Eq: EMs

(Bangkok)

While many are worried about the domestic economy and whether the US is headed for a recession, those invested in emerging markets should perhaps be even more concerned. One of the fears specialists in the area have is that there is probably about $200 bn of unreported Chinese loans on the books of emerging market borrowers. China is not obligated to report these loans anywhere, so no one is quite sure of the size of the exposure. The risk is that as the economy sours, and these credits debts become distressed, China could impose some severe conditions on borrowers, which could cause emerging markets to seize up.


FINSUM: We could see this becoming an issue, especially because China will be feeling distress itself, which means it is likely to use a heavy hand. Even if nothing comes of this, it will likely weigh on EM asset prices in the near-term because of the uncertainty.

(New York)

For many years, emerging markets were a must-have in every investors’ portfolio. The idea was that a large swath of the world was on an inevitable path towards economic parity with the west, and that there was a great deal of money to be made by investing in that growth. For several years, that view held. However, changes over the last decade mean that such a thesis is increasingly in doubt as many of the factors that drove EMs have fallen away. In the words of the Financial Times, “high commodity prices are a fading memory. Trade is stuttering and global supply chains are being disrupted. Far from catching up with the developed world, many supposedly emerging markets are growing more slowly”.


FINSUM: It is not just economic either. Governments have not cleaned up as fast as many had hoped, which means the law and governance aspect of EMs has hardly improved.

 

 

(New York)

The trade war is very scary for everybody. From politicians to executives to investors (in both nations), everyone is afraid of the implications of the trade war. However, there are some good reasons not to be. Firstly, while there are fears of a market tailspin, the reality is that the dovish Fed should provide a safety net. Secondly, many worry the trade war could bring the economy to a standstill, but remember that only 2.4% of US economic output is at risk of Chinese tariffs. Finally, many fear China could dump its $1.1 tn of Treasuries. The truth is that doing so is very unlikely, and even if they do, it is a small portion of the $22 tn market.


FINSUM: The general theme to take away here is that China is not as big a part of the US economy and markets as many seem to assume it is. That said, the secondary effects of a trade war, such as the psychological impact on business and the effect on the rest of the world, could be considerable.

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