0
between the parties regarding the need to take further measures to tighten fiscal policy
Inflation (% y/y) 0.2 1.8 1.3
as part of Hungary’s standby-agreement with the IMF and EU, which could endanger
Unemployment (%) 10.8 13.6 14.7
the standby-agreement. In addition to this, the government’s hostile attitude toward
the Hungarian central bank over interest rates and the MNB governor’s salary is a key
Source: Reuters Ecown, Danske Markets
risk. These factors clearly add to the downside risks to the Hungarian currency.
4| 16 July 2010
Romania
Macro outlook
• The Romanian economy continues to be in a deep crisis. The sharp drop in economic RON
activity is broadly based, but we are especially concerned about the outlook for
private consumption and investment. In recent years we have seen a credit-driven Credit rating:
boom in private consumption. On a positive note, there are relatively strong signs of a
S&P: BB+ (stable)
recovery in the Romanian manufacturing sector as exports help drag industrial
production out of the slump. Currency regime:
• There are clear signs that bad loans are rising sharply in the banking sector, which Free float (Freely convertible)
will add to already subdued credit growth, which in turn will put a lid on investment
Inflation target:
and private consumption growth.
2010: 3.5% +/- 1%-point
• Public dissatisfaction with the government’s austerity measures is rising and political
risks are a key question mark in terms of the outlook for further fiscal consolidation. 2011: 3.0% +/- 1%-point
Monetary policy outlook

• Inflation continues to inch down in Romania and economic activity is in free fall. This
has led the Romanian central bank (NBR) to ease monetary policy. However, we
believe the scope for further monetary easing is very limited, as rates have come FX forecast
down significantly already. Furthermore, the recent weakening of the Romanian leu
EUR/RON
and concerns over the fiscal situation limit the scope for monetary easing.
Danske Forward
FX outlook 15-Jul 4.27
+3M 4.50 4.32
• The leu has held up remarkably well given the extent of the economic and financial
+6M 4.50 4.38
crisis in Romania. However, the leu has come under some pressure recently on the +12M 4.55 4.47
back of concerns about Romania’s standby-agreement with the EU and the IMF and USD/RON
renewed growth concerns. Overall, however, we think that the leu is trading at a level Danske Forward
relatively close to what we consider to be long-term fair value levels. 15-Jul 3.30
+3M 3.91 3.34
• The Romanian economy and financial position could be hard hit by continued worries +6M 3.81 3.38
about Greece, which could in turn put pressure on the leu. In that connection, it should +12M 3.58 3.46
be noted that Greek banks have a considerable market share in the Romanian banking Source: Reuters Ecowin, Danske Markets
market.

VAT hike will push inflation sharply up Weak and fragile recovery
National Bank of Romania (NBR)
10.0 % y/y 10.0 Policy rate 6.25
15 % y/y % y/y 15 % y/y
7.5 7.5
13 Inflation, Romania 13
5.0 5.0
2.5 2.5
11 11
0.0 0.0 Year-end 6.50
9 9 GDP, Romania
-2.5 -2.5 Source: Reuters Ecowin, Danske Markets
7 7
-5.0 -5.0
5 5 -7.5 -7.5
3 3 -10.0 -10.0
03 04 05 06 07 08 09 01 02 03 04 05 06 07 08 09
Source: Reuters Ecowin, Danske Markets Source: Reuters Ecowin
5| 16 July 2010
Bulgaria
Macro outlook
• The Bulgarian economy has gone from boom to bust and economic activity has BGN
dropped sharply over the past year. The drop in economic activity is broadly based,
but the real estate market that has become extremely overheated is likely to take the Credit rating:
worst beating.
S&P: BBB (stable)
• There are still very few signs of a recovery in the Bulgarian economy. Furthermore,
Currency regime:
the serious debt crisis in Greece is likely to have a seriously negative impact on
Bulgarian growth both through lower exports to Greece, which is a main export Currency board
market for Bulgaria, and through tighter credit conditions as Greek banks have a key Inflation target:
market position on the Bulgarian banking market. Furthermore, the recent turmoil in
the Hungarian markets is likely to have a negative impact on the Bulgarian economy – No inflation target due to the
especially through the Hungarian banking exposure to the Bulgarian market. currency board regime
FX & Monetary policy outlook

• The Bulgarian central bank continues to conduct its monetary policy within the
framework of a currency board system.
• Liquidity and credit conditions remain very tight and the present situation is not FX forecast
sustainable in the long run as the tight credit conditions hamper economic activity.
EUR/BGN
• It has been a long held priority of different Bulgarian governments to first join the Danske Forward
ERM2 and later the eurozone. However, the Greek crisis has clearly dented Bulgaria’s 15-Jul 1.96
euro ambitions. +3M 1.96 -
+6M 1.96 -
+12M 1.96 -
USD/BGN
Deflationary trends Boom-BUST Danske Forward
17.5 % y/y
% y/y
17.5 7.5 % y/y
% y/y
7.5 15-Jul 1.51
15.0 15.0
Inflation, Bulgaria 5.0 5.0 +3M 1.70 -
12.5 12.5
10.0 10.0 2.5 GDP, Bulgaria 2.5 +6M 1.66 -
7.5 7.5 0.0 0.0 +12M 1.54 -
5.0 5.0 -2.5 -2.5
2.5 2.5 Source: Reuters Ecowin, Danske Markets
0.0 0.0 -5.0 -5.0
-2.5 -2.5 -7.5 -7.5
04 05 06 07 08 09 03 04 05 06 07 08 09
Source: Reuters Ecowin, Danske Markets Source: Reuters Ecowin
6| 16 July 2010
Estonia
Macro Outlook
• The Estonian economy continues to contract but at a decelerating rate: GDP declined EEK
by 2.0% y/y in Q1 10, significantly up from a drop by 9.5% y/y in Q4 09. Domestic
demand remained weak, decelerating to minus 11% y/y, influenced by the continuing Credit rating:
sharp decrease in gross fixed-capital formation (23% y/y) and private consumption
S&P: A- (stable)
(8% y/y).
Currency regime:
• Goods exports increased by 35% y/y and imports by 16% y/y at current prices in
April. The fast-growing export trend indicates that this year can expect the positive Currency board, ERM2 member
GDP results up to 1% in average in this year.[could add 1% to GDP this year.] (Freely convertible)
• However, undoubtedly there are still risks associated with the deterioration in the Inflation target:
external environment, as well as a number of uncertainties concerning the
None, due to fixed exchange rate
competitiveness of enterprises, particularly in the context of cost inflation.
• Estonian Industrial production (IP) growth slowed to 17% y/y in May, but mostly
FX forecast
because of still very weak domestic sales, as export sales from manufacturing
increased by 46% y/y. Currently all economic growth is being driven by recovering EUR/EEK
external demand. The slowdown in Estonian retail trade decelerated significantly in Danske Forward
May and retail sales decreased by 5% y/y, up from a drop of 9% y/y in May[April?]. 15-Jul 15.64
+3M 15.65 -
We assume that consumer confidence improved as a result of the upcoming Estonian
+6M 15.65 -
membership of the euro area.
+12M 15.65 -
• Despite the continued slowdown in domestic demand, inflation in Estonia reached the USD/EEK
unexpectedly high level of 3.5% y/y. The current consumer price dynamic poses Danske Forward
15-Jul 12.08
additional threats to inflation in Estonia. Whereas previously we thought that the main
+3M 13.61 -
risk came from external markets, it is now clear that domestic market inefficiencies +6M 13.26 -
may bring some surprises as well. +12M 12.32 -
• The unemployment rate jumped to almost 20% in Q1 10. We expect it to remain at
this peak in the present cycle, around 21% for this year.
FX & Monetary Policy Outlook
• Estonia will become the 17th member of the euro area on 1 January 2011. The
positive decision was made despite the ECB’s concerns that the inflation criterion is
not sustainable.
Risk Factors
• The significant upside risks to inflation remain and this could adversely affect the
country’s international competitiveness.
Recovering trend New spike in inflation

39 39 12 12
% y/y % y/y 11 % y/y % y/y 11
10 10
24 24 9 CPI 9
8 8
7 7
9 9 6 6
5 5
4 4
-6 Industrial production -6
3 3
GDP 2 2
Export 1 1
-21 -21
0 0
-1 -1
-36 -36 -2 -2
01 02 03 04 05 06 07 08 09 02 03 04 05 06 07 08 09 10
7| 16 July 2010
Latvia
Macro Outlook
• Obviously we see signs of relief in the Latvian economy. Latvian GDP was down 6% LVL
y/y for Q1 10, up from a negative 16.9% y/y in Q4 09. According to seasonally
adjusted data, GDP increased only by 0.3% q/q. Thus the majority of the Credit rating:
improvement over the first quarter this year came from the positive low base effect.
S&P: BB (stable)
• We leave our forecasts unchanged and still expect GDP to fall this year by as much as
Currency regime:
4% y/y. This is broadly consistent with IMF and EC expectations.
Quasi-currency board, ERM2
• Latvian industrial production (IP) continues to grow at a robust pace: in May IP
member (Freely convertible)
growth accelerated to 13.3% y/y up from 9.7% y/y in April. However, this was from a
strong positive base. Due to weak domestic demand, the recovery should remain Inflation target:
gradual, as the upward trend relies mainly on external demand. Confidence among None, due to fixed exchange rate
industrial companies improved in June, again supporting the expectation for a more
sustained IP recovery.
• Unemployment reached almost 20% in Q4 09 and could stay at this kind of level for
the remainder of 2010.
FX forecast
• In Latvia, deflationary pressure eased significantly in June to minus 1.4% y/y, up
from minus 2.3% y/y in May. The negative domestic demand trend, which is expected to EUR/LVL
continue, should hold up any rapid price increase, at least in the current year. But there is still a high Danske Forward
risk of a strong pass-through of global commodities energy prices to local consumer prices. We have 15-Jul 0.71
revised our CPI forecast up again, as we believe Latvian deflation will be at a +3M 0.70 -
+6M 0.70 -
negative 1.7% on average for 2010.
+12M 0.70 -
FX & Monetary Policy Outlook USD/LVL
• The Latvian lat (LVL) is pegged to the euro through ERM II, but renewed pressure on Danske Forward
15-Jul 0.55
the currency should certainly not be ruled out.
+3M 0.61 -
• The rating agency Standard & Poor's has revised upward, from negative to stable, the +6M 0.59 -
outlook for Latvia's credit rating +12M 0.55 -
Risk Factors
• Despite objections from the Latvian banks, on 17 June the Latvian Parliament
approved the final reading of a new law on insolvency, which contains the legal
regulation of obligations by debtors experiencing financial difficulties.
• It is therefore unlikely that Mr. Zatlers will be able to permanently block the
implementation of this law. The law, in our view, could have an adverse impact on the
credit recovery process in Latvia.
GDP is stabilizing Confidence improved

