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Emerging Market Contagion Goes Global As Fund Outflows Spike Most In Over 4 Years

June 19, 2018

Emerging Market Contagion Goes Global As Fund Outflows Spike Most In Over 4 Years

Despite promises from various foreign officials that just a little more intervention and just a few more billion in bailouts from Lagarde will ‘fix’ the “short-term speculator-driven” crisis in Emerging Markets (even as Brazil admits failure), things are escalating way beyond the idiosyncratic fears of Argentina and Turkey…

As investors Emerging Markets’ anxiety spreads globally with ETF outflow across all EM ETFs soaring to the highest since Jan 2014…

In fact, as Bloomberg reports, outflows from U.S.-listed exchange-traded funds that invest across developing nations as well as those that target specific countries totaled $2.7 billion in the week ended June 15, the most in over a year and more than seven times the previous week.

The ‘baby’ is being thrown out with the ‘bathwater’ as even countries with solid prospects for growth and debt financing haven’t been immune to the selloff. South Korea and Thailand, which have current-account surpluses, are among the six-worst emerging currencies this month.

“The statistics itself reflect worries about emerging markets in terms of the growth outlook, in terms of what the Fed tightening means,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd.

“We’re starting to see a blurring of the differentiation between current-account deficit currencies and current-account surplus currencies. That reflects the worries about trade-war jitters.”

The last week has seen derisking everywhere…

Seems like EM stocks have a long way to fall…

 

Argentina Bailed Out With Biggest Ever Loan In IMF History

June 8, 2018

Argentina Bailed Out With Biggest Ever Loan In IMF History

Just a few weeks after Argentina became ground zero for the coming Emerging Market crisis, when its currency suddenly collapsed at the end of April amid soaring inflation, exploding capital outflows and a central bank that was far behind the curve (as in “13% of rate hikes in a week” behind)…

… the IMF has officially bailed out the country – again – this time with a $50 billion, 36-month stand-by loan, and coming in about $10 billion more than rumored earlier in the week, it was the largest ever bailout loan in IMF history, meant to help restore investor confidence in a nation that, between its soaring external debt and current account deficit, prompted JPMorgan to suggest that along with Turkey, Argentina is in effect, doomed.

As the JPM chart below shows, the country’s total budget deficit, which includes interest payments on debt, was 6.5% of GDP last year, much of reflecting a debt binge of about $100 billion over the last two and a half years. The primary fiscal deficit in 2017 was 3.9%.

The loan will have a minimum interest rate of 1.96% rising as high as 4.96%.

“We are convinced that we’re on the right path, that we’ve avoided a crisis,” Finance Minister Nicolás Dujovne said at a press conference in Buenos Aires. “This is aimed at building a normal economy.”

Dujovne said that about $15 billion from the credit line would be immediately available to Argentina after the package is approved by the IMF’s board, which is expected on June 20. The rest would be dispersed as needed as Argentina meets its targets.

Shortly after the news the loan was finalized, Dujovne made some additional, more bizarre comments, saying that “the amount we received is 11 times Argentina’s quota, which reflects the international community´s support of Argentina,” almost as if he was proud at just how insolvent his country “suddenly” become.

…click on the above link to read the rest of the article…

Forget China: This Extremely “Developed” Country Just Suffered Its Biggest Money Outflow Ever

November 2, 2015

Forget China: This Extremely “Developed” Country Just Suffered Its Biggest Money Outflow Ever

While understandably all eyes have been fixed on every monthly capital outflow update from China (even the ones that the Politburo is clearly massaging), few have noticed that one of the biggest total outflows currently in the global developed economy is taking place right in America’s own back yard.

According to BofA’s Kamal Sharma, Canada’s basic balance – a combination of the capital and the current account: a measure of national accounts that spans everything from trade to financial-market flows – swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June. That’s the fastest one-year deterioration among 10 major developed nations.

