No More Learning

A separate CDS survey revealed a 30 percent activity reduction, although the covered universe was only a dozen firms compared with the 50 for the main study inviting less confidence in results.

Russia’s Sanctioned Bond Boycott
2016 April 11 by admin

Posted in: Europe
Russian shares stayed positive through March as President Putin authorized state company minority stake sales through the Moscow exchange, including for VTB Bank that could fetch $5 billion in an initial phase, at the same time a $3 billion sovereign bond issue was planned to certify resumed access despite lingering targeted sanctions. US and European underwriters were warned off participation on the heels of a successful Gazprombank Swiss Franc placement, as Moody’s closed its local office with fading business and competition from a new domestic firm launched by the government to challenge the main ratings firms globally. The central bank claimed the agency will be “geopolitical risk immune” as it castigated the mainstream providers’ speculative grade assignment since the Crimea and West Ukraine invasions and hydrocarbon export price upheaval. Rates were on hold with another year of recession set this year, as officials may end private pension contributions in light of the medium-term budget deficit and cash-strapped regions look for additional federal support to cover salaries and services. Labor unrest has spread in one-industry towns, but failed to dent Putin’s opinion poll approval at 80 percent, reinforced by pro-Assad intervention in Syria that turned battle momentum for the regime with air bombardment. The ruble after 2015’s record loss has also gained slightly against the dollar, but the turnaround came too late to salvage the prospects of aluminum giant Alrosa, once more in restructuring talk over its $8 billion debt. After a current account surplus rise and two-thirds capital outflow drop to $55 billion last year, foreign reserves are no longer need for broader corporate refinancing needs, although hard currency may be mobilized through the rainy day sovereign fund for fiscal purposes. The agricultural import and tourism ban with Turkey continues and the Minsk accord stalemate on Ukraine’s breakaway provinces persists despite several meetings with Western powers and relative cease-fire. EU sanctions were renewed but Hungary and Poland are increasingly vocal about rollback, as German leader Merkel tries to maintain her hard-line position in the face of ant-refugee political revolt and France gears up for 2017 presidential elections. Leftist labor unions there decry proposed firing and working hour reforms and blame the Russian trade battle as an external scapegoat for flat growth and high unemployment.

Ukraine equities and bonds have stumbled on their own account with the IMF’s $1. 7 billion disbursement and accompanying bilateral aid hung up for almost six months, after parliamentary standoff blocked anti-corruption and fiscal cleanup. After the technocrat Economy Minister resigned in frustration, a key party left the coalition and a scramble is on to replace unpopular Prime Minister Yatsenyuk before another likely round of elections. President Poroshenko has imposed an April deadline, and Fund Director Lagarde sounded the alarm that the rescue may be indefinitely shelved without convincing political support and implementation. The package has restored reserves to $13. 5 billion as of February, but the central bank continues to intervene to back the currency amid projected double digit output shrinkage and 30 percent inflation. At the Vienna Initiative’s March forum in Kiev, the central bank noted 70 banks were gone since 2014 and a restructuring law under consideration should speed consolidation if creditor rights are duly sanctioned.

Turkey’s Refugee Deal Diatribe
2016 April 1 by admin

Posted in: Europe, MENA
Turkish bonds and stocks continued positive despite a suicide bombing on Istanbul’s main tourist thoroughfare as the EU offered EUR 6 billion in aid for refugee return from Greece, camp support for the 3 million already in-country, and resettlement to Western and Northern Europe after Syrian asylum claim processing up to an initial 75,000 ceiling. Brussels also agreed to accelerate visa-free travel for Turks in the Eurozone over Cyprus’ objections as negotiations persist over north-south reunification before May parliamentary elections. President Erdogan, after raiding a newspaper closely associated with the Gulen movement in exile, reiterated that the accord, opposed by humanitarian agencies as a violation of 1950 treaty protections, would not sidetrack the simultaneous border fight against Kurdish rebels which has spurred its own exodus. He will also expand presidential powers under planned constitutional revisions after the AK party regained its majority by a sizable margin in last year’s repeated elections. The terror attack in a busy shopping district came as tourism is down 40 percent during the current low season, but financing for the 4 percent of GDP current account deficit has endured on bank asset repatriation and $10 billion in underground transfers through the balance of payments “error” column last year. Economic growth should be 3 percent in 2016, with inflation struggling to stay in single digits but aided by the steadier currency. A new central bank governor will take over in April on persistent rumors the multiple-rate monetary policy regime will be simplified to respond to foreign investor confusion. Deputy Prime Minister Simsek has underscored a structural reform agenda to this audience, including private pension and stock exchange overhaul. High-frequency trading is already accommodated and more sophisticated technology will soon be introduced, and cross-border listings through the Eurasian Federation grouping and Islamic instrument expansion are near-term priorities. The EBRD has a stake and the exchange plans its own IPO in the coming months, while sharia-compliant bank launches may resume after a hiatus and supervisory assurance that consumer lending woes do not threaten the sector.

Cooperation has intensified with the Tehran stock market as auto and steel makers hope to rebuild the previous $20 billion in bilateral commerce now that international sanctions are lifted. Economy Minister Elitas pointed to Turkey’s comparative advantage in FDI as a “democratic” destination while acknowledging Iran’s low cost energy endowment versus total import reliance next door. A preferential trade agreement has been in effect for six months and two Iranian banks have applied for local licenses. Global relationships in contrast continue to be stymied by residual US restrictions even though Tehran lenders have been reconnected to the SWIFT network. The large expatriate community in Dubai has been unable to access basic letters of credit as the central bank blames Washington for the financial “Iranphobia. ” At a London conference in March senior officials promised to press ahead with bad loan cleanup and inaugural Eurobond issuance after regaining a sovereign rating. Anti-money laundering provisions may also be adopted as the country works with FATF’s regional unit, but Supreme Leader Khamenei vowed to uphold the “resistance economy” with growth less than 1 percent this fiscal year as scant refuge.



