Eq: EMs

(Sao Paulo)

Brazil’s economy can be described in one terrifying word: stagflation. New data shows that inflation in Brazil is getting out of hand, with the figure jumping to 10.67%, well beyond the central bank’s target of 6.5%. The country’s debt has been downgraded to junk by Standard & Poor’s and Fitch since September, and the country’s economy is struggling whilst a major government corruption scandal drags on. In a very bearish assessment, an analyst from Capital Economics summed up the country’s situation this way, saying “Faced with a sharp deterioration in its terms of trade and an overhang of private and public debt, the uncomfortable truth is that there is relatively little Brazil can do to bolster demand … At this stage, the least painful option is to probably try and regain some of the confidence of investors that has been lost in the chaos of the past year”.

FINSUM: Brazil’s economy is in a terrible place, and it seems there is little prospect for it to improve any time soon.

Source: Financial Times


As many will know, part of the most recent Chinese stock meltdown has been weak economic data. Now with the government reportedly buying to prop up stocks, new inflation data has come in. Consumer prices rose just 1.6% year on year in December, while producer prices fell 5.9%, more than expected. The article says that deflationary pressures have eased in China, but they are still a concern. The worst of the slowdown is falling on the manufacturing sector, which can be seen in how much producer prices are falling. The chief economist for HSBC, Qu Hongbin, says “The weaknesses in both domestic investment and external demand have exacerbated the deflationary pressures in the economy. All measures of prices now underscore the rising deflationary risks”.

FINSUM: This is bad news, and while it is not worse than recent inflation data, it will do nothing to help stem the tide of panicked selling in China.


Source: Financial Times


Bank of America Merrill Lynch has made a bold and unsettling prediction for 2016: Chinese stocks (Shanghai Composite) will fall nearly 30% this year. The forecast comes despite, or perhaps because of, the fact that Chinese equities saw a huge decline during summer 2015. The bank thinks the unwinding of the huge build-up in leverage the country has seen will hurt the economy and markets there. The bank’s head of China strategy, David Cui, who is known to be a bear on the nation, said “Historically, any country that grew debt this fast inevitably ran into financial-system problems, including currency devaluation, banking recap, and high inflation, and we do not expect China to be an exception”.

FINSUM: We are not specialists on the Chinese market, but we certainly agree on the overall direction of the economy and markets there. The way the markets have started the year only supports this thesis.

Source: Bloomberg

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