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Stretched Sentiment Leaves EM Vulnerable
Liquidity conditions have deteriorated meaningfully for EM equities. The left chart below shows that the steep drop in G7 Excess Liquidity points to a risk of much lower EM equity prices in about 3-4...
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Stronger Dollar Toxic for Emerging Markets
In the past few monthlies we’ve warned that a strong dollar has the potential to cause emerging market crises. From a valuation standpoint, the dollar is very overvalued against almost all currencies,...
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Emerging Markets: Turkey and Mexico Beaten Up
One of the main promises of Trump’s campaign was building a wall with Mexico that the Mexicans would pay for as well as renegotiating NAFTA. Mexico’s stock market in dollar terms is now back to...
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Greatest Risk to EM is a Higher Dollar
(from our Tactical report of 8th November 2016) Flows to EM equities have been high lately (3m flows over last 2 years to EM ETFs are in their 80th percentile – chart below). Source: Macrobond,...
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Brazil: Speculators Take Profits on BRL and BRL Assets
We turned bullish on Brazil back in February. Our leading indicators had been turning up, the effects of previous Selic hikes had begun to recede, and we expected inflation would fall, opening up the...
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EM Money Growth Improving
Capital outflows from emerging markets continued into the second quarter of 2015. Once again the outflows mainly emanated from China and from CEE and Russia. The flipside is growth Treasuries held in...
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EM Capital Outflows Gather Pace
We discussed in April that global reserve assets had begun to fall on an annual basis. This has continued, and the level of contraction is now as great as it has been since at least 2004. Capital...
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Turkey’s External Debt Remains Worryingly High
Excerpt from VP Tactical first published on 14th April 2014: We have been flagging Turkey as our top candidate for a currency crisis since we released our Understanding Debt and Currency Crisis...
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Emerging Market Valuations Will be Compelling
A weak oil price and a strong dollar rally will put pressure on emerging markets, but valuations for many emerging markets should soon be compelling. Emerging markets have been in a downtrend relative...
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Excess liquidity and money growth point to weaker second half of 2014
One of the themes we have been tracking in the past 6 months is the slowdown in global money growth and excess liquidity. The focus on the second derivative is important here. The level of growth in...
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Global growth increasingly sensitive to EM and China
Many emerging markets were in recession last year and are only slowly emerging. Tight financial conditions and flat to inverted yield curves will make the recovery slow and fraught with risks. Global...
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Don’t tar EMs with the same brush
The debate on EM economies (and equities) is heating up. Initially this week, we had the financial world equivalent of the pillory with the widely reported closing of a high profile US hedge fund’s EM...
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Don’t blame EMs (too much) for the recent sell-off
Emerging markets are being blamed on just about all hiccups and bad surprises currently befalling the global economy and financial markets. However, this is slightly unwarranted and, in any case, not...
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EM could benefit if the Fed disappoints the tapering consensus
One of the points we have emphasized to clients in the past two months is that many of our indicators suggest that long rates in the US may not rise as aggressively as the consensus expects. In other...
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Slowing real money growth raises a red flag for growth and cyclical assets
Our real narrow money index continues to decline and is sending an increasingly bearish cyclical signal for the global economy and commodity prices. Our real narrow money index has now declined for 4...
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Nearing the Edge of the Cliff in Ukraine – Devaluation Coming
Below is an excerpt from our weekly report from last Wednesday. On Friday, Moody’s downgraded Ukraine to Caa1 (from B3), citing plummeting FX reserves, downside risk from future negotiations with the...
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Weaker currency points to better times ahead in Brazil
One concrete example where the recent sharp drawdown in the FX rate may herald better times ahead is in Brazil. As in most other emerging markets, a weaker currency is a double – edged sword. If it...
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Watch the Current Account Deficit Countries
Since tapering discussions pushed up yields in the US, this has led to a steepening of yield curves across the developed world. The US has seen the greatest steepening, which argues for higher growth...
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Industrial Production Recovers in Brazil amid Gloomy Sentiment
Our leading indicator for Brazil continues to imply significantly higher growth in Brazil and the economy is starting to respond. Of course, recent positive growth surprises have taken a backseat to...
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Global real rate still negative, but divergence between countries
The aggregate real global policy rate is still firmly negative due to the commitment to low interest rates in the major G4 economies, Still, we are seeing notable divergence between countries....
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