Argentina’s Holdout Holding Patterns
2016 April 1 by admin

Posted in: Latin America/Caribbean
Argentine equities joined bonds in global investor embrace according to a Financial Times survey, as a $5 billion tentative deal with the main litigating funds Elliott and Aurelius was struck after agreements with European retail and other distressed bond holders for 70 percent of untendered amounts. New York settlement was prodded by court lifting of the injunction against paying existing instruments forced into default last year under pari passu clause interpretation, as Judge Griesa ruled that “President Macri’s election changed everything. ” The government dispatched negotiators in contrast with the previous one’s refusal and has been on a broader bank and fund manager charm offensive, including keynote presentations to the IIF around the G-20’s late February gathering. It has also followed the IMF’s advice in revamping the economic statistics agency and will invite the first Article IV mission in a decade as recession is forecast this year on 25 percent inflation following the peso float and subsidy cuts to trim the 5 percent of GDP fiscal deficit. Banks are rebuilding dollar deposits on track to reach the $15 billion total before capital control launch, and private credit at just 15 percent of output may jump after a long drought to aid exchange-listed Galicia and Macro. Agriculture and energy firms have already rallied on tariff and tax adjustments, as S&P raised the sovereign rating to “B-“ on new policy direction and access to $6 billion in international commercial loans. Even politics has turned to the President’s benefit as dissident Peronist party members split from the group and backed revision of the “lock law” to allow bond resolution, with provincial governors also in line so they can get support for strained budgets.

Uruguay’s thinly-traded bonds moved up on response, although its other commercial partners Brazil and Venezuela remain in a deep funk and inflation is in double digits. Farm exports have dropped, and pulp mill production will barely sustain 1 percent GDP growth, as financial services and tourism await the Argentina fallout. Unemployment at 7. 5 percent poses a challenge to the social welfare net as authorities also try to curb the chronic budget gap. Its experiment in legalizing marijuana could be followed by neighbors if both crime reduction and revenue increases result. Drug strategy is also a key component of the peace accord with FARC rebels in Colombia, as demobilization is linked with investment and training in alternate crop cultivation. President Santos will put the pact to a national referendum later this year, and the effort has caused delays in a tax reform package and revived doubts about BBB rating status. The 6 percent of GDP current account deficit and 7 percent inflation have also triggered alarms. The state oil company was downgraded on poor industry prospects and the central bank raised the benchmark rate twice as El Nino-related drought may further hike food prices. The President and his team marked the anniversary of the ant-narcotics bilateral Plan Colombia in Washington as exchange rate weakness prompted calls for intervention from business executives surrounded by next door’s Venezuela’s collapse and upcoming presidential elections in Peru, where front-runner Fujimori holds out free-market solutions to win Andean competition.

Egypt’s Pound Sense Posturing
2016 March 23 by admin

Posted in: MENA
Egypt shares erased their double-digit MSCI loss into March as the central bank injected $1. 5 billion into the dollar-short foreign exchange market, where the parallel rate was at a 25 percent premium, and devalued the official level by half the difference while signaling “more flexibility. ” It raised interest rates 150 basis points in turn, as VAT introduction and further fuel subsidy cuts could again tip inflation into double digits. Sovereign external bond prices also jumped, with the benchmark yield down 50 basis points to 7. 5 percent, and foreign investors may reconsider domestic government Treasuries where holdings were a meager $50 million in 2015. State banks offered dollar-denominated certificates of deposit with 15 percent returns in a further effort to choke black market demand, despite the precarious international reserve position at $ 16 billion, just three months imports. The current account deficit will again be 3 percent of GDP this fiscal year as tourism and Suez Canal earnings continue to drop and the $3 billion needed to bridge the gap is unlikely to come from FDI or Gulf allies in their own oil slump. The government may begin talks on an IMF program at the April meeting after months of denial. The Fund has long called for pound peg relaxation and budget restraint with the deficit stuck at 10 percent of GDP. The wage bill has been curbed but debt interest payments rose 40 percent in the first half of the July fiscal year. President al-Sisi has hired a specialist security firm to help reverse the 40 percent drop in visitors the latest quarter after terrorist bombing of a Russian airliner, and officials have hinted at possible privatization offerings through the Cairo exchange to mobilize revenue and boost business and consumer sentiment.

Saudi Arabia’s stock market, which partially opened to non-Gulf investors last year, has not reversed course after a 10 percent MSCI decline through February, as worries persist over the 30-year fixed dollar peg there despite central bank commitment as reserves dipped another $20 billion in December to $650 billion. Banks have been warned against currency speculation and forward and CDS spreads have narrowed from initial unease, after the IMF slashed the GDP growth forecast to 1 percent and energy subsidies were modestly reduced. The prudential loan-to-deposit ratio was adapted from 90 percent to facilitate government debt issuance, and mortgage value limits may also change as public spending is pared on a whopping 15 percent of GDP budget deficit. The cost of the Yemen conflict must factor in as well, with a mounting political backlash against the intervention killing hundreds of soldiers. To entice global fund managers, the Kingdom may offer external bonds despite recent downgrade of its prime credit rating and list on the exchange a small portion of Saudi Aramco with estimated total worth in the trillions of dollars. The IPO trend has been lethargic through the GCC, and sharia-compliant investment fund activity likewise shriveled last year, according to industry statistics. Inaugural sovereign placement should be well-received with public debt around 10 percent of GDP, unlike the experience in Bahrain across the causeway where it is 60 percent. S&P downgraded the island two notches to BB causing it to shelve fund-raising. Wages take 40 percent of the budget, and since the Arab Spring outbreak a 10-year $10 billion GCC facility has been a linchpin of offshore center defense