40 40 3M interest rates
% y/y % y/y 30
30 30 % y/y 30
% y/y
25 25
20 20 <<RIGIBOR
10 10 20 20
0 0 15 15
GDP
-10 -10 10 10
Industrial production
-20 Export -20 5 5
EURIBOR >>
-30 -30 0 0
01 02 03 04 05 06 07 08 09 1 4 7 10 1 4 7 10 1 4 7 10 1 4
07 08 09 10
8| 16 July 2010
Lithuania
Macro Outlook
• Lithuanian GDP fell by 2.8 % y/y in Q1 10, up from minus 12.1% y/y in Q4 09. Q/Q LTL
seasonally adjusted GDP growth turned to negative territory. Household consumption
expenditure fell by 10% y/y and gross fixed capital formation dropped by 30.2% y/y. Credit rating:
Only exports indicated a positive result: resurgent manufacturing production exports
S&P: BBB (stable)
grew by 2.8% y/y.
Currency regime:
• Based on more positive export performance we have upgraded our GDP forecast, but
given the high level of uncertainty, we leave it, for this year, in negative territory Currency board, ERM2 member
(-1.6% y/y). However, we believe the positive factors outnumber the negative ones, (Freely convertible)
and could improve our forecasts further. In May, Lithuanian IP continued upward, but Inflation target:
the growth rate slowed: IP increased by 3.2% y/y, down from 4.9% y/y in April.
None, due to fixed exchange rate
• The good news is that Lithuanian exports growth further accelerated in May and
exports and imports increased by 42.3% y/y and 24% y/y, respectively. Continued
strong growth in exports to Russia, Germany, Poland has been observed. These
markets are rapidly recovering from the crisis, providing hope that Lithuania's
economic recovery may become more sustainable.
• As expected, Lithuanian inflation accelerated further in June to 1.0% y/y from 0.7%
y/y in May. There is a clear risk that, despite weak domestic demand, external factors
could push consumer prices upward.
• Unemployment rose to 18% in Q1 10 and we expect the labour market to continue to

deteriorate. However, unemployment figures may be overestimated as some self-
employed people have moved on to the ‘black market’ but continue to register in FX forecast
order to get a tax allowance. EUR/LTL
FX & Monetary Policy Outlook Danske Forward
15-Jul 3.45
• Standard & Poor’s (S&P) Ratings Services has revised its outlook on Lithuania by +3M 3.45 -
increasing it from negative to stable. This increase in rating is due to the successful +6M 3.45 -
budget cuts and strong political will to keep its currency stable. +12M 3.45 -
USD/LTL
• Lithuania has postponed the official euro target to 2014.
Danske Forward
Risk Factors 15-Jul 2.67
+3M 3.00 -
• In spite of fiscal consolidation efforts, fiscal policy remains expansionary and the +6M 2.92 -
deficit is expected to remain at almost the same level as it was 2009. Lithuania’s PM +12M 2.72 -
Andrius Kubilius expressed concern that if Lithuania does not reduce its budget Source: Reuters Ecowin, Danske Markets
deficit to sustainable level it could lead to a situation similar to that in Greece.
However, the weak consensus among political parties on this issue renders this
difficult to achieve.
GDP is stabilizing Returning to the downward trend

40 40 3M interest rates
% y/y % y/y 10 10
30 30 %
9 % 9
<<VILIBOR
20 20 8 8
10 Export 10 7 7
6 6
0 0
5 5
-10 -10 4 4
Industrial production 3 3
-20 GDP -20
2 2
-30 -30
1 1
-40 -40 EURIBOR>>
0 0
03 04 05 06 07 08 09 07 08 09 10
9| 16 July 2010
Russia
Macro Outlook
• In the wake of the global crisis and drop in oil prices, GDP declined by 7.9% in 2009. RUB
A modest recovery is under way with GDP growth of 2.9% y/y in Q1 10.
Credit rating:
• We forecast moderate growth of 3.6% for 2010 as the credit crunch and low
investment activity continue to hold back the economy. We expect nominal credit S&P: BBB (stable)
growth to accelerate rapidly in Q4 2010 reaching 15% y/y growth by December.
Currency regime:
However, most of the growth is likely to come from the household sector supporting
consumption rather than investments. Managed peg versus dual currency
basket 45% EUR and 55% USD
• Unemployment has remained relatively low, and wage arrears are decreasing. This,
(Freely convertible)
together with increasing real wages, gives a positive outlook for consumption this
year, which is likely to outperform the GDP growth rate. Inflation target:
• The industrial sector is growing rapidly in year-on-year terms, mostly due to a very 7% in 2010 (December-on-
low base year. We think the recovery is still very fragile and sustainable growth needs December basis)
a more wide-ranging recovery in domestic consumption and investments.
• The trade balance surplus has been strong in H1 2010 due to the high oil price. But FX forecast
fast import growth in the past months implies that the trade balance is not likely to
contribute positively to GDP growth beyond 2010. We forecast gradually rising oil EUR/RUB
price, which should keep the current account surplus above 3% of GDP. Danske Forward
15-Jul 39.35
FX & Monetary Policy Outlook +3M 37.72 39.55
• On 30 June, the Central Bank of Russia (CBR) kept interest rates unchanged as +6M 35.99 39.88
+12M 36.20 40.76
expected. The CBR reiterated that no further rate cuts are needed for now, but we still
USD/RUB
believe a 25bp cut in August could be on the cards.
Danske Forward
• The CBR indicated in its statement that it expects inflation to pick up toward year end 15-Jul 30.37
(we agree) because fiscal policy remains extremely loose. +3M 32.80 30.58
+6M 30.50 30.84
• In our view, inflation pressures are widely underestimated and inflation is likely to +12M 28.50 31.53
accelerate from the current 5.8% y/y to above 10% within a year. Source: Reuters Ecowin, Danske Markets
Risk Factors
• The Russian banking sector recovery is a key issue when looking for internal growth
drivers. Bank of Russia (CBR)
Policy rate 7.75
• As Russia remains unstructured and depends mostly on the global oil price, these Next meeting Not announced
factors pose the biggest risk for the economy. Year-end 7.75
Source: Danske Markets
Investment activity remains lacklustre Inflationary pressures are mounting
40 40 25,0 25,0
% y/y % y/y % y/y % y/y
30 30 22,5 22,5
<< Fixed investments
Construction >>
20,0 20,0
20 GDP >> 20
17,5
<< Danske CPI model
17,5
Macro forecast
10 10
15,0 15,0
0 0 2009 2010 2011
12,5 12,5
-10 -10
10,0 10,0
GDP (% y/y) -7.9 3.6 4.1
CPI>>
-20 -20 7,5 official target 7,5 Inflation (% y/y) 3.8 4.5 3.1
-30 -30 5,0 5,0
Unemployment (%) 8.2 7.9 7.3
05 06 07 08 09 10 01 02 03 04 05 06 07 08 09 10 11

Source: Reuters Ecowin, Danske Markets Source: Reuters Ecowin, Danske Markets Source: Reuters Ecowin, Danske Markets
10 | 16 July 2010
Ukraine
Macro Outlook
• The Ukrainian economy contracted by 15% last year, led mostly by a deep decline in UAH
construction and manufacturing activities: construction fell by 48.3%, manufacturing
by 26% and retail sales by 17.9% last year. GDP is expected to return to growth in Credit rating:
2010, and the latest comments from the government imply an expected growth rate
S&P: B (stable)
above the budgeted 3.7%.
Currency regime:
• We see some signs of a recovery trend in the Ukrainian economy. However, the
recovery seems to be limited to industrial production, which has presented strong Managed peg versus USD
growth since the beginning of the year.
• Retail sales continue to look weak for the first five months of this year. But real
wages are increasing, and we expect the recovery in consumption to follow. However,
consumption growth remains subdued due to the banking sector, as bank loans to FX forecast
households are still decreasing.
EUR/UAH
• The construction sector is suffering from the credit crunch even more than Danske Forward
consumption. In May, construction activity was still declining by 20% y/y, despite the 15-Jul 10.19
very low base year. +3M 9.78 N/A
+6M 9.32 N/A
FX & Monetary Policy Outlook +12M 8.64 N/A
• Ukraine’s CPI eased in June to 6.9% y/y. We see an upward risk to the inflation USD/UAH
outlook for this year due to an expected rise in gas tariffs and utilities (IMF financial Danske Forward
15-Jul 7.90
package condition) and the global oil price.
+3M 8.50 N/A
• Ukrainian FX reserves shrank at a fast pace at the beginning of the year due to foreign +6M 7.90 N/A
+12M 6.80 N/A
exchange interventions. The outlook for the hryvnia has improved since then as the
IMF deal is practically done. Also, the political situation has remained calm with the
Ukrainian standards following the latest elections.
Risk Factors
• The IMF participation has somewhat diminished the risk of unsustainable fiscal
policy. The new government has agreed to keep budget deficit at 5% of GDP this year
and to cut it to 3.5% in 2011.
• The Russian and Ukrainian parliaments have ratified the agreement to extend the stay
of the Black Sea Fleet to 2042.
• Political instability continues to be perhaps the biggest risk related to Ukrainian

