Posts tagged 'Emerging Markets'

Re-re-visiting the 1986 oil crash

As already mentioned, this may not be your usual oil-price decline. But it’s also not crude’s first appearance in the 50 per cent club:

Now, in absolute terms the falls aren’t comparable ($100 to $50 versus $30 to $15) but there are similarities. Read more

Not your usual oil-price decline effect

Yup. Analysts and economists still can’t decide whether the fall in oil prices is net positive or net negative for the global economy.

Unfortunately for the net positive camp, it looks increasingly like global demand and growth figures are beginning to side with the negativity team.

Indeed, the longer the oil price stays low, the more it looks like global stimulus hopes were overdone due to poor understanding of financial feedback loops in the commodity space.

So what’s behind the anomaly? How did a whole school of economists get this potentially so wrong? Read more

Russian rate hikes, then and now

Click to enlarge — from an old St Louis Fed paper

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* Suggest Citi, kinda.

Still, it’s AN argument (with our emphasis):

After the debating – A favourite year-end discussion point for investors and brokers is do you back current winners or play reversion to the mean. Instead of looking at share price performance alone we ran a screen based on 1 year forward Price/Book today versus their past 5 year median. Our sample was Citi’s global coverage universe of bank stocks with a market capitalisation of over $10 billion (121 stocks). The “winner” in terms of largest de-rating is Standard Chartered with a 45% discount vs its 5yr median:

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What ails StanChart — spot the difference

In the first quarter:

By the third quarter… Read more

How will EMs be affected by commodity price declines?

Credit Suisse has a new report out on the winners and losers of the recent rout in global natural resource prices. While everyone has been paying attention to the remarkable decline in the value of oil, agricultural commodities and industrial metals have also become a lot cheaper recently:

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Who really benefits from EM export feedback loops?

We all know the role played by the vendor financing feedback loop of hell in dotcom bubble mark 1.

Quickly summarised, tech equipment suppliers became overly dependent on sales to internet startups funded through vendor financing, a situation which saw them lending money to companies with dubious track-records for the purpose of buying equipment directly back from them. It didn’t end well.

Nevertheless, it’s still a model replicated on a consumer level in the west, whether it’s through car company lending money to customers so that they can buy their cars or sofa company loans for purchases of sofas. Read more

Dark debt II: the undarkening

The rather less dramatic sequel is brought to you by Nomura:

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In Putin’s Russia, risk prices you

Or, why investors might be less than sanguine about sanctions against Russia.

We could start with the OFZs.

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I love the smell of carry trade in the morning

That isn’t one of the pungent lines from a BofAML note on Tuesday — dissecting “an international leverage binge, yet another carry trade, the third in 20 years,” by issuers of corporate bonds in emerging markets.

But there are plenty already:

The Fed giveth and the Fed taketh away

The long-term emerging market equity story is the story of wars

In each cycle, risk morphs – we repeat the mistakes of our grandfathers, not our fathers.

That, and a call for this $2trn carry trade to unwind as the Fed begins rolling liquidity back. Which makes investing in EM not so much about EM — as about what the Fed will be doing as it exits policy.

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Russia must use Olympics to shrug off contagion talk

On the eve of the Sochi opening ceremony, FT Alphaville is pleased to present this guest post by Jorge Mariscal, emerging markets chief investment officer at UBS Wealth Management…

As it hosts this month’s Winter Olympics in Sochi, Russia will spend more time entertaining the world than educating it about the Russian economy. But financial market conditions mean it must also use the Games as a platform to prove some serious economic points.

This year, a tidal wave of capital outflows has engulfed emerging market currencies. Although Russia is stronger than the average developing nation, its currency and stock market have underperformed emerging market averages, with declines of 7.3 per cent and 11.6 per cent in US dollar terms, respectively. Against this backdrop, Russia needs to use the Games as a platform to advertise its resilience and competitiveness to investors. Otherwise, contagion from weaker countries risks sweeping it up. Read more

EM: the kevlar-gloved take

We’re coming to the end of a… multidirectional week for EM rates and currencies. BNP Paribas’ strategist here also pokes the media in the eye for “vying to produce the most bearish story on emerging markets…”

(Who, us?)

So we should note this dose of bullishness from the French bank: Read more

Losing his Raghuram

Turkey-like policy action is hypothetical, I would not venture there.

- Raghuram Rajan, RBI governor, Jan 29th. We’re assuming he meant he wouldn’t touch the hypothetical…

Anyway, this is how Citi’s David Lubin explains the rupee’s recent fortitude already battered position and, perhaps, Rajan’s aggresive attitude to the Fed’s tapering: Read more

Have EM outflows only just begun?

