Bahrain, Angola, Ecuador and Venezuela rank as the emerging markets (EM) most vulnerable to a downgrade in their sovereign credit ratings if oil prices do not recover in 2015, Fitch Ratings said in a report published on Tuesday.
With benchmark Brent crude prices close to $80 a barrel, down from $115 a barrel in mid-June, the revenues of all oil producers are under pressure. But due to differing levels of fiscal reliance on oil income, the speed of deterioration in domestic budgetary conditions varies sharply among EM producers. Read more
As Alan Beattie wrote recently, a clear divergence in monetary policy is polarising the emerging market (EM) universe. Some countries, such as China last Friday, have cut interest rates to invigorate demand while others, such as Russia and Brazil, have had to hike rates to battle inflation.
The divide is growing starker, forming a basic template for EM investors. Softer oil and commodity prices are subduing inflation in most countries, creating room for easier monetary conditions. Other countries, however, are still struggling with ideosyncratic frailties, preventing them from capitalising on the ebbing EM prices. Read more
Clearly, China’s interest rate cut on Friday was motivated by a desire to manage a flagging growth story. But the announcement also revealed a few sub-plots, which together may say more about Beijing’s mindset than the dominant narrative.
The first point, several analysts said, is that Beijing’s monetary easing may well have further to run, following the decision by the People’s Bank of China (PBoC) to cut its benchmark lending rate by 0.4 percentage points to 5.6 per cent, while cutting its deposit rate by 0.25 per cent to 2.75 per cent. Read more
“If you see ten troubles coming down the road, you can be sure that nine will run into the ditch before they reach you.”
For about two weeks in late October, it seemed as if these optimistic words from Calvin Coolidge, the former US president, might have encapsulated the mindset of emerging market (EM) investors.
But the late October rally in EM financial assets has now stalled. Investors are relinquishing hopes that market troubles may turn out to be mere phantoms and focusing again on the very real problems coming their way. Four of the most intractable are set out below. Read more
Unofficial readings on China’s industrial activity released on Thursday add to a sense that the underlying economic vibrancy of the world’s second largest economy may have continued its ebbing trend into October.
This may surprise those who bought into the notion that industrial output rebounded strongly in September, rising to 8 per cent year on year, up from 6.9 per cent in August. In fact, though, that September “rebound” was largely the result of a big statistical base effect, according to China Confidential research.
Similarly, the announcement on Thursday of a pick up in HSBC/Markit’s manufacturing Purchasing Manager’s Index (PMI) to 50.4 in October so far – up from 50.2 in September – is misleading. In fact, readings on manufacturing output and new orders – the key measures of industrial vibrancy – revealed markedly weaker trends. Read more
A reported export surge in September is failing to dispel the gloom suffusing forecasts for China’s third quarter GDP growth, which several economists predict will slump to a five-year low.
One problem lies with the export numbers themselves, which raise suspicions that over-invoicing may once again be artificially inflating export statistics as Chinese smuggle hot money into the mainland from Hong Kong to take advantage of an appreciating renminbi. Read more
Emerging market (EM) currencies have tumbled against the US dollar over the past three months – with a single exception. Not only has the renminbi resisted kowtowing to the resurgent greenback, it has strengthened against it even as the currencies of its BRIC counterparts – the real, the rouble and the rupee – have fallen 7.8 per cent, 14.3 per cent and 1.6 per cent respectively since July.
This raises an obvious question: for how long can the renminbi refuse to accept the US dollar renaissance? Read more
The slowing Chinese economy and unwinding of US quantitative easing have squeezed emerging market bonds. However, Brett Diment at Aberdeen Asset Management sees an opportunity in local currency EM debt, as he explains to FT’s EM editor James Kynge.
A surge in fake invoicing is once again inflating China’s export figures, according to a survey, raising questions over a mysterious recent ballooning in Beijing’s trade surplus and suggesting that inflows of hot money may be rising.
A survey of executives at 200 export companies, trading firms and shipping agents in China in September revealed a spike in the number of respondents who think over-invoicing of exports is resurgent (see chart). The levels are reminiscent of late 2013, when hot money inflows prompted a managed depreciation of the renminbi. Read more
The US dollar surged again on Wednesday against a basket of emerging market (EM) currencies, adding urgency to the question of which EM countries are most vulnerable to a receding “carry trade”, the multitrillion dollar flow that has swollen domestic debt markets since 2009.
A soaring dollar piles pressure onto EM carry trade investors, who typically borrow dollars at low interest rates in order to buy high yielding EM domestic debt. When the dollar surges, they suffer currency losses that offset their interest rate gains, prompting them to sell. Read more
If proxy indicators are to be trusted, investors will welcome a key further opening of China’s Shanghai stock market to foreigners next month with a bang. More important, though, are the ways in which the partial integration of the Shanghai and Hong Kong exchanges promise to recast the global investor landscape.
Several portents of a rousing reception await the launch of the “Shanghai-Hong Kong Stock Connect”, which is set to offer Hong Kong and foreign investors with offshore renminbi (CNH) the most unfettered access yet to the Shanghai market. Read more
A closely-watched indicator of economic activity in China is showing an unexpectedly robust reading for September, according to an announcement on Tuesday. But is a real growth rebound underway, following several signs of a slowdown in the third quarter so far?
Hong Kong stock market investors appeared to reserve judgement, allowing the Hang Seng index to slip 0.49 per cent, or 118 points on Tuesday to 23,837. Economists and other survey-based indicators of Chinese economic activity reinforced the skepticism. Read more
Unhealthy lifestyles are spreading through emerging market (EM) economies as people adopt fast-food diets, work in stressful and sedentary jobs and contend with worsening pollution. These are unwelcome trends unless, perhaps, you happen to be an investor in EM healthcare stocks.
A proliferation in ailments, rising incomes and growing government support for healthcare in EM countries are bolstering the portfolios of Sectoral Asset Management, a fund company with about $3.5bn under management. In March this year, it publicly launched a fund invested solely in EM healthcare companies. Read more
There is more gloomy news for the world’s second largest economy. A comprehensive official survey of Chinese households, businesses and banks finds demand for loans slackening further in the third quarter, suggesting scant prospects of a reprieve from the credit slump seen in August and July.
Some 3,100 banks interviewed by the People’s Bank of China (PBoC), the central bank, reported a significant easing in loan demand among all three categories of firms – small, medium and large – for the third quarter, which ends at the end of September.
The loan demand index fell to 66.6 per cent, down from 71.5 per cent (see chart). The muted demand for loans is set to create headwinds for the PBoC’s initiative this week to boost economic growth by injecting Rmb500bn ($81bn) into the five largest state-owned banks, economists said. Read more
Headline statistics on the Chinese property market continue to relay a picture of virtually unrelieved gloom. However, in one small but important area, market pressures appear to be easing.
All year long Chinese banks have tightened up on mortgage lending to both first time buyers and purchasers of second homes, withdrawing discounts on mortgage loans and restricting loan growth – and thereby depressing buying activity.
However, this changed in August, with banks switching course to offer softer terms on mortgage loans, research companies said. Read more