Emerging market currencies may have received a boost against the dollar last week after the European Central Bank announced its programme of quantitative easing, with those of South Africa, Russia, Turkey and Brazil all strengthened by the news. But the more important stories for investors over the mid term are the effects of cheaper oil and the state of countries’ current accounts.
On the face of it, whether a country exports oil seems to matter more to investors right now than the state of its current account. Read more
So far, things have been going the right way for Prime Minister Narendra Modi as he strives to meet ambitious pre-election promises and kick-start a recovery in the Indian economy. The recent drop in oil prices has helped two crucial data points: inflation and the external balance. But what about growth?
In some ways, the new Bharatiya Janata Party (BJP) government has been luckier than anyone might have guessed. Read more
US jobs growth slowed in August, contradicting a host of other data showing strength in the world’s largest economy. Nevertheless, the weak data is unlikely to sway the US Federal Reserve from hiking rates next year, though it is possible that its language may now turn a little less hawkish.
So while US monetary tightening remains in prospect, it makes sense to assess which EM countries have worked hard to shore up their vulnerabilities to prepare for the receding tides of liquidity – and which have failed to do so. Read more
Emerging market (EM) economies are rebounding from an export malaise that has marred their fortunes since early 2012 and rendered several of them vulnerable to the tapering of US monetary stimulus.
So, is an EM export boom now once again in prospect?
The answer, say analysts, varies sharply according to which side of a stark dichotomy each emerging market falls. Manufacturing-led exporters, particularly in Asia, are riding a wave of resurgent demand from the US and Europe. But commodity-orientated exporters in Latin America and Africa are hurting from the slow expiration of the commodity supercycle. Read more
One of the few silver linings for countries that suffer a devaluation of their currency is that their exports can become more competitive.
South Africa – like other members of the so-called “fragile five” (Brazil, India, Indonesia and Turkey) – clung to the hope of an export rebound as the rand sank by 30 per cent over 2012 and 2013.
But, analysts say, exports have been frustratingly sluggish to pick up, raising questions over whether South Africa can sustainably reduce a current account deficit that stood at 5.1 per cent of GDP in the final quarter of 2013. (A large current account deficit, of course, is the main criteria for membership in the “fragile five” club). Read more
By Michael Power of Investec Asset Management
The Brics acronym has captured investors’ imagination like few others. But has it really helped us understand the intrinsic nature of the risks and rewards in the emerging market (EM) asset class, thereby allowing us to profit from investing in it? I have long had my doubts and recent turmoil in the asset class has only confirmed them. So is there a better way of understanding this asset class? My conclusion is that we should move away from the prism of Brics – and indeed some of the other acronyms now flavouring this alphabet soup – and instead think of EMs in terms of blocs.
There is a pressing need to do this: the paradox of investing in EMs is that whilst the structural case for doing so is overwhelming, it remains an asset class that is still both cyclically risky and very volatile. This suggests the right question to ask is no longer “whether” to invest in EMs, but “how”. And in answering this “how”, we must above all acknowledge that not all EMs were born alike. Read more
When the Reserve Bank of India put out its latest statement on the nation’s current account deficit on Monday it looked like good news.
The gap narrowed to $5.2bn, or 1.2 per cent of GDP, in the three months to September from $21.0bn, or 5 per cent of GDP, in the same period a year earlier. But are these numbers simply a mirage? Read more
Nomura has released its Global Annual Economic Outlook for 2014, and its prognosis for Asia is interesting.
The investment bank states that the region’s economic leaders for the coming year will be: Korea, Malaysia and (despite a devastating typhoon) the Philippines. Read more
Indonesia’s central bank held its policy interest rate unchanged on Tuesday, ending an aggressive tightening cycle that saw the rate rise from 5.75 per cent a year in May to 7.25 per cent at the bank’s previous policy meeting last month.
The decision was widely expected: 17 out of 18 economists surveyed by Bloomberg predicted no change. But was the decision the right one? Several analysts say Bank Indonesia has left the job unfinished. Read more
Basic economics says that a falling currency should help the trade balance: exports are cheaper and more competitive, and imports are curbed. So much for theory. South African policy makers must be banging their heads on their desks. You can imagine the cry: come on! When is the falling rand going to give us a break?
The country’s trade balance for August is in, and it’s not good: a negative score of R19.1bn ($1.9bn), from a trade deficit of R13.1bn in July. Analysts had predicted a drop of R13.9bn. Read more
Polish premier Donald Tusk recently announced that Poland’s economic slump was over and predicted a return to faster growth, but that message doesn’t seem to have got through to the thousands of angry labour union activists who descended on Warsaw on Wednesday for several days of anti-government protests. Read more
One of the benefits of a depreciating currency is the boost it gives to a country’s exporters and, by extension, its current account. So with the rand one of the worse performing currencies in 2013, South Africa’s position should be improving, shouldn’t it? Read more
India’s current account deficit was expected to be big in the last quarter of 2012. But not this big.
The Reserve Bank of India said on Thursday the deficit reached $32.6bn in the third quarter of the fiscal year, equal to 6.7 per cent of GDP – a record. That’s up significantly from 5.4 per cent of GDP in the previous quarter and 4.4 per cent in the same quarter a year earlier. Read more
South Africa’s central bank delivered a nasty shock on Tuesday morning: the country’s trade and current accounts were in a worse state at the end of 2012 than previously realised, and they were precariously funded.
The rand moved sharply, falling from 9.04 to the dollar at the open to as low as 9.21, before recovering to about 9.18 at 10.15 GMT. Read more
It’s the exports, of course. Korea’s current account registered a record surplus of $6.88bn in November, up from $5.78bn in October, and beating July’s previous record of $6.14bn.
The trade strength pushed the won to appreciate around 0.45 per cent against the dollar on Friday, at around 1,067.6 per USD, continuing the rally from May. Read more
Indonesia-watchers have been fretting recently about some alarming headlines about economic overheating, not least the growing current account deficit.
But not everybody is worried. In a report on Friday, Barclays came out strongly against the consensus. While others are running for shelter, the Barclays team is staying put on the (Bali) beach. Read more
What grows and grows until it shrinks? The answer in Turkey at least is the country’s giant current account deficit – the world’s second biggest in absolute terms – which is finally coming down after years of swelling.
That’s an important development, since the deficit is widely seen as the Achilles heel of the Turkish economy. But questions remain as to how much further the country will rebalance between exports and imports and how easy it will be to finance what will almost certainly remain a very substantial deficit. Read more
The numbers are in for the Turkish economy in 2011 and the country’s government hails them as telling a good story.
The headline figure is that the economy grew by 8.5 per cent for the year as a whole; the more important fact is that it registered 5.2 per cent growth for the final quarter of 2011, a significant slowdown from much higher rates marked up earlier in the year. Ankara says that is sign of a soft economic landing and adds that the economy is successfully “rebalancing” from domestic demand to exporting. Read more
Turkey’s current account problem isn’t getting better as quickly as Ankara would hope, so the government clearly thinks it is time to step on the gas.
Since the current account deficit is widely seen as one of the biggest vulnerabilities of the Turkish economy, the country is looking hard at one of its biggest components – the hefty energy import bill. Read more