Grace Fan, Director Brazil/Latin America Research talks about the two main challenges facing Brazil. - Fiscal vulnerability is rising as the reform agenda has been derailed - Political chaos as President Temer has now become embroiled in Lava Jato corruption scandal.
The euro area LI continues to put in an above consensus call. It is probably over predicting growth somewhat but its strength is fundamentally underpinned by the newly emerged German locomotive. While German demand often turns out to be derived from others, chiefly China, in this case it is genuine. In fact, this is highlighted by our below consensus Australia call. China’s stimulus has not fed through to a rebound in private demand, although easing PPI deflation is helping manufacturers.
Emerging market growth has been on a downward trend for just over half a decade. The slowdown probably bottomed out at the end of last year. On an aggregate basis, the advance in EM annual real GDP accelerated to 3.9% in Q2 from 2.4% in Q3 2015. Is this the start of a sustained rebound in EM growth? Click above to watch the full video or below for our latest report on emerging markets.
Are emerging markets at the start of multi-year bull market, or will the old problems come back to sink EM assets? Nowhere are these questions more relevant than in Brazil. Click above to watch the full video.
Happy New Year! Having sifted through various sell-side reports, we conclude that our emerging market view is more on the bearish side. While we have a constructive stance on some EMs, India and Mexico in particular, our general tone is still one of caution. For more details, please request a copy of our year-ahead piece -2016: Don’t panic, yet! In today’s note, we address three key questions: 1) Why are we more bearish than consensus on EMs? 2) What would make us more optimistic? 3) What would make us more negative? Click below to find out more.
Twelve months ago we said 2015 would be a year of ‘deceptive calm’. With the S&P 500 up 5% and US 10-year yields around 5bps higher, you could say our forecast was accurate. Markets spent much of the year in an anxious state, fretting about Greece, then China, then the risk of a synchronised global recession. In 2006 and 2007, LSR had a high conviction that a financial meltdown was about to wreak havoc on the global economy. This time around we stick with our 2015 theme ‘Keep Dancing’ but with no great conviction. Looking ahead to 2016, China...
Brazil is battling a host of structural, cyclical, external and political risks. It faces headwinds from a turn in the metals supercycle, tighter liquidity conditions, diminished competitiveness and a payback from poor policy choices. It is one of the most vulnerable economies on almost all the metrics that we use to assess growth prospects in emerging markets (EMs). Brazil has been one of our least preferred EMs for long time now and we see no reason to change our stance. In fact, the pain is set to intensify. Click below to find out more.
The emerging market (EM) slowdown that started in 2011 and gathered pace after the taper tantrums of 2013 continues unabated. The two questions investors often asked over the last couple of years have been: are EMs heading for a 1990s-style crash and is the worst behind us? We have replied No to both, and the follow-up question has usually been ‘how much more pain is in store?’ This has been tough to answer. Our latest publication - LSR View looks at the extent of the adjustments that EMs still need to make by answering the following set of questions: 1) W...
We have warned of painful adjustments and weaker currencies in EMs, most recently in our 2015 outlook. Our own LSR EM FX index is down 11% against the dollar since the start of the year, and even China has dipped a toe in the tempting waters of currency depreciation. In real terms, many EM currencies are still overvalued. Our analysis suggests that a further 9% real depreciation of the LSR EM FX index would be required just to make EMs as competitive as in late 1990s. The important question here to ask is whether US policy can support the large scale EM devaluati...
A 3% depreciation in the yuan (CNY) is, per se, hardly a game changer for global markets. But the move could have broader implications, certainly in the near term – not least as Japan and the euro area are firmly in easing mode. Sustained CNY depreciation will send disinflationary impulses to the rest of the world, complicating EM policymakers’ task and magnifying risks around domestic EM leverage. To find out more about how a weaker yuan amplifies the EM ‘slow burn’ challenges we have identified in the past, click below.