Cuba’s Spectator Sport Exhibition
2016 March 23 by admin

Posted in: Latin America/Caribbean
A year and a half after the thaw in bilateral relations, US President Obama heads to Cuba for the first top-level visit since the World War II era, where a baseball game between national teams will feature as a highlight. Before the trip, bilateral travel and banking restrictions were further tweaked, but the lame-duck administration will not push to lift the 55-year embargo before its term expires despite congressional bills proposed toward that goal. Government and company sponsors have organized hundreds of trade missions to Havana and small agricultural deals, previously allowed with the Helms-Burton law, were signed, but big phone, technology and tourism projects have yet to materialize. Prices of defaulted external debt, which cannot be traded by US investors, have risen with additional European debt relief, but plateaued with the lack of major business and international financial institution follow-through to modernize dilapidated infrastructure in particular. Mission participants have rarely been allowed access to top Communist Party decision-makers and complain that unwieldy state bureaucracy and control remain intact since the opening, with no specific timetable for abolition of the artificial dollar conversion system. The rapprochement with Washington has also triggered a sudden professional exodus north as Cubans fear they will no longer automatically be granted asylum if claiming refugee status. The Inter-American Development Bank in addition reported only a 5 percent remittance increase for the region in 2015, which has been a vital lifeline for the balance of payments and household consumption.

Dedicated Caribbean-Central American fund managers have been preoccupied with elections in neighboring Jamaica, as the opposition Labor Party won by one seat in the historically-close contest. New Prime Minister Holness is unlikely to jeopardize the recent sovereign ratings upgrade and IMF program, which has exceeded fiscal targets after the previous one derailed. The budget may roughly balance this year with a 7. 5 percent of GDP primary surplus, as the trade gap also shrank 15 percent on oil price reduction. Remittances and tourism are up slightly, and with continued multilateral disbursements reserves should climb above $2. 5 billion. The stock exchange after topping the MSCI frontier category in 2015 has stayed mostly positive, and the Labor government could extend support with privatizations and a tougher law and order stance. However doubts linger on its campaign platform promising mass tax exemption and 250,000 fresh jobs, which vanquished Prime Minister Simpson called a “con. ” Political observers believe the race, despite competing economic approaches, mostly turned on age preference for the overwhelmingly young population, with 30 years difference between the candidates.

Guatemala, after watershed upheaval which ousted the president and vice-president to face corruption charges and brought a professional comedian to power, has attracted attention with a 20 percent remittance surge coupled with low public debt for a “BB” country. El Salvador’s bonds have also improved with the dollar losing strength to release export and fiscal pressure, but its debt/GDP ratio is 65 percent and economic growth remains lackluster at 2 percent. However US development assistance, which was to expand under an initiative led by Vice President Biden, may be threatened by continued local corruption allegations on display that can team with drug and gang crime.



China’s Rutted Road Trip
2016 March 17 by admin

Posted in: Asia, MENA
As the Chinese President visited the Middle East to promote the One Belt, One Road outward trade and investment program before hosting G-20 summit preparations in Shanghai with a no-devaluation pledge, the MSCI index again slipped double-digits on mixed economic and banking system readings. The manufacturing PMI was below 50 in February for the weakest result since 2009, and services also faltered as producer price deflation at 5 percent extended a 4-year trend. The central bank came under fire for omitting capital outflow statistics in the latest reserve compilation after committing to basic IMF transparency standards, as import data continue to reflect large leakages that may account for one-third of exit. It warned of continued Yuan fluctuation against the new currency basket and shelved another Qualified Domestic Institutional Investor scheme for asset placement abroad, but eliminated the reverse quota on interbank bond market participation as corporate issuance jumped 25 percent in 2015 to over $2 trillion. The flurry has lasted with RMB 200 billion in activity so far this year on scant secondary trading, with company debt now 160 percent of GDP, according to rater S&P. Rival Moody’s in turn cut the sovereign outlook from stable to negative on mounting government debt at 40 percent of GDP, including contingent liabilities from provincial borrowers and policy banks. The Finance Minister however insisted that fiscal policy could be further loosened going into the March People’s Congress, following another reserve requirement reduction for monetary stimulus as the money supply expansion target was steady at 12 percent.

Foreign banks which previously scrambled to secure a foothold are now leery of second-tier competitors in particular with questionable balance sheets and state support. Citigroup sold its minority stake in a provincial lender, and joint stock and city commercial banks have outsize exposure to wealth management products totaling $3. 5 trillion by industry figures. Regulators have granted quotas to the biggest institutions to clear non-performing loans through asset-backed securities transactions, as new debt assumption to repay old is increasingly rampant in natural resource sectors. Coal and steel “zombie” firms will shed millions of employees under the government’s enterprise reform and environmental and overcapacity push. Profits were off 7 percent in 2015 and state company debt/assets is above 60 percent, and international partners like the EU Chamber of Commerce lament that excess production “damages the global economy. ”

President Xi visited Iran on his swing and set a goal of increasing trade tenfold over the next decade, as $20 billion in post-sanctions released bank accounts will go to settling Tehran’s past arrears in oil for infrastructure deals. Beijing’s AIIB has a small Iranian founding share, and ICBC has applied for a local branch license as the system is reconnected to the SWIFT clearing network. The just-elected parliament will weigh a new banking law to enshrine oversight and resolution procedures, as non-performing loans are officially reported at 15 percent with a central disposal agency under consideration. The stock market has rallied after implementation day, but listed banks lag with profit drops despite a recent government discount credit program for cars and housing that my repeat past unbelted riding.

