Eq: EMs

(Rio de Janeiro)

The Financial Times has published a wide-ranging and in-depth article which looks at the way in which emerging markets have gained, and may now lose, from ultra-low interest rates. The piece explains that an extraordinary amount of capital—to the tune of $7 tn—has flowed into emerging markets since the Fed began QE in 2008. During that time, emerging markets have gorged on debt to the point where private sector debt is greater on a percentage-of-GDP-basis than in developed markets immediately prior to the Financial Crisis. And now that the Fed has turned off QE, companies across emerging markets, including in China and Brazil, are now having trouble paying their debts. It also makes the interesting point that huge levels of access to capital may have created massive amounts of debt that are hard to detect until they burst.


FINSUM: We are unsure how rate rises are going to play out in emerging markets, but it seems that the slower rates elevate the better, as it will give countries time to adjust. A rapid rise seems like it could completely lock up access to credit across EMs, which would certainly cause a strong recession.

Source: Financial Times

(Tokyo)

For the second time under PM Shinzo Abe’s leadership, Japan has just re-entered recession. The country’s economy shrank 0.8% annualized in the third quarter as corporate investment declined and the nation took a hit from China’s issues. The data show that the PM’s plan, dubbed “Abenomics”, is continuing to have trouble reviving the economy. The data show that this past quarter was the fifth out of 11 in which the nation’s economy has contracted. Two consecutive quarters of contraction are commonly considered a recession.


FINSUM: Japan’s legacy economic issues and proximity to China did it no favours in the third quarter. Abenomics continues to fall flat.

Source: Wall Street Journal

(Beijing)

Here is an eye-opener—Chinese stocks have just returned to a bull market. As everyone will know, Chinese stocks tumbled in the summer after a huge run upward in the first half of the year. The volatility seen shocked the world, sparked a major global selloff, and seemed to be a major factor in the Fed holding off on September rate rises. However, despite all this, a sense of calm has returned to the Chinese (and global) markets. Chinese GDP data, which was better than expected, helped allay fears of a “hard landing” for the Asian economy, and further accommodative action by the government was received as good news. The Shanghai Composite was up 10.8% in October and has gained 20% from its late August low.


FINSUM: It remains to be seen how things will play out for the Chinese economy, as despite the better-than-expected figures it is still slowing. However, that may be a moot point as the government-controlled data seems rather fudged.

Source: Financial Times

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