The return of inflation has taken a lot of people by surprise, although it should not have done. Worryingly, even central banks have acted quite surprised by the abrupt rise in prices, when they should have expected it.Continue reading
With the eyes on the US presidential election and the second wave of Covid-19, investors around the world can be forgiven if they have missed two important warnings from emerging markets.
However, with the election (almost) out of the way, it may be time to go through the rest of the news flow and think properly about the two events that may have been overlooked: the postponing of the world’s biggest stock listing (China’s Ant Group), and the firing of the governor of the Turkish central bank.
When he finishes negotiating his “deal” with China, US President Donald Trump will probably try to take credit for the country’s shrinking current account surplus with the rest of the world.
However, the fact that China’s exports are slowing is not a new phenomenon, and it is not necessarily a reason to celebrate.
The fourth quarter of the year started with heightened volatility and rising uncertainty and is likely to continue this way, despite some green shoots in the first part of October.
While all eyes are on Italy, the world’s second-largest economy is showing signs of trouble. China, this curious mix of communism and capitalism, is running out of steam – and ideas. Unless the Chinese government finds new ways to stimulate its economy, it might find itself facing the world’s biggest revolution.
While all eyes are still on Turkey, another emerging market is about to show the ugly side of quantitative tightening, and this time things could get really serious.
The world’s second largest economy has been a “success story” for so long that people have forgotten about China’s many vulnerabilities. Or rather, the Chinese communist party has been so good at keeping things under wraps, that few of the country’s weaknesses are known to the outside world.
Housing markets in certain developed economies are beginning to lose steam, prompting worries that house prices might see corrections, especially in countries where they had been overheating.
This past week, there has been a frenzy of selling of emerging markets assets. The outflows from both stocks and debt in emerging markets reached their highest level since December 2016.
This amounted to $3.7 billion withdrawn from emerging market equities and bonds, according to data analysed by Bank of America Merrill Lynch. These outflows have helped push our old friend, the Bull/Bear indicator developed by BofA Merrill Lynch, to 4.8 — its lowest level since January 2017.
The first quarter of 2017 is over, Brexit has been finally triggered and a period of political turmoil in Europe is ahead, with elections in France and Germany, and perhaps Italy too.
So far, it seems like nothing has been serious enough to give investors reason to pause the rally in stock markets. Both the US and the UK indices hit record highs — this could be a sign of confidence, but it could also mean the central banks’ easy monetary policies are still inflating asset prices.
By Sourajit Aiyer
This article is a synopsis of my new book, Capital Market Integration in South Asia: Realizing the SAARC Opportunity. Here is a link to the publishers’ website and here is a link to it on Amazon, where you will be able to buy it when it is launched in November.
Lee Kuan Yew, credited for converting Singapore into an economic success, once described ASEAN as “Unpromising Start, Promising Future”. This phrase can also describe the South Asian Association for Regional Cooperation (SAARC), which has seen few successes as geopolitics slowed progress.