Summary: Russell Jones and Rose Ferrer on emerging market bond risks; A renewed push for Mideast peace will boost Israel's Ituran Location & Control ITRN; Betting on Electrovaya (EFLVF) and more international stock news follows covering GSH, VALE, ITRN, FBASF, MHG, NOK, EFLVF, OIBR, PT, FCGYF, BDRAF, MNK, COV, ALLRF, ISCHF, RDY and more...

Russell Jones and Rose Ferrer writing for LlewellynConsulting.com in London ponder emerging market bond risks:

"One useful starting point is the ‘Rule of Four’ initially proposed by Norges Bank Deputy Governor Jan Qvigstad to provide a simple-to-calculate, easily-understood portent of danger in the OECD economies. [I]t can also usefully be applied to emerging market economies as a gauge of a currency’s vulnerability to a deterioration in external financing conditions.

The Rule of Four focuses on a country’s inflation rate, and its current account and budget deficits expressed as a percentage of GDP. In advanced economies, a value of 4 or above for any variable is a warning signal.A value of more than 4 for two or more variables almost certainly spells serious trouble.

While accepting the relevance of twin deficits as a determinant of EM crises, critics could argue that, when applied to the developing world, the 4% inflation threshold of the Rule of Four is too low. In many cases they have a point. The ‘Balassa-Samuelson effect’ suggests that faster-growing emerging economies will have higher inflation rates than slower-growing, mature economies. Consistent with this, whereas the average inflation rate for the developed world [w]as a little above 2% since 2005, the equivalent figure for the rest of the world is around 7%. The IMF forecasts non-OECD inflation this year at just under 6%.

Such caveats notwithstanding, however, the various EM countries’ currency sell-offs were broadly in line with their Rule of Four scores: the higher the score, the bigger the currency decline.

Who’s in the firing line now? The largest and most worrying budget deficits are in India, South Africa, Argentina and Mexico, with the Indian government by far the most fiscally incontinent.

The largest external deficits are in South Africa and Turkey; both exceed the 4% threshold. Chile also has a current account imbalance issue.

Not surprisingly, the majority of inflation rates exceed the Rule of Four threshold. India, Argentina, and Nigeria appear to have inflation rates that are troublingly high even for developing economies.

When the outturns for the three sub-indicators are cumulated into one single reading, India, South Africa, Argentina, Turkey, Indonesia, and Brazil are flagged as the economies most at risk from disruptions in the flow of global capital.

When these overall scores are compared with those recorded in 2013, it is noticeable that, with the exception of Argentina, they have improved in all the economies deemed most at risk. This fact may perhaps temper the potential downside for their respective currencies."

Separately, the Global Research team at Bank of America-Merrill Lynch set out to figure out which emerging markets present the highest risks. The 'fragile five' Alberto Ades and his team selected are: Turkey, Chile, Taiwan, The Philippines, and India. (I do not consider Chile or Taiwan emerging markets.) Sharp-eyed readers will see that the two lists overlap in bearishness about Turkey and India.

More follows starting with China, whose growth outlook is the unspoken backdrop to both of the above exercises, plus India, Spain, Netherlands, Mexico, The Netherlands, Ireland, Norway, Canada, Brazil, Portugal, Israel, and its neighbors. Plus two news items about Mozambique. There are four articles about railways and one about ferries. And two on NRIs, non-resident Indians.

*China offered tax breaks to small and very small companies and accelerated rail construction to encourage growth yesterday. The result was to boost infrastructure plays shares like Guangshen Railway, wrote new subscriber CC. I was puzzled at GSH's rise. Today it fell back 3.6% in US trading. Easy come, easy go. Festina lente, to quote Erasmus: make haste slowly.

GSH operates the Pearl River Basin "Red Rooster" railway carrying passengers and freight in China's oldest special enterprise zone, and I used it when I first visited China in 1990. I am holding forever.

*Also down is Tencent Holding, TCTZF, HK:700.

*Vale suspended coal shipments from its Moatize (Mozambique) mine after Vale coal train heading for the Indian Ocean port of Beira was attacked by gunmen. Maputo authorities blmed a rebel group. Portuguese-speaking Mozambique is the 2nd most important investment by Vale after its own homeland of Brazil, accounting for 22% of capex. VALE plans to spend ~$1 bn this year and next to add a second pit and finish its $4.44 bn logistics corridor Nacala (also on the Indian Ocean) this year. Vale is not just investing in Africa's ghastly Guinea (ghastly because of disease, not just corruption).