The G-20’s Weaned Currency Intervention
2016 March 17 by admin

Posted in: General Emerging Markets
Despite historic hypothesis about a Plaza-like joint currency effort among major powers, the G-20 financial official meeting in China, although focusing on the renimbi in particular in a multilateral setting, reiterated a previous pledge to avoid manipulation without charting new direction. At the 2013 conclave Japan was in the hot seat with its hyper-quantitative easing program crashing the yen, but in Shanghai policymakers passed with appreciation following the recent central bank move to negative interest rates. They agreed not to criticize purely domestic actions with indirect exchange rate impact but will work with the IMF on tougher peer review and spillover analysis. The Chinese hosts promised clearer communication and acknowledged near-term fluctuation potential in the new basket regime, but argued that large-scale depreciation was unlikely based on economic fundamentals. The ECB and Federal Reserve remained on the sidelines as they contemplate opposite stances against the fluid global backdrop, as US Treasury Secretary Lew girded against congressional accusations of currency manipulation within the Trans-Pacific Partnership proposed free trade pact, with Vietnam’s China-like peg approach often cited. Major emerging market units such as the Brazilian real, Russian ruble, and Indonesian rupiah have recovered against the dollar this year after 2015’s steep losses, and no standard formula can clearly identify misalignment and volatility is often attributed to reduced market-making capacity in the asset class. The last big Asia-oriented intervention was during the late 1990s financial crisis to weaken the yen and strengthen the dollar, with China a secondary player in the drama as it separately forswore large devaluation like its neighbors. The 1985 Plaza and 1987 Louvre understandings involved specific coordination between North America and Europe under pre-euro arrangements which were updated and adapted during swap line mobilization in 2008-09. At the Shanghai gathering China’s renimbi achieved automatic prominence with entry into the SDR, but the Mexican peso and South African rand are the most liquid developing country proxies.

Emerging stock markets stayed in a funk with the meager summit outcome with the core MSCI and BRIC indices down 7 percent and 12 percent respectively through February. In Asia China and India were both off 15 percent, while Indonesia and Thailand posted high single-digit gains. In Latin America, Peru was up 10 percent ahead of presidential elections with free-market advocate Fujimori in the lead, although it may be demoted soon to the frontier list on limited volume. In Europe Greece with a 30 percent decline is the worst performer, although the Czech Republic and Poland are also struggling. Turkey leads the pack with a 5 percent advance, and Russia is flat. In the Middle East Egypt is another laggard (-12 percent), and Gulf frontier markets are likewise negative so far in 2016 as they shift attention to domestic debt development with plunging oil revenue. European and African indices are in bad shape with Serbia and Nigeria at the bottom with 15 percent drops. Asia with the exception of Bangladesh slipped as well, and in North Africa Morocco and Tunisia are both ahead. Argentina as the sole Latin America representative tops the roster with a 12 percent increase despite peso battering with its anti- capital control crusade.

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Mideast Conflicts’ Unreconstructed Wreckage
2016 March 7 by admin

Posted in: MENA
With regional stock markets already reeling from commodity and geopolitical shock, the World Bank’s Middle East and North Africa economic team has tallied the direct and indirect costs of the Syrian and other wars presenting immediate humanitarian and medium-term rebuilding challenges. Continued civil strife, terrorist strikes, and low oil values cut 2015 area GDP growth to 2. 5 percent, and recent Saudi-Iran clashes further contribute to a pessimistic outlook, the report comments. However with Iran’s global market re-entry and improved security for Libya and Iraq energy exports, annual output could rise 4 percent despite flat Gulf performance. Oil importers like Jordan and Lebanon have not gained fiscal relief with the added burden of hosting huge Syrian refugee populations. Double-digit unemployment is up and investment has fallen in both countries, where tourism, real estate and construction hits will shave GDP growth to 3 percent. For Egypt and Tunisia visitor killings and slumping remittances, which account for one-tenth the economy, take a similar toll. For the GCC, oil break-even prices are one-third the level needed for budget balance. Saudi Arabia public debt will jump tenfold to 20 percent of GDP by 2017, and the government wage bill alone was almost that amount last year. Reserves there and in Qatar, Kuwait and the UAE will support continued spending through end-decade, but then the cushion will disappear and fuel subsidy reforms and property and sales taxes should help avoid that outcome.

In war-torn Syria, Yemen, Libya and Iraq GDP rebound is unlikely soon as budget and inflation indicators are increasingly dire, according to the report. A Damascus think tank puts government debt at 150 percent of GDP, with a 15 percent annual deficit and under 1 percent growth. Libyan oil production has dropped by two-thirds with fighting, closed ports and rival leadership. In Yemen hydrocarbon revenue is at an “almost complete halt” with a lack of basic services and inflation above 20 percent, as foreign reserves dip to a record low $2 billion. Iraq has reduced its latest budget by $1 billion and turned to the IMF for assistance after external bond market issuance proved too expensive and unlikely. Capital stock damage in Syria was $75 billion as of end-2014, and Libyan infrastructure needs are $200 billion over the next decade. Aleppo is the most devastated major city, with housing 65 percent of the total loss. Preliminary estimates of physical destruction are around $5 billion in Yemen. The UN counted 70 attacks on health facilities in late 2015 and widespread electricity and fuel shortages, with two-thirds of the population getting water from “high-risk” sources. In the four countries 45 million require humanitarian aid, and half of children are no longer in school. Syria has 12 million displaced internally and externally, and Iraq 4 million, and hosting refugees in Jordan has absorbed one-quarter the budget amid a 90 percent debt/GDP ratio as the poverty rate in this cohort remains over 60 percent. Only with a complete reversal from “non-democracy” to democracy and economic freedom shift to strong property rights protection could growth double by 2020, but peace and free-market dividends are remote, with the vicious cycle of ethnic and communal slaughter and payback sweeping the zone, the World Bank cautions.