economy.
Real wage growth is picking up External debt

40 150 45 45
% y/y % y/y $ bln $ bln
40 40
30 125
35 35
20 100
30 30
<< Other sectors Banks >>
10 75 25 25
<< Retail sales << Government Monetary authorities >>
0 << Real wages 50 20 20
15 15
-10 Household credit>> 25
10 10
-20 0
5 5
-30 -25 0 0
05 06 07 08 09 10 03 04 05 06 07 08 09
Source: Reuters Ecowin, Danske Markets Source: Reuters Ecowin, Danske Markets
11 | 16 July 2010
Turkey
Macro outlook
• The Turkish economy has experienced a quite dramatic rebound in economic growth.
TRY
In Q1 10 the economy expanded 11.7% y/y – a growth rate only comparable to China.
Such a high growth rate is only temporary and can mainly be contributed to last year’s Credit rating:
significant economic setback. Going forward we expect Turkey to lead the region in
terms of economic growth albeit at a more modest pace. We forecast Turkish S&P: BB (positive)
economic growth of 7.9% y/y in 2010 and 5.9% y/y in 2011. Currency regime:
• The sharp Turkish economic recovery is primarily driven by a recovery in domestic Free-float (freely convertible)
demand. Growth rates in both private consumption and investments have now
returned to pre-crisis levels. The booming domestic demand has led to a large increase Inflation target:
in imports which will consequently weaken the current account balance. We expect 6.5% year-end 2010
the Turkish current account deficit to increase in 2010 to 4.7% of GDP.
5.5% year-end 2011
Monetary policy outlook
Macro forecasts:
• Rising economic activity and consequently rising wage growth will put upward
pressure on inflation going forward. We expect an average inflation of 9.0% y/y and Macro Monitor (14 July)
7.8% y/y – above the central bank’s year-end target of 6.5% y/y and 5.5% y/y in 2010
and 2011 respectively. Therefore, we also believe the monetary easing cycle has come
FX forecast
to an end and now believe that TCMB will hike its key policy rate by an accumulated
150bp during 2010. We expect the rate hikes to take place in H2 10. EUR/TRY
Danske Forward
FX outlook 15-Jul 1.98
• Overall we believe the lira is trading at slightly overvalued levels, which could put +3M 1.75 2.01
+6M 1.85 2.04
some pressure on the lira on a longer horizon. However, in the short run there are
+12M 2.11 2.11
some mitigating factors that support the lira – especially the continued relatively
USD/TRY
strong recovery in the Turkish economy and the outlook for higher Turkish interest
Danske Forward
rates. Furthermore, for euro-based investors it is relevant that we expect more euro 15-Jul 1.53
weakness against the dollar, which is likely to benefit the lira against the euro. +3M 1.52 1.56
+6M 1.57 1.58
• The biggest risk to the lira is another spike in global risk aversion, but if the global
+12M 1.66 1.63
economy continues to improve we believe the lira will remain relatively stable.
Furthermore, renewed political tensions between the Islamist-oriented Turkish
government and the strongly secular Turkish military and judiciary have spooked the
Turkish markets and continued tension could lead to further weakness in the lira. Interest rate forecast
Furthermore, the recent tensions between Turkey and Israel create some risk to both C.B. of the Republic of Turkey (TCMB)
Policy rate 6.50
Turkish and Israeli financial markets.
Next change + 50 bp H2, 2010
Year-end 8.00
Inflation eased in June Economy experienced strong rebound
13 % y/y 13 15 % y/y 15
Inflation, Turkey % y/y % y/y
12 12 10 10
11 11
10 10 5 5
GDP, Turkey
9 9 0 0
8 8
7 7
-5 -5 Macro forecast
6 6 -10 -10
5 5 -15 -15 2009 2010 2011
05 06 07 08 09 10 02 03 04 05 06 07 08 09 GDP (% y/y) -4.7 7.9 5.9
Inflation (% y/y) -2.2 -4.7 -3.4
12 | 16 July 2010
South Africa
Macro Outlook
• The South African economy expanded strongly in Q1, by an annualised 4.6% on the ZAR
previous quarter on a seasonally-adjusted basis, compared with growth of 3.2% in
Q4 09. On an annual basis, growth was 1.6% y/y, up from contraction of 1.4% y/y in Credit rating:
Q4 09. The economy was driven by the mining and manufacturing industries, on the
S&P: BBB+ (negative)
back of stronger foreign demand for South African goods. We expect the South
African economy to grow at an average rate of 2.5% y/y in 2010 and 3.5% y/y in Currency regime:
2011. The main risks to our forecast are the uncertain global growth picture and that
Free float (Freely convertible)
private demand fails to recover.
Inflation target:
• The South African PMI continues to fall. It came down for the fourth consecutive
month and even fell below the critical 50 level in June, to 48.4 from 51.1 in May. The 3%-6%
signals from the PMI have begun to be reflected in the manufacturing production data,
which came out slightly weaker than expected at 7.9% y/y in May, down from
downward revised April’s 8.7% y/y. Looking ahead, a further setback in
manufacturing production can be expected. FX forecast
• Unemployment continued to rise and in Q1 it accelerated to 25.2%. Rising EUR/ZAR

Danske Forward
unemployment suggests that private consumption will remain fairly weak in the next 15-Jul 9.76
few months. +3M 9.14 9.92
+6M 9.74 10.05
• South African inflation eased further in May, to 4.6% y/y down from 4.8% y/y in
+12M 11.18 10.33
April. Hence, inflation is now well within the South African central bank’s (SARB) USD/ZAR
inflation target band of 3-6%. Looking ahead, the inflation outlook remains fairly
Danske Forward
balanced with the main upside risk coming from administered prices. 15-Jul 7.55
Monetary Policy Outlook +3M 7.95 7.66
+6M 8.25 7.77
• The latest SARB’s MPC decision in mid-May was in line with expectations, with the +12M 8.80 7.99
interest rates left on hold. However, recent dovish comments from South African Source: Reuters Ecowin, Danske Markets
central bank governor Gill Marcus that the economic recovery is “hesitant” and
“uneven” raised speculations whether the SARB will continue its monetary easing.
Given the balanced outlook for inflation and the recovery losing steam we cannot rule
out that the SARB will deliver a 50bp rate cut on 22 July.
FX Outlook Interest rate forecast
• The rand is currently trading at levels we consider to be strongly overvalued, relative South African Reserve Bank (SARB)
to our ‘fair value’ assessment for ZAR. Given the overvaluation, both the short-term Policy rate 6.50
and long-term outlook for the rand are bearish. Next meeting 22 Jul 2010
Next change - 50 bp Jul, 2010
Year-end 6.00
PMI falls further Will SARB deliver further cut? Source: Danske Markets
15 70
Index % y/y % %y/y 13
10 Manufacturing production, South Africa>> 65
13
<<Repo rate, South Africa
5 60 11 11
0 55 9 9
-5 50 NewCPI >>
7 7
-10 45
5 CPIX>> 5
-15 40
<<PMI, SA, South Africa
-20 35 3 3
04 05 06 07 08 09 10
-25 30
02 03 04 05 06 07 08 09 10
13 | 16 July 2010
Brazil
Macro Outlook
• The Brazilian economy continues its robust recovery, driven mainly by consumer BRL
spending. In the first quarter the Brazilian economy grew 9% on an annual basis,
showing clear signs of overheating as the potential growth of Brazilian economy is Credit rating:
between 4% and 5%. We estimate that it could grow by as much as 6.5% this year. In
S&P: BBB- (stable)
order to prevent overheating of the economy and price pressures, the Brazilian
government has announced additional 2010 budget cuts and phase-out of Currency regime:
government’s tax breaks.
Free float (Non-convertible)
• Even though Brazil’s benchmark IPCA rolling 12-month inflation fell to 4.84% in Inflation target:
June, slowing from 5.22% in the 12 months through May, inflation remains above the
official year-end target of 4.5%. As the economy expands, driven mainly by buoyant 4.5% +/- 2%-point
private consumption, inflation will continue to head upwards in the coming months.
Monetary Policy Outlook FX forecast
• The central bank (BCB) delivered yet another 75bp rate hike in June, bringing EUR/BRL
Brazil’s benchmark Selic interest rate to 10.25%, in order to curb surging inflationary Danske Forward
15-Jul 2.28
pressure in the economy. In an attempt to prevent the Brazilian economy from
+3M 2.13 2.32
overheating the Brazilian central bank will continue with monetary tightening. We +6M 2.18 2.37
expect yet another 75bp rate hike at July’s monetary policy setting meeting. That will +12M 2.35 2.47
bring the Selic interest rate to 11.00%. USD/BRL
FX Outlook Danske Forward
15-Jul 1.76
BRL is currently trading at levels that we consider to be somewhat overvalued +3M 1.85 1.80
relative to our ‘fair value’ assessment for BRL. On a short-term horizon the fairly +6M 1.85 1.84
strong setback in commodity prices and deterioration of global conditions is not +12M 1.85 1.91
supportive of further gains in BRL. The overvalued nature of BRL limits further gains Source: Reuters Ecowin, Danske Markets
on the long-term horizon.
Domestic activity expands Central bank continues to hike Interest rate forecast
170 170 27.5 27.5
Level, Jan 2000 = 10 Central Bank of Brazil (BCB)
160
Level, Jan 2000 = 100
160 25.0 % % y/y 25.0
Industrial production, constant prices 22.5 22.5 Policy rate 10.25
150 150 << Policy rate, Brazil
20.0 20.0 Next meeting 21 Jul 2010
140 140 17.5 17.5 Next change + 75 bp Jul, 2010
130 130 15.0 15.0
12.5 12.5 Year-end 11.50
120 120
10.0 Inflation IPCA, Brazil >> 10.0
110 110
7.5 7.5
Retail sales, constant prices
100 100 5.0 5.0
90 90 2.5 2.5
01 02 03 04 05 06 07 08 09 10 03 04 05 06 07 08 09 10
14 | 16 July 2010
Mexico
Macro Outlook
• The Mexican economy shrank by 6.5% last year, but fairly robust growth should MXN
follow. We expect GDP growth this year of around 4.5%.
Credit rating:
• Industrial production rose at its fastest pace so far this year growing by 8.4% y/y in
May, up from April’s 6.1% y/y. Hence, the Mexican industrial sector continues to be S&P: BBB (stable)
driven by fairly strong external demand for Mexican goods especially from the US –
Currency regime:
Mexico’s main trading partner. On the other hand, domestic demand remains weak, as
rising unemployment limits the recovery in private consumption. Too slow a recovery Free float (Freely convertible)
in private consumption is one of the risks to our growth scenario.
Inflation target:
• Inflation in June dipped further below 4%, to 3.7% y/y, from May’s 3.9% y/y. It is 3.0% +/- 1%-point
now within the Bank of Mexico’s unofficial target range of 2% to 4%, although the
central bank still expects inflation to accelerate to between 4.75% and 5.25% in Q4
this year, before easing to 3% in Q2 2011. Overall, the inflation outlook is fairly
benign due to weak private demand. FX forecast
Monetary Policy Outlook EUR/MXN
Danske Forward
• The still weak Mexican economy and weak domestic demand might prevent the
15-Jul 16.52
Mexican central bank from tightening its monetary policy any time soon, and it is +3M 15.30 16.68
very likely that the central bank will keep the overnight lending rate unchanged at +6M 15.75 16.83
4.5% for some time to come, to support the economy. It seems very likely that the +12M 17.02 17.17
central bank will start monetary tightening in Q1 next year at the earliest. USD/MXN
Danske Forward
FX Outlook
15-Jul 12.77
• The Mexican peso is currently trading at levels that we consider to be somewhat +3M 13.30 12.89
overvalued relative to our ‘fair value’ assessment for MXN. Hence, the fact that the +6M 13.35 13.02
MXN is trading at fundamentally overvalued levels is likely to curb the strengthening +12M 13.40 13.28
of MXN on the long-term horizon. The short-term outlook is also relatively bearish as Source: Reuters Ecowin, Danske Markets
the deteriorating global conditions and the setback in commodity prices limit any
gains of MXN on a one-to-three months’ horizon. Interest rate forecast
Private consumption is fragile Interest rates on hold for some time Bank of Mexico (Banxico)
Policy rate 4.50
12.5 12.5 10 10 Next meeting 16 Jul 2010
% y/y % y/y % % y/y
10.0 10.0 9 9 Next change - Unchanged 2010
<< O/N rate. Mexico
7.5 7.5 8 8 Year-end 4.50
5.0 5.0
7 7
2.5 2.5
6 Inflation, Mexico >> 6 Source: Danske Markets
0.0 0.0
5 5
-2.5 -2.5
-5.0 -5.0 4 4
<< Retail sales, Mexico
-7.5 -7.5 3 Inflation target band 3
-10.0 -10.0 2 2
04 05 06 07 08 09 10 04 05 06 07 08 09 10
15 | 16 July 2010
China
Macro Outlook
• China’s growth has now started to slow. GDP growth in Q2 declined to 8.0% q/q AR
CNY
from 12.0% q/q AR in the previous quarter. Growth is slowing because the positive
growth impact from the government’s massive stimulus last year has started to wane Credit rating:
and because of the government’s recent tightening measures targeting primarily real
S&P: A+ (stable)
estate. Exports so far have proven surprisingly resilient, but export growth is expected
to ease in H2 2010. We regard this as a healthy moderation rather than a severe Currency regime:
slowdown in growth.
Crawling USD peg
• Inflationary pressure has started to ease, with headline inflation surprisingly declining
Inflation target:
to 2.9% y/y in June, below the government’s official 3% target for 2010. In addition
property prices declined in June following the government’s tightening measures. 3% for 2010
With the risk of overheating declining fast, China has now room to ease both fiscal
and monetary policy if growth slows more than expected.
• China’s current account is expected to remain in a substantial surplus and improve