*As part of its attempt to steer a peace deal between Israel and the respectable Palestinians, after Benjamin Netanyahu met President Obama, the US approved a $429 mn immediate transfer for making more Iron Dome short-range missile interceptor systems. The main use is to prevent cross-border attacks from Gaza, the disrespectable Palestinians supplied with lethal weapons by Iran. While it is far-fetched, one beneficiary of the deal is Ituran Location & Control, ITRN, an Israeli maker of software for tracking leased vehicles and truck fleets. Its tracking system was cobbled into the Iron Dome interceptor which was built with off-the-shelf software.

*From today's Financial Times I learn that bribery of doctors to boost their prescription levels is standard operating procedure in China. Sales are the key to a commission-based salesman's' pay.

The anonymous source said: "I never met a doctor who refused a handout unless it was too little." He admitted: "I bought fake tax receipts or collecting receipts from family and friends for taxis and meals so that I could account to the company for the amounts I gave to the doctors." The salesman said "everyone was doing it." The FT article points out that GlaxoSmithKline, whose local staff became a target for Chinese anti-bribery enforcement was not alone in giving doctors and hospitals kickbacks which were commonly 5 o 20% of prescription levels.

*Fibra Uno fell another 2.5% in Mexican trading today. I expect the shareholder revolt will lead to revision of the terms of the REIT's potentially dilutive employee stock bonus plan which its IR's set up two conference calls to explain in the past 2 weeks. FUNO11 is the Mexican ticker symbol. I raised questions about the supposedly independent "technical committee" supposed to prevent the controlling El-Mann Mexican real estate magnate's family from dumping unwanted assets on the REIT. I want to see how this plays out, which is why for now I am not selling as FBASF clearly wishes I would (taking you all with me.)

*Monday Marine Harvest ASA purchased 186,207 of its own share at an average price of NOK 68.1687/sh for resale to 46 senior executives who participated in the 2011 the Marine Harvest Share Price Based Bonus Scheme. They will get a cash bonus corresponding to rise in the share price allotted in 2011 and the March closing share price which was NOK 69. They have to invest the bonus, limited to two year's salary, after deduction for income tax, to acquire in Marine Harvest shares corresponding to the March closing price, why MHG bought the stock for them. This awkwardness is how stock bonuses are handled in Norway, if not in Mexico. More from Norway follows.

*I thought I was being brave by recommending Electrovaya (EFVLF; bought Mar. 17.) The ticker symbol was misstated in our chart because I cannot read my own handwriting, but now corrected. From the last issue of Investor's Digest (of Canada) I learn that it is also recommended as a strong buy by a Canadian analyst (unnamed.) Here is news from EFVLF. The KF Hisaroy electric cable ferry has now been sailing between Mjagnes and Hisaroy Island in Norway daily for six months, carrying up to 49 passengers and 6 cars each way during the severe winter. The ferry's new propulsion power system uses a rechargeable Electrovaya rechargeable batteries installed by Solund Verft, HAFS Elektro, and Electrovaya's sub Miljobil Grenland AS. The owner of the vessel is Wergeland AS. Gulen Syssbqatservice operates the ferry.

The 100 kWh battery system uses EFLVF's SuperPolymer(R) 2.0 lithium-ion technology which has an exceptionally small on-board footprint. The global maritime industry is replacing diesel generators with greener, silent, and less toxic energy. The battery electric ferry can save up to ~180,750 liters of fuel over its expected lifetime. That potentially saves 500 metric tonnes of emissions: 480 tonnes of CO2, 9 tonnes of particulate matter and volatile organic compounds, and 2 tonnes each of carbon monoxide and other emissions.

The Cable Ferry usually does 10 round-trips/day between the mainland and the Hisaroy, about 1.6 kilometers apart. It is driven by two winches on-board. Electrovaya's on-board lithium ion batteries are recharged on the mainland between trips and over-night.