Citing Sharma’s data Bloomberg writes that “money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver.” In fact, based on the chart below, the outflow is the fastest on record.

“This is Canadian investors that are pushing money abroad,” said Alvise Marino, a foreign-exchange strategist at Credit Suisse Group AG in New York. “The policy in Canada the last 10 years has greatly favored investments in energy. Now the drop in oil prices made all that investment unprofitable.”

The reasons for the accelerating otflows are familiar, or mostly one reason: the collapse in crude oil, among the nation’s biggest exports, has dropped to half of its 2014 peak. “The slump has derailed projects this year in Canada’s oil sands – one of the world’s most expensive crude-producing regions. Royal Dutch Shell Plc’s decision to put its Carmon Creek drilling project on ice last week lengthened that list to 18, according to ARC Financial Corp.”

Worse, there does not appear to be any improvement, despite the recent stabilization in Brent prices:

…click on the above link to read the rest of the article…

How Bad Can This Get, And How Fast?

October 3, 2015

How Bad Can This Get, And How Fast?

There’s so much negative real bad economic and financial news out there that it’s hard to choose a ‘favorite’, but I guess I’m going to have to go with what underlies and ‘structures’ it all, the IIF stating that for the first time since 1988 and the Reagan presidency, there’s more money flowing out of emerging markets than there’s flowing in. That is for sure a watershed moment.

And no, that trend is not going to be reversed either anytime soon. Emerging economies, even if they wouldn’t include China -but they do-, have relied exclusively on selling ‘stuff’ to the rich world which combined cheap commodities with cheap labor, and now they see their customer base shrink rapidly just as they were preparing to harvest the big loot.

Now, I hope I can be forgiven for thinking from the get-go that this was always a really dumb model. That emerging nations would provide the cheap labor, and the west would kill of its manufacturing base and turn into a service economy.

This goes very predictably wrong if and when we figure out that A) economies that don’t manufacture anything can’t buy much of anything, and B) that we can sell those services our economies are ‘producing’ only to ourselves, as long as the emerging nations maintain a low enough pay model to make their products worth our while to import.

It makes one wonder how many 6 year-olds would NOT be able to figure this out. In the same vein, how many of them would be hard put to understand that our economies, overwhelmed by, and drowning in, debt, cannot be rescued by more debt? Here’s thinking the sole reason so many of us don’t get it is that we’ve been told it’s terribly hard to grasp, and you need a 10-year university course to ‘get it’.

…click on the above link to read the rest of the article…

“Calm Reigns” Everywhere As Greece Inches Closer To Default, China Crashes

June 19, 2015

“Calm Reigns” Everywhere As Greece Inches Closer To Default, China Crashes

In what is perhaps the most glaring instance of central bank intervention yet,Reuters today captured the market mood as follows: “Calm ruled Europe’s stock and currency markets on Friday as Greece inched closer to a default later this month….the euro was down just 0.3 percent against the dollar and major European stock markets gained in early trade.” Why is Europe (and by extension US futures) so desperate to show green today even with a Greek default imminent? The same reason we explained back in January when we said the ECB and the Fed would do everything in their power to eliminate all Greek “negotiating” leverage which from day one was the attempt to create market contagion from Grexit. Unfortunately for Greece, the ECB’s QE intervened and blew a hole right through its plans, and now, it finds that not only do markets not care about the Greek contagion about which even Janet Yellen warned, but in the US hit all time highs!

The inverse, however, is certainly not true as ECB “sources” leak each and every day just how bad the Greek bank run is, and promptly put this information into the public domain in hopes of accelerating the already terminal bank run which unless halted will lead to capital controls and ultimately the fall of the Tsipras regime: precisely what the Troika has been after all along, as we also explained all the wayback in February. Sure enough, just a few hours ago Reuters “sources” reportedthat after €2 billion exited the Greek financial system in the first three days of the week, on Thursday the outflow hit what may have been a record €1 billion in one day.

…click on the above link to read the rest of the article…

 

 

 

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