FX forecast
slightly to 5% of GDP, following a sharp decline in the trade surplus in 2009. The
budget deficit remains modest around 3% of GDP and China still has room to ease EUR/CNY
Danske Forward
fiscal policy if growth falters again.
15-Jul 8.77
Monetary Policy Outlook +3M 7.77 8.76
+6M 7.87 8.72
• So far The People’s Bank of China (PBoC) has tightened monetary policy by curbing +12M 8.29 8.65
credit growth and by raising the reserve requirement ratio for commercial banks twice USD/CNY
by 50bp. In addition China resumed appreciation of CNY in June and several
Danske Forward
regulatory tightening measures have been announced. 15-Jul 6.78
+3M 6.76 6.77
• With growth slowing and inflationary pressure easing we have scaled back our
+6M 6.67 6.75
expectations of further monetary tightening, but we do expect PBoC to raise its +12M 6.53 6.69
leading interest rate by 27bp before year-end. Source: Reuters EcoWin, Danske Markets
FX outlook
• China in June resumed appreciation of CNY against USD. With growth slowing and
inflationary pressure easing we only expect a modest appreciation of CNY. With
resilient exports and the trade balance surplus again increasing, we still believe the
appreciation case is strong. So far CNY has appreciated by close to 1% against USD
and we expect CNY to appreciate by another 3% over the next year.
GDP growth slowing and inflationary People's Bank of China (PBOC)

China resumes appreciation of CNY Policy rate 5.31
pressure easing Next meeting Not announced
USD/CNY % q/q AR GDP growth % q/q AR Next change + 27 bp Q3, 2010
6.85 Spot 6.85 14 14
Year-end 5.85
6.80 6.80 12 12
Source: Reuters EcoWin, Danske Markets
6.75 3 month forward 6.75 10 10
6.70 6.70 8 8
6.65 6.65 6 6
6.60 6.60 4 4
12 month forward
6.55 6.55 2 2
Jun Aug Oct Dec Feb Apr Jun 07 08 09 10
09 10
Source: Reuters EcoWin, Danske Markets Source: Reuters EcoWin, Danske Markets
16 | 16 July 2010
Hong Kong
Macro Outlook
• Hong Kong’s economy has recovered sharply supported by a major fiscal stimulus HKD
package, monetary easing and not least a strong recovery in China. GDP contracted
by over 2.7% in 2009 but is expected to expand more than 6% in 2010. Credit rating:
• Inflation has picked up again and deflation is no longer a threat. The property market S&P: AA+ (stable)
is recovering rapidly, supported by strong capital inflows from mainland China. There
Currency regime:
is an increasing risk of property market bubbles, not least because real interest rates
are negative. Currency board/USD peg
Monetary Policy Outlook Inflation target:

• Due to the country’s USD currency board, interest rates are linked to their US No target
counterparts. As a result, money market rates are now expected to remain unchanged
until at least Q1 11. With growth increasingly decoupling from the US, pegging
monetary policy to the US could be potentially destabilising.
• Decoupling of the Asian business cycle from the US cycle presents a major challenge
FX forecast
for monetary policy in Hong Kong.
EUR/HKD
FX Outlook
Danske Forward
• Hong Kong’s currency is pegged to USD. At present, the country is being flooded by 15-Jul 10.05
USD liquidity. Its Monetary Authority (MA) has been buying USD to keep HKD +3M 8.94 10.04
within its trading band. However, appreciation pressure has eased in the wake of the +6M 9.17 10.03
+12M 9.88 10.01
European debt crisis.
USD/HKD
• Hong Kong is expected to maintain its US dollar peg for the foreseeable future. We Danske Forward
do not anticipate the country abandoning its USD peg when China permits the CNY 15-Jul 7.77
to appreciate once again. That said, in the very long term the authorities target some +3M 7.77 7.76
+6M 7.77 7.75
sort of linkage to CNY, but full CNY convertibility is probably a necessary condition
+12M 7.78 7.74
for HKD to abandon its USD peg. However, we cannot completely rule out the
possibility that the narrow trading band could be widened to provide more flexibility
in monetary policy.
HKD has weakened slightly in the Real interest rate is negative a Interest rate forecast
wake of the debt crisis challenge for monetary
Hong Kong's Monetary Authority (MA)
7.90 7.90 Policy rate 0.50
6 % y/y % 6
3M interbank interest Next meeting Not announced
7.85 7.85 4 4 Next change + 25 bp Q1, 2011
USD/HKD Year-end 0.50
2 2
7.80 7.80
0 0
7.75 7.75 << Consumer prices
-2 -2
7.70 7.70 -4 -4
06 07 08 09 10 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Source: Reuters EcoWin
17 | 16 July 2010
Taiwan
Macro Outlook
• Taiwan has recovered very rapidly due to aggressive fiscal easing, an improved global TWD
electronics market and not least strong exports to the important Chinese Market. GDP
expanded a whopping 14.8% y/y in Q1 10, but is expected to slow in the coming Credit rating:
quarters not least because of slower growth in exports to China.
S&P: AA- (stable)
• Despite the strong recovery inflation remains subdued and below the central bank’s
Currency regime:
medium-term 2% inflation target.
Free float
• Liberalisation of economic ties with China could be a major positive for Taiwan.
Tourism, transport and regulation of foreign direct investments for financial Inflation target:
institutions have recently been liberalised. In addition, Taiwan and China have
2% medium-term
concluded a trade agreement. This is very positive news for Taiwan.
Monetary Policy Outlook
• Despite muted inflation Taiwan’s central bank joined the Asian rate hike club in June,
when it raised its leading interest rate by 25bp to 1.5%. In light of the strong recovery
real interest rates remain low and hence we expect two additional rate hikes before FX forecast
year-end. EUR/TWD
15-Jul 41.63
• TWD remains well supported by a strong current account position. Despite its recent
+3M 36.57 41.47
appreciation, the currency remains substantially undervalued. The central bank has
+6M 35.99 41.34
intervened heavily in the market. Capital controls prohibiting foreigners’ TWD time +12M 38.10 41.04
deposits were introduced in November, to prevent further TWD appreciation. USD/TWD
Danske Forward
• TWD has depreciated slightly in the wake of the European debt crisis but we expect it
15-Jul 32.11
to appreciate again supported by continued CNY appreciation.
+3M 31.80 32.06
• Ma Ying-jeou from the Kuomintang won a landslide victory in the presidential +6M 30.50 31.97
+12M 30.00 31.75
election in March 2008. The Kuomintang has a majority in Parliament. Political
stability is on the cards, even though the slowdown is starting to weigh on the
government’s popularity.
• The political agenda has shifted from independence to an economic agenda including
liberalisation of economic ties with Mainland China. Political tensions between
Taiwan and China have eased considerably, and this is currently a major positive for
Taiwan. Interest rate forecast
But inflationary pressure modest so Central Bank of Taiwan (CBT)