With much hydro-electric power and about 50 of its 150 ferries suitable for conversion, the Norwegian maritime market is a target for battery electrification. Getting away from fossil fuels from diesel engines is appealing. Recent studies by the World Health Organization outlined the large quantity of carcinogenic gases produced by diesel exhausts. Elimination of diesel exhaust is of major interest worldwide. The company is controlled by Canadians of Indian heritage. The stock is extremely volatile.

*Grupo BTG Pactual and 13 other Brazil banks managing the Oi capital increase with a new stock offering, part of the takeover plan by Portugal Telecom, have dropped their placement guarantee commitment which requires that they buy shares if investor demand falls short of the reais 24 bn underwriting target. They no longer commit to buying the shares if investors don't and will do the issue on a "best efforts basis."

The news pushed down Oi shares in Brazil while PT stock rose in Lisbon. Citi, Itau Unibanco, Banco Bradesco, and a Goldman Sachs sub threatened to drop their underwriting commitment when the Brazilian SEC regulator requested clarification according to Bloomberg. Zeinal Abedin Mohammed Bava, CEO of Oi and ex-CEO of PT is trying engineer the merger whose payoff to existing Oi preferred shareholders depends on the capital increase. It may be unfair to Oi minority shareholders. Mr Bava, a Portuguese, was born in Mozambique, and is also of Indian heritage.

*From Martin Ferera up north:

Veresen pays a C$ 1/yr dividend. FCGYF could hugely boost its divvie starting 2019 at earliest. A lot could go wrong - not least delays brought about by the LNG opposition. But there political support in Oregon, especially in the Coos Bay district, as they want the jobs and economic benefits.

Toronto Dominion helped VSN-Tor issue 17.25 mn shares at $16.50 and today off restrictions, TD maintained the hold recommendation and $C17.50 target price with the following:

"We believe Jordan Cove could be transformational for the company. [It] could represent [accretion] free-cash-flow/sh (AFFO/sh) 85 [cents Canadian] annually and be worth $10/sh of future value. Applying a discount rate of 11% and our 60% probability of the project proceeding, we calculate the present value of the project one year out could be ~C$4/sh".

*Martin, born in what was then Southern Rhodesia, sent a note about Bombardier in South Africa from the Toronto Globe and Mail.To meet Pretoria's Black empowerment rules when landing a US$1 bn contract for locomotives from state-owned Transnet, BDRAF set up the deal to pay its local suppliers: a stationary printer, a cleaning service, and a taxi firm. BDRAF is now in the spotlight for this setup, possibly because it did not include the usual South African Black empowerment suspects, local politically-connected oligarchs..

*Chicago Bridge & Iron was awarded a ~$60 mn contract to monitor two closed US landfill for pollution and safety. CBI is Dutch. CBI made the news today as part of an SEC investigation into Insider Trading by a member of the team which was financing its deal to acquire the Shaw Group.

*Mallinckrodt completed its $1.6 bn takeover of Cadence Pharma, The Irish pharma group was spun off by Covidien. Today it announced another deal with Verde Medsaway to allow leftover opioids prescription pain-killers to be disposed of in the normal trash using VM's pouches to neutralize the active ingredients with water. When you buy a MNK controlled substance you will get a pouch. This also will stop children rummaging in the medicine chest for goodies. Our son at age 18 months swallowed a half bottle of orange-coated baby aspirin he had climbed from his changing table to reach.

*I just got a telephone call from a firm recommending COV which seems to get paid for promoting stocks. COV wouldn't do this; such tipsters include respectable companies in their advisories to hide what they are up to. Obviously I will not use their report on Covidien. Both COV and MNK are Irish.

*As warned I bought more Allana Potash yesterday at 38 US cents/sh. The developer of a potash mine in Ethiopia seeking finance is traded in Canada at AAA and as ALLRF here. Its minority shareholder Israel Chemicals, ISCHF, which we sold, is now threatening to shut in the Dead Sea Potash works in an environmental dispute with Israeli regulators. We sold ISCHF and Soquimich (SQM of Chile, also for other reasons) because they face hefty Belarussian and Russian competition in Asia markets. ALLRF needs to build a railway to a new freight port on the Red Sea for which it is currently seeking finance.

*New high today for Banco Santander. SAN.

*New high today for Dutch Schlumberger. SLB.

*Dr. Reddy fell today. I plotted to sell at a target price. It came close yesterday but I'm stubborn. RDY.