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Emerging Market Channel: Latest Posts
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Emerging Markets
How can a country with US$500 billion in foreign reserves get into a crisis? Russia 2008
Since last June Russia has been one of the hardest hit countries in the emerging world. The stock market has plunged, capital has flown out of the country and inflows have stopped. A liquidity crisis in the domestic banking sector emerged and even corporate giants in the energy sector have begun to have difficulties in refinancing or even repaying their debts. One could argue that this is hardly surprising, as the current financial crisis is a global one and thus no country will be spared. However, one needs to explain why Russia is doing much worse than her peers in the emerging world, even worse than countries with huge external imbalances, e.g. Baltic countries and countries in South-Eastern Europe.
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Asia
Bring on the new financial order and punish the old scoundrels
The third down week in a row had the SSE Composite finishing with a 1.1% loss Thursday and a 1.9% loss Friday, to close at 1840. Checking the historical data provided by Bloomberg indicates that we have to go back nearly two years, to November 2006, right around the beginning of the ferocious Chinese bull market, to find the SSE Composite closing lower. The wild bull market started at roughly 1500 in July 2006 and reached a high of around 6100, if I remember correctly, just over a year ago. Given the growth of China’s GDP during this time, and assuming that earnings growth is more or less in line with GDP growth, I would say that we are already more or less back to where we were at the beginning of the bull market.
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RGE Analysts
Latin American CDS Spreads and Currencies: A Quick Descriptive Analysis
Prospects for the U.S. and Global Economy in 2008
I thought it would be useful to post some high-frequency historical charts on both currency and 5-year dollar sovereign CDS spreads for each individual country in the LatAm region as more attention has been given to the analysis of those two variables in a comparative way.
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Emerging Markets
The Financial Crisis and Emerging Markets
The financial crisis has now caught up with emerging markets—with a vengeance. Wherever you look, in Eastern Europe and the Baltics, Latin America or Asia, the financial carnage is evident. Even China, the most immune to contagion, is going to see its growth decline from 12 percent to 9 percent. Elsewhere, panic in global financial markets has compelled the International Monetary Fund (IMF), which previously was trying to adapt to a no-crisis world, back in the lending and financial rescue business. While the IMF engages in talks with Hungary, Iceland, Ukraine, Pakistan, and other countries, the United States and its European partners have begun discussions about stepping in with credit lifelines to middle income developing countries in desperate need of dollar loans to avoid default.
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Asia
China props up property, the rest of the world proposes solutions
The third down week in a row had the SSE Composite finishing with a 1.1% loss Thursday and a 1.9% loss Friday, to close at 1840. Checking the historical data provided by Bloomberg indicates that we have to go back nearly two years, to November 2006, right around the beginning of the ferocious Chinese bull market, to find the SSE Composite closing lower. The wild bull market started at roughly 1500 in July 2006 and reached a high of around 6100, if I remember correctly, just over a year ago. Given the growth of China’s GDP during this time, and assuming that earnings growth is more or less in line with GDP growth, I would say that we are already more or less back to where we were at the beginning of the bull market.
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Emerging Markets
Argentina Attempts to Nationalize Personal Accounts System; Workers Object
Joaquin Cottani at the RGE Monitor reports on some interesting pension developments in Argentina that shed some light on Social Security policy in the U.S. Argentina, like most Latin American countries, bases its pension program on personal retirement accounts. Individuals contribute to their accounts during their working years, then at retirement use the account balance to purchase an annuity paying them a monthly benefit for life.
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Asia
Middle Kingdom Malaise? The Latest Chinese GDP Figures
Monday’s announcement that Chinese growth was decelerating was not surprising; that it decelerated to below the consensus of 9.7% growth to 9% (y/y) in 2008Q3 was a surprise. This was reflected in the headlines: “China growth rate slows sharply” (FT), “China less likely to buffer world crisis as its economy slows” (LA Times), “China’s economy feels chill from global crisis” (AP). For detailed numbers, see Haver.
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Emerging Markets
A New Era for Global Banking
In response to the global financial market crisis, G-7 policymakers have taken dramatic, albeit belated, steps to arrest a global financial market meltdown. Yet, despite these efforts, it is far from clear whether these measures will be nearly enough to prevent the worst global economic recession in the post-war period. It is also not clear whether these measures will be sufficient to either forestall the further nationalization of a wide swath of the global banking system or to prevent an excessive over-regulation of the financial system.
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RGE Analysts
Can OPEC Stem the Downward trend?
UPDATE: As anticipated, OPEC cut production in its October 24 Meeting. OPEC agreed to reduce production from its output ceiling by 1.5 million barrels a day from where it is currently set at 28.8 barrels a day. OPEC has been producing well over this quota for much of the summer and fall – so the reduction could be even larger. However as suggested in the piece below, written Oct 23, the prospect of even weaker demand as the economic climate worsens and the effects of wealth losses sink in, continued to push oil, other commodities and global equities downward. As of first thing this morning, Equities had one of their worst days with many markets halting trading – including the S&P futures. OPEC may be unable to stop the downward trend in prices given that global recession is reducing demand and oil is one of the many assets that few people want to hold. At a minimum no increase in demand for oil as a financial asset is likely until financial markets stabilize. Furthermore, OPEC will want to be careful not to further erode demand. More cuts seem likely at OPEC’s December meeting and expect to hear more concerns about the financial factors not ‘fundamentals’ affecting the oil price.
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Emerging Markets
A Sad End to Social Security Privatization in Argentina
As expected, the president of Argentina formally announced yesterday that she would be sending a bill to Congress to re-nationalize the social security system, which was partially privatized in 1993.
Actually, the counter-reform of the pension system has been going on since the beginning of last year. First, the government incorporated 1.3 million new pensioners into the public, pay-as-you-go system (PAYG) via a moratorium that gave workers the right to collect a minimum pension despite not having contributed during most of their active lives.