Greece’s Border Crossing Crevice
2016 March 7 by admin

Posted in: Europe
Greek stocks extended their 2015 cellar MSCI showing with another 20 percent drop in January with worsening pension and refugee pressures, despite a sovereign ratings upgrade to B-minus with a stable outlook on default escape despite the 170 percent debt/GDP level. As the troika launched its latest review expected to last several months, the IMF continued with a firmer fiscal line insisting on 15 percent retirement system cuts as well as higher employer contributions. The central bank predicts first half economic contraction but notes a halt to euro exit speculation as bank deposits rose 2 percent in December although retail sales and the manufacturing PMI are still falling. Credit remains stagnant with only a small increase to the state as business and retail demand slumps, with one-third of households unable to pay their income tax according to a recent survey. A new revenue authority head was appointed as the Transparency International ranking improved 10 places with evasion crackdown, but officials including the Economy Minister continue as targets of corruption and misrepresentation inquiries. Politics is again in the headlines with opinion polls giving the opposition New Democracy party the advantage under a fresh leader, and farmers erupted in mass protest against agricultural austerity policies. A modest 0. 4 percent of GDP primary budget surplus was achieved last year, but roughly equals the additional forecast direct cost of the Mideast refugee crisis in the coming months, as arrivals exceeded 60, 000 in January despite harsher weather. German representatives have tied bailout approval to influx management and pressed for faster establishment of “hot spot” processing centers. Neighboring Macedonia, long embroiled in a diplomatic name dispute with Athens sealed its border leaving thousands more indefinitely stranded. Germany is likewise under fiscal and political strains from absorption with researchers estimating EUR 50 billion annual expense, and 40 percent in public opinion urging Chancellor Merkel to resign over the government’s asylum stance. Bowing to demands for tighter control, she struck a compromise with coalition partners in January to discourage family reunification and add the Maghreb region as an eligible return zone.

Cyprus is in the last phase of its EU-IMF program and will not draw on the EUR 2 billion still available, and also won praise for structural reforms by advancing a dozen spots in the World Bank’s Doing Business reference. It is grappling with pension rescue as a scheme was adopted to compensate funds for losses from the banking system collapse. Bad loans at the two surviving lenders are over 45 percent of the total with no reduction in sight, despite possible mortgage foreclosure action after passage of a new law. In Portugal two banks have been resolved with “little spillover” in Fitch Ratings view, but write-downs imposed on senior bondholders have been controversial. The Economy Minister also admitted the need for additional capital, which will have to come from private sources with government debt/GDP at 130 percent. The EU cited a “big difference” with the leftist coalition over budget progress, with 2015’s deficit above 4 percent, and warned of forthcoming fines and sanctions as a new president was elected with the power to dissolve parliament and the fading post-crisis stabilization formula.

G

China’s Latin America Loan Double Trouble
2016 February 25 by admin

Posted in: Asia, Latin America/Caribbean
The Inter-American Dialogue’s 2015 database of Chinese official loans proclaimed a “doubling down” of commitments which were up $19 billion from the previous year to $29 billion. Development and Export-Import funding was the second highest on record, and over the past decade they have allocated $125 billion, according to the statistics compiled in cooperation with Boston University. The bilateral lines topped World Bank and Inter-American Development Bank combined totals, and Beijing also established $35 billion in regional funds mainly for infrastructure. The recipient countries remain the same four—Argentina, Brazil, Ecuador and Venezuela—with one-third directed to Caracas, although Barbados and Costa Rica got small sums last year. Natural resources are the focus, with Brazil credit to Petrobras and soy processors and a $5 billion Venezuela facility to increase oil output. Bolivia also took $850 million for road projects, and despite the absence of policy conditions, China construction firm use is often compulsory. State-owned commercial banks have entered the mix with Bank of China and ICBC participating in Brazil and Ecuador. The report points out that policy banks raised capital in 2015 to enable them to act counter-cyclically to the regional economic downturn, as they expand trade and investment abroad under the “going out” strategy. It adds that the Chinese finance focus on energy and mining can breed environmental and social conflict, and business and political backlash. It has been a “lifeline” in Venezuela’s case, but sovereign debt default may now loom with creeping collapse evidenced in deep recession, hyperinflation and overstretched reserves. The trackers conclude that the raw materials exchange feature may not be as viable in the current commodities climate and that a new dedicated private equity fund for manufacturing my represent future direction. Argentina may fade as a target as President Macri’s team reviews previous agreements, including a parallel currency swap line from the central bank, and Ecuador’s repayment capacity may also be cramped into 2016.

Buenos Aires has negotiated in New York with holdout creditors that have frozen external bond access pending resolution to lift court collection judgments, and proposed a 30 percent haircut offer in contrast with the 70 percent one under the original exchanges. European bondholders and two distressed funds immediately accepted, and the government moved separately to open the syndicated loan market with a $6 billion pool led by US banks. Terms must be approved eventually by Judge Griesa, who issued the historic “pari passu” injunction against all repayment, and the Argentine Congress, which must amend the “lock law” for a revised deal. Although President Macri’s party is in the parliamentary minority recent opposition defections may improve prospects, and pragmatists among the previously-dominant Peronists urge an end to the confrontation. Barbados’ Chinese borrowing was to turn a well-known castle into a luxury resort, as long-stay tourist arrivals rose 15 percent in 2015 to enable positive growth. However the fiscal deficit at 5 percent and public debt at 105 percent of GDP remain steep, with domestic obligations 70 percent of the latter. Privatization of a shipping terminal may bring in revenue and also invite FDI to counter the 5 percent current account gap, as the island’s double external and internal imbalances endure.