Export recovery remains very strong Policy rate 1.38
far Next meeting Not announced
20 % 3m/3m % 3m/3m 20 12 12 Next change + 12.5 bpQ3, 2010
% %
10 10 CPI, % 3M AR Year-end 1.75
8 8
0 0 Source: Reuters EcoWin, Danske Markets
4 4
-10 Industrial production -10
0 0
-20 -20
CPI, % y/y
-30 -30 -4 -4
Exports
-40 -40 -8 -8
04 05 06 07 08 09 10 07 08 09 10
18 | 16 July 2010
South Korea
Macro Outlook
• The South Korean recovery has been remarkably strong and GDP growth in Q1 10 KRW
accelerated to 1.8% q/q on the back of a strong improvement in domestic demand.
Industrial production is now above its pre-crisis level. The recovery has been Credit rating:
supported by aggressive fiscal easing and solid export growth, driven not least by
S&P: A (stable)
South Korea’s most important export market – China. With the output gap closing
fast, growth will eventually slow. Currency regime:
• The current account has returned to a substantial surplus due to the strong recovery. Free float
• Inflation has eased to slightly below 3% y/y, and is now at the lower end of the Bank Inflation target:
of Korea’s 3.0% +/-1pp target range. While recent KRW appreciation is likely to
3.0% +/- 1%-point
prevent a sharp near-term acceleration in inflation, we expect it to increase gradually
into the upper part of the central bank’s target range in H2 10.
• Despite the output gap closing fast, short-term real interest rates have remained
FX forecast
negative and Bank of Korea (BoK) has in our view been one of the central banks in
Asia most behind the curve. BoK finally started tightening monetary policy in July. EUR/KRW
Danske Forward
• We think BoK will continue to guide its leading interest rate towards a neutral level 15-Jul 1554.50
and we expect two additional rate hikes before year-end. However, there is +3M 1357.00 1554.96
considerable political pressure on BoK to restrain its tightening and with growth +6M 1268.50 1560.06
slowing there is an increasing risk that BoK will tighten less. +12M 1333.50 1564.37
USD/KRW
Danske Forward
FX Outlook 15-Jul 1201.50
+3M 1180.00 1202.00
• KRW has weakened significantly against USD in the wake of the European debt
+6M 1075.00 1206.50
crisis. In addition, the announcement of tighter regulation of forward positions +12M 1050.00 1210.30
announced in June has weighed on KRW. Source: Reuters EcoWin, Danske Markets
• However, KRW remains hugely undervalued and FX intervention to stem

appreciation should ease, as concerns over growth fade and China continues the
gradual appreciation of CNY. KRW is currently well supported by a favourable
current account position, portfolio inflows and a strong international liquidity
position, with FX reserves substantially exceeding short-term debt.
• Geopolitical risks are increasing, on concerns over the health of North Korean leader
Kim Yung Il, and the transition to a new leadership in North Korea. In addition,
political tensions have risen, on increasing speculation that North Korea was behind
the sinking of a South Korean warship recently.
GDP growth accelerates in Q1 Inflation remains muted Interest rate forecast
4 % q/q 4 10 10
Bank of Korea (BOK)
% q/q Consumer prices
GDP % % Policy rate 2.25
2 2 8 8 Next meeting 12 Aug 2010
3m/3m AR Next change + 25 bp Q3, 2010
0 0 6 6
y/y Year-end 2.75
-2 Domestic demand -2 4 4 Source: Reuters EcoWin, Danske Markets
-4 -4 2 2
-6 -6 0 0
06 07 08 09 04 05 06 07 08 09 10
19 | 16 July 2010
Thailand
Macro Outlook
• Like other Asian economies, Thailand began a substantial recovery in Q2 09, based THB
on a strong turnaround in exports. But political uncertainty continues to weigh on
domestic demand and tourist earnings, so the recovery in Thailand has lagged the rest Credit rating:
of Asia.
S&P: BBB+ (negative)
• The current account surplus increased sharply in due to weak domestic demand, some
Currency regime:
recovery in exports and lower crude oil prices. It has remained in substantial surplus.
The government budget deficit is likely to reach 6% of GDP due to fiscal stimulus Free float
and weaker growth. Inflation target:
• Headline inflation has accelerated markedly to almost 3%, mainly on the back of 0%-3%
higher energy and food prices. Core inflation excluding food and energy has also
edged higher and is now in positive territory.
• With clear signs that the economy is recovering, inflation back into positive territory
FX forecast
and political turmoil receding at least on street level, Bank of Thailand (BoT) has
joined the tightening club by raising its leading interest rate by 25bp to 1.5%. While EUR/THB
inflation remains muted real interest rates remain negative and for that reason we Danske Forward
expect BoT to hike twice by another 25bp before year-end. 15-Jul 41.69
+3M 36.80 41.72
FX Outlook +6M 37.41 41.75
+12M 39.88 41.81
• Overall, Thailand has strong external balances, and because portfolio inflows and FDI
USD/THB
have been weak compared with the rest of EM Asia – as a result of the uncertain
Danske Forward
political situation in Thailand – THB is less sensitive to changes in global risk
15-Jul 32.22
sentiment. For this reason, THB has been remarkable resilient recently in the face of +3M 32.00 32.25
increasing political turmoil and the recent volatility in financial markets. Thailand’s +6M 31.70 32.29
external liquidity position is very strong (FX reserves exceeding total foreign debt by +12M 31.40 32.35
a wide margin).. Source: Reuters EcoWin, Danske Markets
• The political situation is dominated by a conflict between pro- and anti-Thaksin

parties. The Democratic party has formed a government with a slim parliamentary
majority, with party leader Abhisit Vejjajiva as the new Prime Minister. With only a
small majority, the government remains weak. Street fighting in Bangkok has ended
following a military crackdown, but the political situation remains tense.
Bank of Thailand (BOT)
• Thailand is a constitutional democracy with the monarchy wielding considerable Policy rate 1.50
political influence. The Thai King is extremely popular, but he is believed to be sick Next meeting 25 Aug 2010
and his accession is a major political uncertainty that could exacerbate current Year-end 1.75
political turmoil. Source: Reuters EcoWin, Danske Markets
Recovery strong despite political

Inflation back into positive terrritory
uncertainty
Jan. 2006 = 100 10 % y/y 10
% y/y
140 140
8 8
130 Export 130 6 CPI, headline 6
120 120 4 4
2 2
110 110
0 0
100 Industrial production 100 CPI excl. food & energy
-2 -2
90 90 -4 -4
06 07 08 09 10 03 04 05 06 07 08 09 10
20 | 16 July 2010
Malaysia
Macro Outlook
• Malaysia is an extremely open economy and has been hard-hit by the global financial MYR
crisis, despite a massive government fiscal stimulus. After a slow start, there are now
signs that the recovery is gathering momentum, albeit weaker than in most other Credit rating:
Asian countries. GDP growth was slightly negative in 2009 but will improve
S&P: A- (stable)
substantially to around 6% in 2010.
Currency regime:
• Major fiscal easing has been implemented and the budget deficit increased sharply in
2009. Free float
• Inflation has started to increase as the base effect of higher crude oil prices last year Inflation target:
has started to recede. However, inflation in Malaysia remains modest.
No official target

• The Malaysian central bank increased its leading interest rate by 25bp in July, the
third rate hike this year. The Malaysian central bank is one of the few central banks in
FX forecast
Asia that cannot be accused of being behind the curve. We expect one more 25bp rate
hike this year. EUR/MYR
15-Jul 4.14
• The currency is supported by a current account surplus of 15% of GDP. MYR has +3M 3.65 4.16
strengthened significantly due to the interest rate hikes by the Malaysian central bank, +6M 3.66 4.18
as well as the government’s announcement that it intends to accelerate liberalisation +12M 3.90 4.21
of part of the economy, including easing access for foreign investment. USD/MYR
Danske Forward
• Although the governing Barisan Nasional (BN) coalition won a majority in the 15-Jul 3.20
general election in March last year, it was regarded as a defeat because it lost its two- +3M 3.17 3.21
thirds majority, as well as power in several provinces. However, there is probably no +6M 3.10 3.23
+12M 3.07 3.26
credible political alternative to BN at present.
• While Malaysia has a stable regulatory environment, it has been lagging other Asian
countries on governance reforms and economic liberalisation in recent years. That
said, the new Prime Minister recently announced some liberalisation of foreign direct
investment rules, easing requirements for co-Malay ownership.
Monetary policy tightened despite Interest rate policy

Recovery has been trailing rest of Asia
modest inflation Central Bank of Malaysia (BNM)
% y/y Policy rate 2.75
Jan. 2008=100 Jan. 2008=100 %
110 110 8 8 Next meeting 02 Sep 2010
6 Overnight policy rate 6 Next change + 25 bp Q4, 2010
Export
100 100
4 4
Year-end 2.75
90 90 2 2 Source: Reuters EcoWin, Danske Markets

0 <<CPI inflation 0
80 80
-2 -2
Industrial production
70 70 -4 -4
08 09 10 04 05 06 07 08 09 10
21 | 16 July 2010
Philippines
Macro Outlook
• GDP growth has recovered strongly due to fiscal easing and a recovery in exports. So PHP
far, there are no signs that the pace of the recovery is easing, although we expect it to
moderate in Q2. Credit rating:
• Inflation has increased to the lower range of central bank’s 4-5% target for inflation, S&P: BB- (stable)
mainly due to lower energy and food prices. However, inflation should soon start to
Currency regime:
pick up as the base effect of lower energy prices last year begins to recede.
Free float
• The fiscal deficit has deteriorated sharply due to fiscal easing. The central government
deficit is likely to increase to around 4% of GDP, from just 0.9% in 2008. Inflation target:
4%-5%

