Eq: EMs

(Rio de Janeiro)

Brazil’s economy is headed nowhere fast, as new GDP data shows the size of the country’s economy dropped a staggering 4.5% from this time last year. Latin America’s largest economy shrank 1.7% in the third quarter, with a 2.1% drop the previous quarter. The shockingly bad numbers have led Goldman to say the country is facing an all out depression. Brazil is facing a huge budget deficit, a partial government shutdown, sky high rates, and double digit inflation. The chief Latin American economist at Goldman Sachs summarized the situation this way, saying “What started as a recession driven by the adjustment needs of an economy that accumulated large macro imbalances is now mutating into an outright economic depression given the deep contraction of domestic demand”. 


FINSUM: And one wonders why the BRIC concept has lost its traction! Emerging markets are in the midst of a broad downturn, and Brazil is at the very leading edge of that.

Source: Bloomberg

(Shanghai)

China’s stock markets have recovered strongly from their deep summer plunge. Stocks overall are up 17.7% from their August low, and alongside the recovery, debt markets are starting to look frothy as investors have moved their speculative capital into bonds. Earnings for Chinese companies plunged in the third quarter, which suggests that the stock market recovery and the bond jump are overdone. Companies’ creditworthiness has been tumbling in China, yet financing has been getting ever easier as eager investors buy up new issues, sending interest rates downward. Spreads to Chinese government bonds have been tightening despite the deteriorating credit outlook.


FINSUM: The capital controls in China seem to have a distorting effect on financial assets, as there is a flood of capital that has little place to go even when the macroeconomic backdrop looks weak.

Source: Financial Times

(Paris)

India’s prime minister, Narendra Modi, has forced himself into a very tense issue surrounding the upcoming Paris climate talks. It is hoped that the world’s nations will come to an agreement on containing the global climate this month in Paris, and ahead of that, Modi has declared the developed nations must shoulder the largest burden. Modi says that the developed world built itself on fossil fuel, and thus it would be immoral for those nations not to shoulder the largest burden in containing emissions and climate change. Developed nations on the other hand, think that no deal can be made unless large emerging economies take on a big burden of changing their practices. India is the world’s fourth largest emitter behind China, the US, and EU.


FINSUM: Honestly, given the state of world politics, and the huge politicization of climate change, we think it is very unlikely that countries will agree to a comprehensive accord. In the spirit of many EU deals over the last few years, we expect a symbolic agreement short on details.

Source: Financial Times

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