Monthly Archives: August 2013

The financial markets’ love affair with emerging market assets, which peaked in 2010, has plumbed new depths during August. Emerging market equities (in $ terms) are now down by 12.2 per cent so far this year, while developed market equities have risen by 11.2 per cent.

Emerging currencies have been in free fall. As a result, interest rates have been tightening as GDP growth expectations have been persistently marked downwards, which is usually a toxic combination for risk assets. Read more

The appointment of Raghuram Rajan, a Chicago economics professor, to the helm of the Reserve Bank of India is certainly an intriguing one. His arrival comes at a time when the Indian economy stands at the threshold of an outright foreign exchange crisis, more serious than anything seen since Manmohan Singh’s economic reforms of the early 1990s. Mr Singh is now Prime Minister, and seems to have lost his magic touch.

As Rajan himself has commented, central bankers can move from hero to zero in very short order, and so too can entire economies. India’s economy was generally deemed to be a startling success as little as two years ago. Now it is seen more like an old-fashioned emerging market, with severe supply side failures combined with unsustainable fiscal and balance of payments deficits. Read more

Last week, the Chinese authorities created a stir when they announced that they are initiating an urgent review of outstanding debt for all of the various levels of the public sector in China, right down to individual villages. This raised market concerns, because one interpretation of this action is that the authorities may not have a handle on the amount of publicly-guaranteed debt in the economy, particularly in the local government sector, where the growth of debt has recently been extraordinarily rapid.

The authorities do not appear to have decided when (or whether) the results of this survey will be announced and of course there will be the usual suspicions that the eventual numbers will be massaged for public view. Until recently, it had generally been assumed by China watchers that, while the growth in private and corporate credit was running dangerously ahead of GDP growth, there was a major silver lining in the healthy financial condition of the government sector. Read more