Emerging Markets Stock Writeups

Our views on agricultural commodities have not changed and fertiliser companies such as Fauji remain a good way to get exposure to this trend. However Fauji, following a very strong run, has now sailed through our target price. With no reason to revise up our numbers, and with political risk in Pakistan increasing, it was hence sold.

The subsidiary of Fauji Fertilizer of Pakistan, Fauji Bin Qasim, was sold down heavily on the back of a rapid inventory build-up. This was ahead of the government introducing subsidiaries for farmers (passed through the companies and thus margin-neutral), and inventories have since rapidly been reduced by the pent-up demand. The second factor that impacted Fauji Bin Qasim's share price was the reduction in output for 2007 while the production plant's capacity is upgraded to accommodate increased demand. Thus both factors are temporary only and neither is malign; there is 40% upside, which would take the price back to the level it reached earlier in the year.

Sedol	Type	Price	Date
6336088	Sell	PKR 46.72	24/07/2007
6336088	Buy	PKR 30.058	25/01/2007
6336088	Buy	PKR 29.579	23/11/2006

The company was sold on fears that it will incur a significant increase in interest rates upon refinancing of debt which is due in the near future.  It may also be forced to renegotiate its rates if the economic situation in the Philippines continues to deteriorate.

Floated in February 2006, First Gen is the Philippines' largest independent power producer. It generates electricity from four power stations, selling on long-term, secure contracts to the distributors. It is owned by the Lopez group, who also own the large distributors, providing further security of revenue which should continue to grow in line with GDP. Management have been very good at not over-paying for new stations. The company produces very strong cash flow and, as the stations are relatively new, capital expenditure is fairly low, making the stock a buy.

Sedol	Type	Price	Date
B0XNCB0	Sell	PHP 32.301	22/05/2008
B0XNCB0	Buy	PHP 58.562	12/04/2007