The OECD’s Unaccustomed Refugee Integration
2016 February 25 by admin

Posted in: Europe
The OECD, with Turkey and East European members directly affected by the Syrian refugee crisis, has compiled a best practice manual for the range of integration programs, particularly in light of labor market entry difficulties. It recommends customized language and skills training to mobilize the higher education of recent arrivals, where Sweden found that 40 percent had at least high school background. For Central and East Europe absorption is a “new experience,” and they have struggled with policy design long with border control. Early housing, health and subsistence interventions are useful, especially for children whose learning outcomes are jeopardized by poor living conditions and lack of instruction. Registration and tracking systems differ in speed and sophistication across Europe, and initial processing for humanitarian protection can take from a few months to a year without cultural and practical orientation available. Estonia, Greece and Turkey offer courses but they are often full. The Czech Republic and Hungary provide neither language nor job help, while Poland and Slovenia allow the former. Turkey’s career assistance covers traditional textiles and handicrafts but includes computers and the internet. However labor market access when granted typically involves strict conditions, such as testing and waiting periods in Greece and Hungary, and Turkish national restrictions for certain professions. Population dispersal across the country is also advised for burden sharing and employment search, but shelter overcrowding in urban centers is also a main driver. This “secondary migration” should be encouraged in worker shortage areas while keeping in mind the need for surrounding hard and soft infrastructure, the agency points out. Hungary bases a decision on asylum seeker family status, while Poland emphasizes housing cost and supply and Turkey looks at the immigrant share by municipality. Foreign academic and work qualifications can be hard to recognize and verify and specialized industry and scholarly bodies should be recruited to ensure integrity. Results should be weighed against “systematic skills assessments” which Emerging Europe members have not yet prepared. Intensive tailored on-line reading, writing and technical courses may be required and these offerings are currently limited through both government and employer channels.

Physical and mental health are priority issues, and unaccompanied minors present a particular challenge where schooling may be absent or badly lag local standards.
Turkey has created special curricula for these students using Syrian teachers, and Slovenia has started to focus on low-education adults through additional evening courses with travel reimbursed. Poland has only a 12-month entitlement window to tap language lessons, but no cap on the number of hours unlike the Czech Republic and Hungary. Germany, which took in a million Mideast refugees last year, has moved to break out appropriations for the separate components with increased attention to the fiscal implications, even if the spending is expected to marginally boost the economy. Near-term integration and language outlays will be EUR 5 billion and accommodation EUR 17 billion, and under conservative estimates the annual total sum will be $25 billion through end-decade. Externally the government is also committed to a minimum EUR 3 billion Brussels aid package to Turkey and added pledges at the February London international conference on the Syria conflict which tried to customize a solution shred.





Iran’s Sputtering Stock Market Sanctions Lift
2016 February 15 by admin

Posted in: MENA
The Tehran stock exchange turned positive for the first time in the latest Iranian fiscal year from March, as anti-nuclear “implementation day” was reached for initial commercial sanctions removal and access to $100 billion in frozen assets. Automakers were a leading sector, after the government offered loan incentives and European joint venture partners returned. With embargo lifting oil production is to ramp up another 500,000 barrels/day, but the global price collapse will not ease this year’s recession, according to the IMF’s December Article IV report. It highlighted urgent “bank and corporate balance sheet repair” that will continue to deter investors, even with the bargain average 5 times price-earnings ratio and nominal stock market capitalization as one of the region’s largest at $90 billion.

Three months ago President Rouhani introduced fiscal and monetary stimulus in an attempt to shake economic lethargy, pending eventual post-sanctions growth from increased trade and investment and eliminated evasion cost which the IMF estimates at 4-5 percent over the medium term. Businesses were short of working capital as a bank liquidity crisis pushed borrowing rates to 25 percent, exorbitant in real terms with inflation at 10 percent. He ordered the central bank to slash the reserve requirement 3 percent to 10 percent to unlock funding, but the dominant state-run banks are already grappling with bad loans at one-quarter of portfolios, particularly in construction where private projects fell 20 percent the past year, according to official statistics. The companion $2. 5 billion fiscal package aimed to support small and medium-size real estate development, and also offered discount financing for consumer durables including autos and housing. The program features 7-year credit up to $7000 for locally-produced vehicles, and a 50 percent jump in mortgage value through specialist Maskan Bank to $20,000 per individual, enough to cover one-quarter of standard Tehran apartment purchases.

By the end of 2015 interbank rates dipped to 20 percent with these steps, but listed banks continued to report profit drops as the government considered establishment of a central agency for bad asset disposal. An updated Money and Banking Law has been prepared to bolster supervision and resolution powers, and bring unlicensed intermediaries that have proliferated under deposit and lending rate caps within oversight, but adoption awaits the outcome of February parliamentary elections, with 300 seats at stake for a 4-year term. Expert Assembly members, chosen every 8 years to name the religious Supreme Leader, are in a simultaneous contest already attracting almost one thousand candidates. Economic policy has been debated on the campaign trail, with capital markets modernization an occasional theme after pilot sukuk Treasury bill issuance and a proposal to securitize payment arrears to government contractors. The September timetable for unification of the formal and parallel exchange rates, with the former strengthening toward 30000/dollar in early January, will be prominent in the next legislative session, which could also pass higher securities levies to bridge the 3 percent of GDP budget deficit following a VAT crackdown in recent months.

