Emerging Markets 03 (Sep 16 - Dec 18)

Re: Emerging Markets 03 (Sep 16 - Dec 18)

Postby winston » Wed May 30, 2018 8:12 am

Why some emerging markets are suddenly melting down

For several weeks, money has poured out of developing nations and into the U.S., causing the dollar to rise in value and the currencies of emerging markets to hit new lows.

Turkey has been at the center of the rout, but many other countries, including Argentina, Hungary and Indonesia, have been hit as investors dump riskier stocks and bonds for the safety of U.S. assets.

1. Why are emerging markets suffering?

This latest upheaval started when the U.S., Japan and Europe kept interest rates close to, or below, zero to help their stagnant economies recover from the 2008 financial crisis. That
made returns on stocks and bonds unattractive, and drove investors to developing nations, where the risks were higher but the payoffs more inviting.

Emerging markets, as a result, have enjoyed a rally in stocks, bonds and currencies. But the reverse is now happening as investors react to several signals from the U.S. -- faster growth, rising interest rates and a stronger dollar.


2. How scary can this get?

Harvard professor Carmen Reinhart, for example, has said mounting debt loads, trade battles, rising interest rates and stalled growth have made emerging markets more vulnerable than on the eve of the 2008 financial crisis.


3. What caused the Asia crisis?

It started when a real-estate bubble burst in Thailand, which undermined confidence in the economy, causing foreign investors to sell the currency and withdraw from the stock market. The crisis spread to the banks, and then across much of East Asia.

Many of the afflicted economies had strong growth records that masked weaknesses like nonperforming bank loans, heavy foreign borrowing and rising trade deficits.

Because their currencies were pegged to the dollar, South Korea and other nations were forced to spend billions trying to fend off speculators who were selling their currencies.


4. So is this another Asian-like crisis?

No, at least not yet. One reason: Investors are selectively punishing markets where policy makers haven’t done enough to stem deteriorating trade balances and ballooning inflation.

These include Turkey and Argentina, which have the worst combination of weak governance and high dollar debt among 18 major emerging-market economies. Brazil and Indonesia aren’t far behind.


5. Who else looks vulnerable?

Economies dependent on dollars and other foreign currencies to finance their trade deficits -- the Philippines, India and Indonesia stand out -- have the worst-performing currencies in Asia this year.

Those with the highest rates of foreign ownership of government bonds could be the most vulnerable to capital outflows, including South Africa, Indonesia and Russia.


6. Why is Turkey in so much trouble?

It’s been one of the hardest-hit emerging-market currencies, shedding more than 17 percent of its value against the dollar this year. Turkey has a large budget shortfall and one of the biggest trade deficits in the G-20 group of nations.

And though Turkey’s inflation rate is more than 10 percent, its central bank was prevented from raising interest rates by President Recep Tayyip Erdogan, who is seeking re-election in June and says he prefers low interest rates, based on his own ideas about monetary policy.


7. Why did so many countries borrow in dollars?

Encouraged by near-zero interest rates after the global financial crisis, developing nations loaded up on what was then cheap debt. Selling bonds denominated in dollars rather than the local currency also attracted investors who favored the more stable greenback.


Source: The Star

https://www.thestar.com.my/business/bus ... ting-down/
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Re: Emerging Markets 03 (Sep 16 - Dec 18)

Postby winston » Mon Jun 11, 2018 5:14 am

Argentina's woes pose questions on emerging markets

by Andrew Wong

I stated last week that while instability in Italy and Spain remain causes of concern, we should really be more worried about American trade barriers, which will further strengthen the US currency and bring the debt crisis in emerging markets to the fore.

One such market is Argentina, whose crisis sent Hong Kong stocks tumbling on Friday. Meanwhile, the MSCI emerging index of Latin America, and the MSCI emerging index in Eastern Europe have declined by more than 12 and 4 per cent respectively this year.

So as storm clouds continue to gather in emerging markets, it will be interesting to see if they spread across Asia.

Argentina's problems include a huge deficit, high inflation, a plunging peso, soaring interest rates, and shrinking foreign exchange reserves. It eventually had to turn to the International Monetary Fund for succor.

However, though many emerging economies suffer from one or two of these problems, they are not as weak as Argentina, where inflation is running at more than 25 per cent.

The only other countries with double-digit inflation are Egypt, Nigeria, and Turkey, apart from Venezuela which is reeling from hyperinflation. Inflation in Brazil, China and Russia are well under control.