FX forecast
• With growth improving, inflation gradually increasing and the presidential election
out of the way, we expect the central bank to raise its leading interest rate by 25bp in EUR/PHP
Danske Forward
Q3 10.
15-Jul 59.90
+3M 52.90 60.43
+6M 52.51 60.92
FX Outlook +12M 55.88 61.69
• The Philippines has a very strong external position. The current account surplus has USD/PHP
remained resilient, not least because remittances from Filipinos working abroad have Danske Forward
continued at a high level. FX reserves have improved substantially in recent months 15-Jul 46.30
+3M 46.00 46.71
as the central bank has tried to stem PHP appreciation.
+6M 44.50 47.11
• Senator Benigno Aquino III from the Liberal Party defeated the populist Joseph +12M 44.00 47.73
Estrada in the Presidential election on 10 May. This should be positive for financial Source: Reuters EcoWin, Danske Markets
markets. However, it is still unclear how well the Liberal party and its allies
performed in the Parliamentary election.
Recovery has been strong External position still improving

110 Jan. 2008=100 Jan. 2008=100 110 1.25 50
bn USD bn USD
100 100 1.00 45 Central Bank of Philippines (BSP)
Industrial Policy rate 4.00
production 0.75 40
90 90 << Current account Next meeting 26 Aug 2010
0.50 35
80 80 Next change + 25 bp Q3, 2010
0.25 30 Year-end 4.75
70 70
0.00 25
Export Source: Reuters EcoWin, Danske Markets
60 60 -0.25 20
FX reserves>>
50 50 -0.50 15
08 09 10 02 03 04 05 06 07 08 09 10
22 | 16 July 2010
Indonesia
Macro Outlook
• Indonesia is a comparatively closed economy and has therefore been impacted less IDR
than other Asian countries by the global financial crisis. Growth has remained
resilient due to robust domestic demand, with growth accelerating in Q1 10. GDP Credit rating:
growth is expected to exceed 6% this year.
S&P: BB (positive)
• The current account has improved this year due to a significant pick-up in exports of
Currency regime:
commodities, and it is once again in surplus.
Free float
• Inflation has increased to 5.0% y/y in June, and is now just within the Bank of
Indonesia’s (BI) target range for inflation in 2010. The strong IDR appreciation Inflation target:
should continue to exert some downward pressure on inflation. However, underlying
5%-7% in 2010
inflationary pressure remains problematic due to strong domestic demand.
• The BI is expected to start tightening monetary policy in late Q3 10 but, unlike many
FX forecast
other Asian central banks, there appears to be less urgency to tighten as real interest
rates remain positive and inflation is now just within BI’s target range. Hence, we EUR/IDR
cannot completely rule out that monetary tightening will be postponed to Q4. Danske Forward
15-Jul 11709
FX Outlook +3M 10408 11876
• IDR initially weakened in the wake of the European debt crisis, but has since +6M 10620 12032
+12M 11303 12344
recovered its losses. However, strong capital inflows together with an improved
USD/IDR
current account position continue to contribute to growth in FX reserves and at the
Danske Forward
moment it appears BI is trying to prevent IDR to strengthen below 9000 against USD.
15-Jul 9050
Hence, there probably is limited upside from here. +3M 9050 9180
• Indonesia has a strong liquidity position (little short-term debt and strong FX +6M 9000 9305
+12M 8900 9550
reserves). However, as a carry currency, it remains very sensitive to portfolio flows
and risk sentiment in global financial markets. In addition Indonesia public finances
look very favourable in an international comparison.
• President Yudhoyono was re-elected in June and his Democratic Party improved its
position considerably in the general election. Yudhoyono is reform-minded and has
signalled his intention to continue fiscal consolidation. The re-election of Yudhoyono Interest rate forecast
and the peaceful elections underline that, despite the recent terror attacks, the
Bank Indonesia (BI)
favourable political development in Indonesia continues. That said, the recent Policy rate 6.50
resignation of the highly regarded finance minister, Sri Mulyani, has created some Next meeting 04 Aug 2010
uncertainty about the government’s ability and will to continue its anti-corruption Year-end 7.00
policy. Source: Reuters EcoWin, Danske Markets
Inflation is still at the lower end of the Indonesia continues to accumulate

central banks target reserves
24.0 24.0 75 USD bn 12500
% %
70 12000
20.0 20.0 << Forign exchange reserves
65 11500
16.0 16.0 60 USD/IDR>>> 11000
CPI, % y/
12.0 12.0 55 10500
50 10000
8.0 8.0 45 9500
4.0 4.0 40 9000
35 8500
0.0 CPI, % 3M AR 0.0
30 8000
-4.0 -4.0 25 7500
07 08 09 10 04 05 06 07 08 09 10
23 | 16 July 2010
India
Macro Outlook
• India has not been hit as hard by the global financial crisis as other Asian economies, INR
as it is a comparatively closed economy with little financial depth. Growth is
recovering, supported by fiscal and monetary easing and stabilisation in the global Credit rating:
economy. However, drought has hit major parts of India and it is expected to subtract
S&P: BBB- (stable)
1pp from GDP growth this year. Still, GDP growth should exceed 8% in 2010 and
2011. Currency regime:
• The drought in India has added substantially to food price inflation, and inflation Free float
measured by wholesale prices accelerated sharply and remained stubbornly high
Inflation target:
above 10% y/y in recent months. However, food prices have started to stabilize and
the year-on-year inflation rate is expected to decline sharply in H2 2010 and should 8% for fiscal 09/10
reach about 5% y/y by the end of the year. 3% medium term
• The current account deficit has deteriorated sharply due to much slower export growth
and resilient domestic demand and it has become increasingly difficult to finance the
current account deficit from foreign direct investments. The increasing current
account deficit now close to 4% of GDP is a concern. FX forecast
Monetary Policy Outlook EUR/INR

Danske Forward
• With growth recovering rapidly and inflation exceeding the RBI’s comfort zone, the 15-Jul 60.30
RBI has started tightening monetary policy and raised its leading interest rate so far +3M 54.63 60.97
by 75bp. We expect the RBI to raise its leading interest rate by another 25bp in +6M 55.46 61.46
+12M 58.42 62.24
connection with its policy review on 27 July and another 75bp before year-end.
USD/INR
• INR has recently depreciated slightly, on the back of the recent deterioration in risk 15-Jul 46.61
sentiment internationally. Because of the deteriorating current account deficit INR +3M 47.50 47.13
+6M 47.00 47.53
looks increasingly vulnerable, but longer term it will remain underpinned by
+12M 46.00 48.15
continued strong FDI inflows and the strong external liquidity position.
• Overall, India’s economic balances have deteriorated in recent years, and the public
finances particular remain a major concern. Growth is now taking priority over
continued fiscal consolidation. Including off-balance items, the public budget deficit
will probably exceed 10% of GDP due to fiscal easing. INR remains vulnerable to the Interest rate forecast
current account deficit and possible lower portfolio and FDI inflows in a global Researve Bank of India (RBI)
deleveraging scenario. Policy rate 3.75
Next meeting 27 Jul 2010
Next change + 25 bp July, 2010
Indias external position among the Inflationary pressure has started to Year-end 4.50
weakest in Asia ease
6 Basic balance 6 % 3m/3m AR Diffusion 60.0
% of GDP 20
4 4 57.5
15
2 2 55.0
10
0 0 5 52.5
-2 -2 0 50.0
Portfolio investment
<< Wholesale prices
-4 Foreign direct investment -4 -5 47.5
Foreign direct investment abroad Output prices, service PMI>>
-6 Current account -6 -10 Output prices, manf. PMI>> 45.0
-8 -8 -15 42.5
00 01 02 03 04 05 06 07 08 09 05 06 07 08 09 10
24 | 16 July 2010
Core-Major
EUR USD DKK SEK NOK

