Recent editions of the IMF’s World Economic Outlook have made pretty gloomy reading for developed economies, with growth forecasts trimmed and few recovery prospects.
But despite the global headwinds, emerging markets are still getting a positive writeup from the Fund’s economists. Here are the charts that tell the story. Continue reading »
Is it the end of the world as we know it? The dollar up more than 1 per cent against the yen, 10-year Treasury yields up 12 bp in two days to their highest in eight months… aren’t these the early warnings of the potential for a general dumping of EM assets as the QE liquidity that has sloshed around the world in search of yield starts flowing back home? Continue reading »
By Mohammed Apabhai of Citigroup
Asian central bankers must have woken up this morning breathing a sigh of relief that the US Federal Reserve decided not to engage in another round of quantitative easing.
Although the experience of QE1, when the global economy was looking into the abyss, was positive for Asian markets, QE2 was altogether different. Continue reading »
By Adam Gilmour at Citigroup
Many market players cite last year’s QE2 – first tipped at Ben Bernanke’s 2010 Jackson Hole address – as a major force behind the wave of money that flowed out of the US, and into higher-growth emerging markets where yields were substantially higher.
On Friday the Fed chairman fell short of implying that there would be another round of quantitative easing or QE3. So what now for emerging markets? Continue reading »
By Amer Bisat, partner at Traxis Partners
Emerging markets are in for a rude awakening if – or shall we say, when – the major central bankers reverse their super-easy monetary policy stance. The shock will almost certainly be painful. But will it be crisis-inducing? My best guess is that the answer is no.
Let’s, at the outset, get the bad news out of the way. Tighter global monetary conditions are bad for EM – pure and simple. Continue reading »
By Alain Bokobza of Societe Generale
For Emerging Market assets (both bonds and equities), the deterioration in the underlying enviroment has already taken its toll, with high inflation and geopolitical events pushing up risk premiums and depressing prices relative to other assets.
However, an end to quantitative easing in the US will drag down the relative performance of EM assets further because liquidity flows will drop, EM economies will slow and EM asset prices are still rather high. Continue reading »
By Mohammed Apabhai at Citi
The Fed’s policy of QE2 exposed the Achilles heel of the Asian growth story – the vulnerability to inflation. The result was a 12.5 per cent outperformance of developed market equities against emerging markets from the start of November to the middle of February, and significant sell-offs in Chinese and Indian equities.
Will the end of QE2, therefore, see money heading back into Chindia, and other Asian emerging markets, or will the end of cheap money prompt further selling? Continue reading »
When Ben Bernanke, head of the US Fed, announced a second round of quantitative easing on November 3, there was much weeping and gnashing of teeth in Asia.
There were snide comments about printing money – banana republic style – and doomsday predictions of renewed Asian asset bubbles and massive exchange rate volatility as cheap dollars sloshed around the region looking for better returns. But these fears have so far proven to be exaggerated. Continue reading »
Turkey’s prime minister has finally joined the chorus of emerging-market discontent with the US’s second round of quantitative easing.
“The remedy cannot be printing money. This will have repercussions for developing countries and the least developed countries,” said Recep Tayyip Erdogan (pictured) in a Reuters interview. “This is not a fair approach and Turkey cannot say yes to such a development.” Meanwhile, the central bank has announced its own, less rhetorical steps to discourage speculative inflows. Continue reading »
By Ranjit Lall and Barney Jopson
Markets nervously await the Federal Reserve’s decision – to be reached at a meeting taking place today and tomorrow – on whether to launch a fresh round of quantitative easing. It will have crucial implications for the direction of asset prices in emerging markets. Continue reading »
Who’s responsible for rebalancing the global economy? The developing countries whose high interest rates are so attractive to foreign investors? Or the advanced economies whose cheap money is driving a rising tide of inflows into emerging markets?
As Brazilian finance minister Guido Mantega sees it, the ball is in the developed countries’ court. Fiscal measures are certainly needed to correct global imbalances, he told reporters today in New York. But that means using fiscal stimulus to boost demand in developed economies, not changing Brazil’s fiscal policies to bring down interest rates. Continue reading »