Monthly stock market turnover was less than $1 billion in 2015, but some Tehran brokers predict that sum in foreign investor inflows this year with sanctions relief. International fund managers can buy directly with regulatory approval, or access local offerings that include an index-linked ETF and 50-company pool avoiding lingering trade curbs such as on the Revolutionary Guard. Several dedicated hedge funds have started in London, and Asian banks and portfolio managers have been frequent visitors to the capital, which hosted the annual meeting of the Federation of Euro-Asian Stock Exchanges in November. However US interest is expected to languish with its tougher penalty regime, as the Treasury Department has yet to spell out preliminary allocation guidelines and original sanctions are subject to “snapback” with violations at congressional insistence. Company accounting and reporting do not follow global standards and the country’s World Bank Doing Business ranking is at the bottom in 120th place. A former presidential economic adviser commented that mismanagement is as much a part of Iran’s modern history as sanctions, and both need to be convincingly banished for an equity market confidence blast beyond the immediate implementation trigger.



Originally published by Asia Times www. atimes. com



FDI’s Cloudy Deal Dilemma
2016 February 15 by admin

Posted in: General Emerging Markets
UNCTAD’s 2015 global FDI review showed a 35 percent jump to $1. 7 trillion, mainly in industrial countries which recaptured over half the total, but cross-border mergers with “limited productive impact” were the catalyst with this year’s developing economies outlook remaining “cloudy,” the Geneva-based agency commented. The latter flows were up 5 percent to almost $750 billion, with $500 billion to Asia, while commodity-dependent Latin America, Africa and transition Europe saw declines with a particular drop in greenfield projects. The amount was the highest since 2008, and the US was first with $385 billion, followed by Hong Kong’s $165 billion but both increases were due primarily to tax inversion and corporate restructuring. The EU received $425 billion, led by the Netherlands ($90 billion) and UK ($70 billion). France doubled to $45 billion and Germany returned to $10 billion positive allocation after 2014 net divestment. Australia fell one-third and Canada 15 percent on poor mining and natural resources prospects. Mainland China rose 5 percent to $135 billion, with services drawing interest to offset manufacturing weakness. ASEAN was off 7 percent, while FDI into India doubled to $60 billion with government promotion steps. Turkey’s take in the West Asia geography improved to $15 billion from banking industry and other acquisitions.

In remaining regions Sub-Sahara Africa saw drops in commodity giants Nigeria and South Africa to $3. 5 billion and $1. 5 billion respectively, while North Africa rebounded with Egypt getting $6. 5 billion. Latin America was down 10 percent to $150 billion, with Brazil tumbling one-quarter to $55 billion. Chile and Colombia softened, but Peru gained 10 percent and Argentina’s main transaction was Spanish company Repsol’s compensation for YPF’s nationalization. Mexico spurted 15 percent to $30 billion on a flurry of “megadeals” like AT&T’s takeover of wireless provider Iusacell. Geopolitics and raw materials reversal halved Russia and Central Asian neighbors to $20 billion, but foreign investors continued hydrocarbon exposure with Malaysia taking a $2 billion stake in Azerbaijan’s gas supplies. Cross-border M&A was a post-crisis record at $650 billion, with $350 billion concentrated in manufacturing. Financial services slumped but real estate and transportation deals accelerated. Advanced economies took all but $70 billion of the total, and multinational firms cut greenfield projects across the developing world 20 percent. Emerging market stagnation may continue in 2016 with just 3 percent global GDP growth and regional tensions, but currency depreciation and corporate asset sales to repay debt could stimulate appetite, the UN arm concludes.

Brazil’s Petrobras has scaled back its disposal program with indifferent bidding, and instead sliced long-term capital outlays in an attempt to conserve cash as it remains severed from external debt markets. Officials have indicated that government rescue is “only a last resort” as basic monetary policy stability also comes into question with the central bank’s decision to stay on hold despite worsening 10 percent inflation, twice the target range. Observers speculate that President Rousseff, fighting impeachment moves, wielded influence to placate her Workers Party political base. The IMF also downgraded this year’s recession forecast to a 3. 5 percent contraction to heighten alarm and challenge tightening, as both direct and portfolio investors criticize cloudy policy direction.



BRICS’ Reinforced Rheumy Repercussions
2016 February 1 by admin

Posted in: General Emerging Markets
The World Bank’s Global Economic Prospects report blamed emerging economy weakness for paring the 2016 growth forecast to below 3 percent, as it examined BRICS spillover effects by region with their slowdown “sneeze” often resulting in neighbor “colds” as in Russia-Central Europe and China-East Asia. In 2015 the 4 percent GDP advance was half the level of 2010, with “steep recessions” in Brazil and Russia. Country-specific rather than external shocks were the main cause since 2014, and long-term structural drags are prominent. From 2010-14 they contributed 40 percent of global and two-thirds of emerging market output, and dominate trade, commodity and financial markets. Banking and portfolio flows, remittances and FDI take the overwhelming portion, and correlation has increased through these channels. Brazil has influenced Latin America, South Africa the Sub-Sahara and India low-income South Asia. BRICS’ fall has hurt developing 0. 8 percent and frontier destinations 1. 5 percent respectively. Higher risk spreads and funding costs have permeated the asset class and fiscal, monetary and structural policies are struggling to rebuild confidence, according to the update. Productivity and technology ability has slumped, and fallout is obvious elsewhere including in Egypt, Korea, Mexico, Nigeria and Turkey.

Emerging market equity funds were off $70 billion in 2015 as measured by EPFR, with Brazil (-$1 billion), China (-$18 billion), India (+$10 billion) and Russia (+$200 million), and with BRICs altogether at -$1. 5 billion. Frontier markets lost $2 billion and Africa $400 million. Hard and local currency bonds each declined over $12 billion, and on the EMBI index Brazil and South Africa were down while Russia gained double-digits but has sputtered early into 2016. With lower oil prices the budget will be cut another 10 percent as interest rates remain on hold and recession continues. Inflation will dip under 10 percent, and the ruble will further decline from 2015’s 25 percent dollar slip. Banks are under pressure as state-owned VEB seeks $20 billion in additional capitalization and 100 small institutions have been shut. The PMI is at 50 and sanctions against the EU and Turkey will hamper cross-border trade. A London court battle has started with Ukraine over repayment of $3 billion in debt, with former Finance Minister Kudrin under consideration for return. Leading lender Sberbank is scrambling to handle consumer and real estate exposure as European supervisors demand increased support for its Austrian subsidiary.