Danske Forward Danske Forward Danske Forward Danske Forward Danske Forward
15-Jul 1.29 745.0 940.2 797.5
+3M 1.15 1.29 744.0 744.8 940.0 940.6 765.0 801.1
EUR
+6M 1.18 1.29 744.0 744.7 920.0 941.9 760.0 804.5
+12M 1.27 1.29 745.0 744.7 920.0 944.6 760.0 810.5
15-Jul 1.29 575.7 727.0 616.4
+3M 1.15 1.29 647.0 575.7 817.4 727.1 665.2 619.3
USD
+6M 1.18 1.29 630.5 576.0 779.7 728.4 644.1 622.1
+12M 1.27 1.29 586.6 576.1 724.4 730.8 598.4 627.0
15-Jul 113.1 87.5 6.58 8.31 7.05
+3M 109.0 113.0 95.0 87.3 6.83 6.59 8.62 8.33 7.02 7.09
JPY
+6M 117.0 112.8 99.0 87.2 6.36 6.60 7.86 8.35 6.50 7.13
+12M 130.0 112.3 102.0 86.9 5.73 6.63 7.08 8.41 5.85 7.22
Wider CEE
EUR USD DKK SEK NOK
15-Jul 4.07 3.14 182.8 230.7 195.7
+3M 4.05 4.10 3.52 3.17 183.7 181.7 232.1 229.5 188.9 195.5
PLN
+6M 4.05 4.12 3.43 3.18 183.7 181.0 227.2 228.9 187.7 195.5
+12M 4.00 4.15 3.15 3.21 186.3 179.5 230.0 227.6 190.0 195.3
15-Jul 279.7 215.7 2.66 3.36 2.85
+3M 285.0 282.1 247.8 218.0 2.61 2.64 3.30 3.33 2.68 2.84
HUF
+6M 285.0 283.9 241.5 219.6 2.61 2.62 3.23 3.32 2.67 2.83
+12M 280.0 287.3 220.5 222.3 2.66 2.59 3.29 3.29 2.71 2.82
15-Jul 25.38 19.63 29.35 37.04 31.42
+3M 24.80 25.39 21.57 19.63 30.00 29.34 37.90 37.05 30.85 31.55
CZK
+6M 24.40 25.38 20.68 19.63 30.49 29.35 37.70 37.12 31.15 31.70
+12M 23.60 25.34 18.58 19.60 31.57 29.39 38.98 37.28 32.20 31.99
15-Jul 4.27 3.30 174.5 220.2 186.8
+3M 4.50 4.32 3.91 3.34 165.3 172.6 208.9 217.9 170.0 185.6
RON
+6M 4.50 4.38 3.81 3.38 165.3 170.2 204.4 215.2 168.9 183.8
+12M 4.55 4.47 3.58 3.46 163.7 166.6 202.2 211.3 167.0 181.3
15-Jul 1.96 1.51 381.0 480.8 407.8
+3M 1.96 - 1.70 - 380.6 - 480.8 - 391.3 -
BGN
+6M 1.96 - 1.66 - 380.6 - 470.6 - 388.7 -
+12M 1.96 - 1.54 - 381.1 - 470.6 - 388.7 -
CIS
EUR USD DKK SEK NOK
15-Jul 39.35 30.37 18.93 23.90 20.27
+3M 37.72 39.55 32.80 30.58 19.72 18.83 24.92 23.78 20.28 20.25
RUB
+6M 35.99 39.88 30.50 30.84 20.67 18.68 25.56 23.62 21.12 20.17
+12M 36.20 40.76 28.50 31.53 20.58 18.27 25.42 23.18 21.00 19.89
15-Jul 10.19 7.90 73.1 92.3 78.3
+3M 9.78 N/A 8.50 N/A 76.1 N/A 96.2 N/A 78.3 N/A
UAH
+6M 9.32 N/A 7.90 N/A 79.8 N/A 98.7 N/A 81.5 N/A
+12M 8.64 N/A 6.80 N/A 86.3 N/A 106.5 N/A 88.0 N/A
25 | 16 July 2010
Baltics
EUR USD DKK SEK NOK
15-Jul 15.64 12.08 47.63 60.11 50.98
+3M 15.65 - 13.61 - 47.54 - 60.06 - 48.88 -
EEK
+6M 15.65 - 13.26 - 47.54 - 58.79 - 48.56 -
+12M 15.65 - 12.32 - 47.60 - 58.79 - 48.56 -
15-Jul 3.45 2.67 215.8 272.3 231.0
+3M 3.45 - 3.00 - 215.7 - 272.5 - 221.7 -
LTL
+6M 3.45 - 2.92 - 215.7 - 266.7 - 220.3 -
+12M 3.45 - 2.72 - 215.9 - 266.7 - 220.3 -
15-Jul 0.71 0.55 1052.1 1327.8 1126.3
+3M 0.70 - 0.61 - 1062.9 - 1342.9 - 1092.9 -
LVL
+6M 0.70 - 0.59 - 1062.9 - 1314.3 - 1085.7 -
+12M 0.70 - 0.55 - 1064.3 - 1314.3 - 1085.7 -
MEA
EUR USD DKK SEK NOK
15-Jul 1.98 1.53 375.8 474.2 402.2
+3M 1.75 2.01 1.52 1.56 425.1 369.9 537.1 467.2 437.1 397.9
TRY
+6M 1.85 2.04 1.57 1.58 402.2 364.6 497.3 461.1 410.8 393.8
+12M 2.11 2.11 1.66 1.63 353.1 352.8 436.0 447.6 360.2 384.0
15-Jul 9.76 7.55 76.4 96.4 81.8
+3M 9.14 9.92 7.95 7.66 81.4 75.1 102.8 94.9 83.7 80.8
ZAR
+6M 9.74 10.05 8.25 7.77 76.4 74.1 94.5 93.7 78.1 80.0
+12M 11.18 10.33 8.80 7.99 66.7 72.1 82.3 91.4 68.0 78.5
15-Jul 4.99 3.86 149.4 188.6 159.9
+3M 4.60 5.00 4.00 3.87 161.7 149.0 204.3 188.1 166.3 160.2
ILS
+6M 4.66 5.00 3.95 3.87 159.6 148.9 197.4 188.3 163.1 160.9
+12M 4.89 5.00 3.85 3.87 152.4 148.9 188.2 188.8 155.4 162.0
15-Jul 7.37 5.70 101.1 127.6 108.2
+3M 6.44 7.20 5.60 5.57 115.5 103.4 146.0 130.6 118.8 111.2
EGP
+6M 6.67 7.35 5.65 5.68 111.6 101.3 138.0 128.2 114.0 109.5
+12M 7.24 7.46 5.70 5.77 102.9 99.8 127.1 126.6 105.0 108.6
LATAM
EUR USD DKK SEK NOK
15-Jul 2.28 1.76 326.6 412.2 349.7
+3M 2.13 2.32 1.85 1.80 349.7 320.5 441.8 404.7 359.6 344.7
BRL
+6M 2.18 2.37 1.85 1.84 340.8 313.7 421.4 396.7 348.1 338.8
+12M 2.35 2.47 1.85 1.91 317.1 300.9 391.6 381.7 323.5 327.5
15-Jul 5.09 3.93 146.5 184.9 156.8
+3M 4.60 5.20 4.00 4.02 161.7 143.2 204.3 180.9 166.3 154.0
ARS
+6M 5.31 5.35 4.50 4.14 140.1 139.1 173.3 175.9 143.1 150.3
+12M 5.84 5.69 4.60 4.40 127.5 130.9 157.5 166.1 130.1 142.5
15-Jul 16.52 12.77 45.10 56.92 48.28
+3M 15.30 16.68 13.30 12.89 48.64 44.66 61.46 56.41 50.02 48.04
MXN
+6M 15.75 16.83 13.35 13.02 47.23 44.25 58.40 55.96 48.24 47.80
+12M 17.02 17.17 13.40 13.28 43.78 43.37 54.06 55.01 44.66 47.20
26 | 16 July 2010
EM Asia
EUR USD DKK SEK NOK
15-Jul 8.77 6.78 85.0 107.2 90.9
+3M 7.77 8.76 6.76 6.77 95.7 85.1 120.9 107.4 98.4 91.5
CNY
+6M 7.87 8.72 6.67 6.75 94.5 85.4 116.9 108.0 96.6 92.2
+12M 8.29 8.65 6.53 6.69 89.8 86.1 110.9 109.2 91.6 93.7
15-Jul 1555 1202 0.48 0.60 0.51
+3M 1357 1555 1180 1202 0.55 0.48 0.69 0.60 0.56 0.52
KRW
+6M 1269 1560 1075 1207 0.59 0.48 0.73 0.60 0.60 0.52
+12M 1334 1564 1050 1210 0.56 0.48 0.69 0.60 0.57 0.52
15-Jul 41.7 32.2 17.9 22.6 19.1
+3M 36.8 41.7 32.0 32.3 20.2 17.9 25.5 22.5 20.8 19.2
THB
+6M 37.4 41.7 31.7 32.3 19.9 17.8 24.6 22.6 20.3 19.3
+12M 39.9 41.8 31.4 32.4 18.7 17.8 23.1 22.6 19.1 19.4
15-Jul 1.78 1.37 419 529 449
+3M 1.58 1.78 1.37 1.37 472 420 597 530 486 451
SGD
+6M 1.60 1.77 1.36 1.37 465 420 575 531 475 454
+12M 1.71 1.77 1.35 1.37 435 420 537 533 444 458
15-Jul 10.05 7.77 74.1 93.6 79.4
+3M 8.94 10.04 7.77 7.76 83.3 74.2 105.2 93.7 85.6 79.8
HKD
+6M 9.17 10.03 7.77 7.75 81.1 74.3 100.3 93.9 82.9 80.2
+12M 9.88 10.01 7.78 7.74 75.4 74.4 93.1 94.4 76.9 81.0
15-Jul 4.14 3.20 180.0 227.2 192.7
+3M 3.65 4.16 3.17 3.21 204.1 179.1 257.9 226.2 209.8 192.6
MYR
+6M 3.66 4.18 3.10 3.23 203.4 178.3 251.5 225.5 207.8 192.6
+12M 3.90 4.21 3.07 3.26 191.1 177.0 236.0 224.5 194.9 192.6
15-Jul 59.9 46.3 12.44 15.70 13.31
+3M 52.90 60.43 46.00 46.71 14.06 12.33 17.77 15.57 14.46 13.26
PHP
+6M 52.51 60.92 44.50 47.11 14.17 12.23 17.52 15.46 14.47 13.21
+12M 55.88 61.69 44.00 47.73 13.33 12.07 16.46 15.31 13.60 13.14
15-Jul 11709 9050 0.064 0.080 0.068
+3M 10408 11876 9050 9180 0.071 0.063 0.090 0.079 0.074 0.067
IDR
+6M 10620 12032 9000 9305 0.070 0.062 0.087 0.078 0.072 0.067
+12M 11303 12344 8900 9550 0.066 0.060 0.081 0.077 0.067 0.066
15-Jul 60.30 46.61 12.35 15.59 13.22
+3M 54.63 60.97 47.50 47.13 13.62 12.22 17.21 15.43 14.00 13.14
INR
+6M 55.46 61.46 47.00 47.53 13.42 12.12 16.59 15.33 13.70 13.09
+12M 58.42 62.24 46.00 48.15 12.75 11.96 15.75 15.18 13.01 13.02
15-Jul 41.63 32.11 17.90 22.58 19.16
+3M 36.57 41.47 31.80 32.06 20.34 17.96 25.70 22.68 20.92 19.32
TWD
+6M 35.99 41.34 30.50 31.97 20.67 18.02 25.56 22.78 21.12 19.46
+12M 38.10 41.04 30.00 31.75 19.55 18.15 24.15 23.02 19.95 19.75
27 | 16 July 2010
Forecasts vs. Forwards

3m base currency EUR 3m base currency USD
14.0 5.0
12.0
10.0 0.0
8.0
6.0 -5.0
%4.0 %
2.0 -10.0
0.0
-2.0 -15.0
-4.0
-6.0 -20.0
HUF
ILS
IDR
TWD
SGD
KRW
PHP
MYR
INR
ZAR
BRL
RUB
SGD
CNY
EGP
TRY
MXN
PLN
HUF
RON
ILS
EGP
IDR
CZK
MXN
PLN
TWD
PHP
KRW
MYR
INR
ZAR
RUB
CZK
BRL
TRY
CNY
RON
20.0 15.0
15.0 10.0
5.0
10.0
% % 0.0
5.0
-5.0
0.0 -10.0
-5.0 -15.0
SGD
EGP
MXN
PLN
SGD
HUF
ILS
EGP
TWD
IDR
CZK
PLN
PHP
MXN
KRW
MYR
INR
RUB
ZAR
HUF
BRL
ILS
CNY
TRY
IDR
CZK
TWD
RON
KRW
PHP
MYR
ZAR
INR
RUB
BRL
CNY
TRY
RON
20.0 15.0
15.0 10.0
10.0 5.0
% 5.0 % 0.0
0.0 -5.0
-5.0 -10.0
-10.0 -15.0
SGD
SGD
EGP
PLN
MXN
HUF
EGP
PLN
MXN
ILS
HUF
IDR
TWD
CZK
ILS
PHP
IDR
KRW
RUB
MYR
INR
ZAR
TWD
CZK
BRL
PHP
CNY
TRY
KRW
RUB
MYR
INR
ZAR
BRL
RON
CNY
TRY
RON
28 | 16 July 2010
Monetary Policy Calendar