SocGen’s cross-asset research team believes that when it comes to EM outflows they may have only just begun:

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Another look at EM flows

The new capital-flow projections from the IIF begin with impressive understatement: “Emerging market conditions have continued to be quite choppy…”

The report’s main points: Read more

“Currency collapses and output dynamics: a long-run perspective”

While you wait for Turkish Midnight Madness, here’s an excerpt from a 2010 paper by Camilo E Tovar:

Public authorities tend to resist sharp depreciations in their economy’s exchange rate, presumably because they fear that they would be very costly in terms of foregone output. This article presents new evidence on the relationship between currency collapses, defined as large nominal depreciations or devaluations, and real GDP. Read more

Selling StanChart… to Australia

The share price is down a fifth in 12 months. It’s cheaper than Lloyds (on price to tangible book), as a bank with Asia supposedly at its feet. The boardroom is a mess and last week’s “reorganisation” may not fend off an eventual cash call.

Still, after that excellent year for Standard Chartered — Citi’s analysts suggest it’s time for ANZ to buy it: Read more

Zero mappa mundi

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Deflation and secular stagnation: the real threats to EM

This guest post is from Larry Brainard, Chief Economist and Co-Founder of Trusted Sources, an independent advisory firm specialising in emerging market macroeconomic and policy research.


The continuing debate about the timing of Fed tapering has overshadowed two developing issues that have important implications for EMs in 2014. The first is the reappearance of deflation in the Eurozone and the other is the suggestion by former Treasury Secretary Larry Summers that the US economy is slipping into secular stagnation. Read more

Dear Dromeus Capital investor…

One-year total return of the Athens stock index, to the end of October 2013: +50%

One-year return of the Bloomberg Greece Sovereign Bond Index, same period: +134%

One-year net return of Dromeus Capital’s Greek Advantage Fund: +107%

Yep — FT Alphaville hears that the first-year performance of Dromeus Capital’s Greece-focused fund would make it one of 2013′s best-performing, having already made a strong start at the beginning of the year.

It’s another indicator of how much both Greek equities, and the sovereign’s restructured debt, have recovered this year… Read more

The Asian austerians

This vision of 2014 caught our eye — from Nomura’s annual outlook (out Monday)… Read more

China, Bitcoin and the EM transfer problem

A common criticism of the secular stagnation and post-scarcity theory is that it is contradicted by the fact that unacceptable levels of poverty exist in many places around the world, and in particular the developing world.

If there’s so much growth potential out there, how is it possible that the economy is in secular stagnation? Or so, at least, the argument goes.

But perhaps the question we should be asking is what continues to frighten investment capital away? Read more

The EM flow turnaround

What a difference a no-taper made:

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Why don’t you slip into something comfortable, like a pro-business city state

We had allowed the World Bank’s annual ranking of, well, everyone by the ease of which their country facilitates business to pass unremarked. Singapore retained its top spot for the sixth year in a row, under criteria that clearly take no account of chewing gum preferences.

However, Maquarie have dug a little deeper into the survey results, and they find that the Philippines is on the up and up, while warning lights are flashing in China which slid to 96th globally, from 78th four years ago. Read more

Emerging markets: near-term optimism, lingering conundrums

Abundant flows of global capital in search of fresh yield are unstoppable but unabsorbable.

The imposition of new capital controls is often appropriate but, nearly as often, ineffectual. Read more

Next stop, dishwashers

Okay, don’t just think ‘Oh, Goldman are trying to wring a few last drops of revenue from the EM story…”

Instead, click to enlarge. Read more

The pictorial Indian FX swap

As announced amid Raghuram Rajan’s ‘big bang’ on Wednesday — BofAML reckon that this could bring in $10bn for the Indian central bank from non-resident deposits and stabilise the rupee:

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Beware the EM central bank FX swap trend

BNP Paribas has an interesting note out on the increased use of FX swaps by central banks.

If you’re a central bank in emerging markets, struggling to keep your economy stimulated/protected from hot money flows, using swaps or FX sales is a tempting and viable alternative to interest rate hikes, they note.

And generally speaking, the BNP EM strategists argue, swaps provide for a richer toolset for most central banks. Read more

The options for emerging markets

From a recent Citi presentation, a chart stressing the potential risk of negative-feedback loops in the options available to those emerging market countries now trying to stem capital outflows and defend their currencies: Read more