There are several emerging economies, such as Brazil, Egypt and India, whose finances are in bad shape.

Brazil's fiscal deficit this year is expected to exceed 8 per cent of GDP while Argentina's overall deficit is 5.5 per cent of GDP. However, because its private sector is still doing well, large fiscal deficits have not created large current account deficits for Brazil.

While many emerging economies are burdened by debt, they can borrow in their own currencies unlike Argentina, where nearly 64 per cent of all government and corporate debt is in US dollars and other foreign currencies.

Among these, only Turkey with rate of 56 per cent can be compared to Argentina.

Does this mean that Argentina's problems will not spread to other countries? And will the Federal Reserve's monetary policy, rising interest rates on and a stronger dollar affect emerging markets?

Source: The Standard
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Re: Emerging Markets 03 (Sep 16 - Dec 18)

Postby winston » Tue Jun 12, 2018 5:33 pm

Investors Are Yanking Cash From Emerging-Market ETFs Ahead of Central Bank Decisions

By Aline Oyamada

Investors who pulled the most money from emerging-market ETFs in the past three weeks since November 2016, have little incentive to return anytime soon as they await interest-rate decisions from the world’s largest central banks.

Meetings at the Federal Reserve and European Central Bank come after investors yanked $406.1 million from exchange-traded funds focused on stocks and bonds from developing nations. They pulled $1.47 billion in the previous week, data compiled by Bloomberg show.

Last week, the biggest ETF outflows were in Mexico, where a Nafta deal is still elusive and leftist presidential front-runner Andres Manuel Lopez Obrador maintains his poll lead. Malaysia and India also had consecutive outflows.

Source: Bloomberg

https://www.bloomberg.com/news/articles ... -to-return
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Re: Emerging Markets 03 (Sep 16 - Dec 18)

Postby winston » Wed Jun 13, 2018 8:11 pm

Gundlach says 'excellent time' to shift into emerging markets

by Jennifer Ablan

NEW YORK (Reuters) - The recent selloff in emerging markets has provided investment opportunities not seen in years, Jeffrey Gundlach, executive of DoubleLine Capital, said on Tuesday, and he urged moving at least some money into emerging market bonds.

Gundlach believes the U.S. dollar will weaken again because of the “ridiculous” expansion of federal debt against the backdrop of rising interest rates.

Gundlach said he expects oil to rise toward $80-$90 a barrel, and said he would be a buyer of gold and continues to be bullish on commodities.


Source: Reuters

https://www.reuters.com/article/us-fund ... US%20Money
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Re: Emerging Markets 03 (Sep 16 - Dec 18)

Postby winston » Sat Jun 16, 2018 11:07 pm

Look down before you look up

by Nicholas Vardy

Over the past six weeks, major emerging market currencies like the Turkish lira, the Mexican peso and the Brazilian real, have all sold off sharply. (Ditto for each of their stock markets.)

Emerging market economies have been on a borrowing binge over the past decade.

Total dollar-denominated debt outside the U.S. reached $10.7 trillion in the first quarter of 2017. And about a third of this debt is owed by the nonfinancial sectors of emerging economies.

Furthermore, a record $1.6 trillion of debt issued by governments, financial firms and other companies in all currencies matures in 2018.

That figure will grow to $1.7 trillion by 2019.

So why are Turkey, Mexico and Brazil's troubles relevant to you?

As I noted, the currencies of major emerging market economies have already tumbled substantially.

Meanwhile, the Fed's interest rate hike yesterday turned the screws tighter on emerging markets by boosting the dollar and increasing the cost of dollar-denominated debt.

Investors are already voting with their feet by pulling more than $10 billion out of emerging market mutual funds and exchange-traded funds (ETFs) over the past six weeks.

The Turkey and Brazil ETFs have tumbled by more than 25% in the past three months.

Market sentiment can shift very quickly. And investors tend to throw out the baby with the bathwater.

Source: Oxford Club
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Re: Emerging Markets 03 (Sep 16 - Dec 18)

Postby winston » Mon Jun 18, 2018 3:58 pm

Emerging Asia Hit by Biggest Foreign Investor Exodus Since 2008

... yanking $19 billion from India, Indonesia, the Philippines, South Korea, Taiwan and Thailand so far this year.

Developing nations including Turkey, Indonesia, India and Argentina have raised rates, while Brazil’s central bank has sold extra foreign-exchange swap contracts in an effort to stabilize their markets.


Source: Bloomberg

https://www.bloomberg.com/news/articles ... since-2008
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