Calendar
Policy Rate (%) Latest Change Next Change Next Meeting Year-end (%)
16 July 2010
Wider CEE
PLN 3.50 - 25 bp Jun, 2009 + 25 bp Q3, 2010 26-30/7/2010 4.00
HUF 5.25 - 25 bp Apr, 2010 - Unchanged 2010 19 Jul 2010 5.25
CZK 0.75 - 25 bp May, 2010 - Unchanged 2010 05 Aug 2010 0.75
RON 6.25 - 25 bp May, 2010 - Unchanged 2010 04 Aug 2010 6.50
TRY 6.50 - 50 bp Oct, 2009 + 50 bp H2, 2010 19 Aug 2010 8.00
CIS
RUB 7.75 - 25 bp May, 2010 - Unchanged 2010 Not announced 7.75
MEA
ILS 1.50 + 25 bp Mar, 2010 + 25 bp Q3, 2010 26 Jul 2010 2.50
ZAR 6.50 - 50 bp Mar, 2010 - 50 bp Jul, 2010 22 Jul 2010 6.00
LATAM
BRL 10.25 + 75 bp June, 2010 + 75 bp Jul, 2010 21 Jul 2010 11.50
MXN 4.50 - 25 bp Jul, 2009 - Unchanged 2010 16 Jul 2010 4.50
EM Asia
CNY 5.31 - 27 bp Dec, 2008 + 27 bp Q3, 2010 Not announced 5.85
KRW 2.25 +25 bp Jul, 2010 + 25 bp Q3, 2010 12 Aug 2010 2.75
THB 1.50 + 25 bp Jul, 2010 + 25 bp Q3, 2010 25 Aug 2010 1.75
HKD 0.50 - 100 bp Dec, 2008 + 25 bp Q1, 2011 Not announced 0.50
MYR 2.75 + 25 bp Jul, 2010 + 25 bp Q4, 2010 02 Sep 2010 2.75
PHP 4.00 - 25 bp Jul, 2009 + 25 bp Q3, 2010 26 Aug 2010 4.75
IDR 6.50 - 25 bp Aug, 2009 + 25 bp Q3, 2010 04 Aug 2010 7.00
INR 3.75 + 25 bp Jun, 2010 + 25 bp July, 2010 27 Jul 2010 4.50
TWD 1.38 +12.5 bp Jun, 2010 + 12.5 bp Q3, 2010 Not announced 1.75
29 | 16 July 2010
Emerging Markets Contacts
Emerging Markets Research

Lars Christensen +45 45 12 85 30 larch@danskebank.dk
Flemming Jegbjærg Nielsen +45 45 12 85 35 flemm@danskebank.dk
Violeta Klyviene +370 5 2156992 vkly@danskebank.com
Stanislava Pravdova +45 45 12 80 71 spra@danskebank.dk
Sanna Kurronen +358 10 546 7573 kurr@danskebank.com
Jens Nærvig Pedersen +45 45 12 84 98 jenpe@danskebank.dk
Emerging Markets Sales, Danske Markets

Erik Rasmussen +45 45 14 32 47 eras@danskebank.dk
Global Retail SME, FX

Stig Hansen +45 45 14 60 86 sh@danskebank.dk
Flemming Winther +45 45 14 68 24 flw@danskebank.dk
Trading FX, Fixed Income, Danske Markets

Frank Sandbæk Vig +45 45 14 67 96 fsv@danskebank.dk
Thomas Manthorpe +45 45 14 69 68 tman@danskebank.dk
Markku Anttila +358 10 513 8705 markku.anttila@sampopankki.fi
Perttu Tuomi +358 10 513 8738 perttu.tuomi@sampopankki.fi
Danske Bank Poland, Warsaw

Marciej Semeniuk +48 22 33 77 114 msem@pl.danskebank.com
Bartłomiej Dzieniecki +48 22 33 77 112 bdz@pl.danskebank.com
Danske Markets Baltics

Howard Wilkinson +358 50 374 559 howard.wilkinson@danskebank.com
Martins Strazds +371 6707 2245 martins.strazds@danskebanka.lv
Giedre Geciauskiene +370 5215 6180 giedre.geciauskiene@danskebankas.lt
Lauri Palmaru +372 675 2464 lauri.palmaru@sampopank.ee
ZAO Danske Bank Russia, Saint-Petersburg Treasury Department

Mikko Pitkänen +7 812 332 73 06 mikko.pitkanen@danskebank.ru
Vladimir Biserov +7 812 332 73 04 vladimir.biserov@danskebank.ru
Darja Kounina +7 812 332 73 04 darja.kounina@danskebank.ru
All EM research is available on Bloomberg DDEM
30 | 16 July 2010
Disclosure
This research report has been prepared by Danske Research, which is part of Danske Markets, a division of
Danske Bank. Danske Bank is under supervision by the Danish Financial Supervisory Authority.
Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high
quality research based on research objectivity and independence. These procedures are documented in the Danske
Bank Research Policy. Employees within the Danske Bank Research Departments have been instructed that any
request that might impair the objectivity and independence of research shall be referred to Research Management
and to the Compliance Officer. Danske Bank Research departments are organised independently from and do not
report to other Danske Bank business areas. Research analysts are remunerated in part based on the over-all
profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other
remuneration linked to specific corporate finance or debt capital transactions.
Danske Bank research reports are prepared in accordance with the Danish Society of Investment Professionals’
Ethical rules and the Recommendations of the Danish Securities Dealers Association.
Financial models and/or methodology used in this research report

Calculations and presentations in this research report are based on standard econometric tools and methodology
as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be
obtained from the authors upon request.
Risk warning
Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis
of relevant assumptions, are stated throughout the text.
First date of publication

Please see the front page of this research report.
Disclaimer
This publication has been prepared by Danske Markets for information purposes only. It has been prepared
independently, solely from publicly available information and does not take into account the views of Danske
Bank’s internal credit department. It is not an offer or solicitation of any offer to purchase or sell any financial
instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no
representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from
reliance on it. Danske Bank, its affiliates or staff may per-form services for, solicit business from, hold long or
short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned
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31 | 16 July 2010

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Investment Research  General Market Conditions

Emerging Markets Briefer

Source: Reuters Ecowin Source: Reuters Ecowin

Growth still remains strong Inflation ticks up

Source: Reuters Ecowin, Danske Markets

Monetary policy outlook

Interest rate forecast

Source: Reuters Ecowin, Danske Markets Source: Reuters Ecowin

FX & Monetary policy outlook

Source: Reuters Ecowin, Danske Markets Source: Reuters Ecowin

Recovering trend New spike in inflation

Source: Reuters Ecowin Source: Reuters Ecowin

GDP is stabilizing Confidence improved

Source: Reuters Ecowin Source: Reuters Ecowin

• Unemployment rose to 18% in Q1 10 and we expect the labour market to continue to

GDP is stabilizing Returning to the downward trend

Source: Reuters Ecowin Source: Reuters Ecowin

Current Account (% of GDP) 11.7 7.0 9.2

• Political instability continues to be perhaps the biggest risk related to Ukrainian

Real wage growth is picking up External debt

Source: Reuters Ecowin, Danske Markets

• Unemployment continued to rise and in Q1 it accelerated to 25.2%. Rising EUR/ZAR

Source: Reuters Ecowin Source: Reuters Ecowin

on the long-term horizon.

Source: Reuters Ecowin Source: Reuters Ecowin

Source: Reuters Ecowin Source: Reuters Ecowin

• China’s current account is expected to remain in a substantial surplus and improve

Interest rate forecast

GDP growth slowing and inflationary People's Bank of China (PBOC)

Monetary Policy Outlook Inflation target:

Source: Reuters EcoWin Source: Reuters EcoWin

But inflationary pressure modest so Central Bank of Taiwan (CBT)

Source: Reuters EcoWin Source: Reuters EcoWin

• However, KRW remains hugely undervalued and FX intervention to stem

GDP growth accelerates in Q1 Inflation remains muted Interest rate forecast

Source: Reuters EcoWin Source: Reuters EcoWin

• The political situation is dominated by a conflict between pro- and anti-Thaksin

Recovery strong despite political

Source: Reuters EcoWin Source: Reuters EcoWin

Monetary Policy Outlook

Monetary policy tightened despite Interest rate policy

90 90 2 2 Source: Reuters EcoWin, Danske Markets

Source: Reuters EcoWin Source: Reuters EcoWin

Monetary Policy Outlook

Recovery has been strong External position still improving

Source: Reuters EcoWin Source: Reuters EcoWin

Inflation is still at the lower end of the Indonesia continues to accumulate

Source: Reuters EcoWin Source: Reuters EcoWin

Monetary Policy Outlook EUR/INR

Source: Reuters EcoWin Source: Reuters EcoWin

EUR USD DKK SEK NOK

Source: Reuters EcoWin, Danske Markets

Forecasts vs. Forwards

6m  base currency EUR 6m  base currency USD

12m  base currency EUR 12m  base currency USD

Monetary Policy Calendar

Source: Reuters EcoWin, Danske Markets

Emerging Markets Contacts

Emerging Markets Research

Emerging Markets Sales, Danske Markets

Global Retail SME, FX

Trading FX, Fixed Income, Danske Markets

Danske Bank Poland, Warsaw

Danske Markets Baltics

Investment Research General Market Conditions

6m base currency EUR 6m base currency USD

12m base currency EUR 12m base currency USD