The India mood is also more cautious despite prediction of repeated 7 percent growth as parliament adjourned without passage of national sales tax and economic statistics including inflation came under investor question. International asset managers, the latest Goldman Sachs with $1 billion under control, have ended operations with stiff competition as regulators often switch rules on distribution and transparency creating confusion. Franklin Templeton with a longstanding presence has the biggest industry share at 5 percent, just behind once-dominant UTI which has partnered with T. Rowe Price. Local government bonds have diverted share inflows with an expanded overseas ownership ceiling as infrastructure projects have hesitated to launch despite official approval. Prime Minister Modi after state election setbacks has invited Congress Party head Gandhi for belated talks as the two try to drain personal and political animosity.

Europe’s Refugee Surge Protective Seal
2016 February 1 by admin

Posted in: Europe
The IMF circulated a paper at the World Economic Forum in Davos weighing in on the Syrian asylum seeker debate with evidence of a short-term GDP growth boost from refugee influx despite fiscal costs, and recommendations for labor market and financial services integration for longer-run positive effects. It cited the UN figure of 60 million displaced globally, one-quarter officially refugees found to flee persecution and violence, from the Middle East as well as Africa and the Balkans. In 2015 around 1 million applicants requested EU safe haven, twice the number from the previous year, with the fastest buildup in Germany, Hungary and Sweden. Syrians accounted for one-quarter, and Balkan citizens from Kosovo and elsewhere for 15 percent, with the latter mostly rejected as economic migrants. Other countries with high acceptance rates were Afghanistan, Iraq and Eritrea, with arrivals often first landing in Turkey, Greece and Italy. Lebanon and Jordan have dozens of times more inflows per population than Europe, which last experienced such waves after the end of Communism and implosion of Yugoslavia in the 1990s. The original system of free entry and shared resettlement under the Dublin and Schengen approaches has been replaced by unilateral admission restrictions and border checks, including in Austria and Scandinavia joining early refusing members in Central Europe. With the process breakdown governments have agreed to build and underwrite temporary “hot spots” in gateway locations, and to send EUR 3 billion in aid to Turkey for frontline management, after it has spent over double that amount hosting Syrian escapees the past five years.

The IMF estimates an increased average budget burden of 0. 1 percent of GDP this year, including in Croatia and Serbia, but the Stability and Growth Pact allows debt waivers for “unusual events outside state control. ” Brussels is offering EUR 9 billion in central support for the Frontex border patrol and other purposes, and simulations show that output could be lifted by the same degree in individual countries as the additional expense. The medium-term impact in leading destinations Austria, Germany and Sweden could be a 1 percent gain by end-decade with good employment absorption, which is usually slow due to language, skills and gender disparities, according to the report. German immigrant data reveal double the level of joblessness and lower wages than natives, and the waves prior to 2015 with an average high school education. By contrast, 20 percent of recent Syrian arrivals went to college, and other policies on minimum salary and hiring flexibility could facilitate placement. Sweden runs a custom “introduction program” to match background and interests, and Austria provides a range of specialized apprenticeship and training. Start-up business loans should be considered, as with the International Rescue Committee’s expanding micro-finance push, the Fund suggests.

Banking and housing will come under pressure, and may need more innovation for affordability. Building codes can be modified for emergency construction, and financial literacy should be an orientation component. In the EU immigrants are as likely to have checking accounts as other citizens, but overdrafts are more common. Almost one-fifth of micro-credit went to non-native borrowers in Europe as of the latest 2013 statistics, but success relies on a gamut of complementary services from business planning to legal advice. In any event existing worker displacement should be “small and short-lived” even if current refugees’ net fiscal contribution is “difficult to predict” along with the survival strategies of the Assad regime, the review concludes.

Regional Rivals’ Flagrant Fleeting Flip
2016 January 20 by admin

Posted in: General Emerging Markets
Despite shared global interest rate, geopolitical and deleveraging risks financial market role reversals in early January could set the regional tone, with Europe in the forefront after Poland’s surprise S&P one-notch sovereign downgrade with negative outlook battering stocks and bonds as Hungary’s outperformance continues with its likely return to prime status this year. The Law and Justice Party after taking power in parliamentary elections called the decision “dishonest” as its political and economic intervention platform has come under fire from foreign investors and the European Commission. It plans a special bank transactions tax and compulsory Swiss franc-zloty mortgage conversion which could cause heavy system losses at the same time additional divestiture of state ownership stakes is on hold. Consumption as the main GDP driver is likewise in the crosshairs with new levies for supermarkets to help fund higher pension and wage promises while keeping within the constitutional public debt limit. Government company chief executives have been replaced with party loyalists, and a bid to extend control with its absolute majority over the media and courts has prompted Brussels criticism and investigation that Warsaw dismisses as “misunderstanding. ” Fitch Ratings has not changed its stance but admonished the administration’s “confrontational policies” as the contingency credit line with the IMF in place since 2008, granted on pre-qualified fiscal, monetary and structural reform excellence is due for review. Prime Minister Szydlo is considered a figurehead and the Deputy Finance Minister is often paraded out as a former banker to lend credibility but has instead alienated former colleagues.

In contrast Hungary will come in under the EU’s 3 percent of GDP budget deficit sanctions trigger, and major privatizations are foreseen to revive the stock exchange recently re-acquired from Austria. Elsewhere in Europe Turkey is getting another look after the lira and equities were down one-quarter and one-third respectively in 2015. The Syrian and Kurdish militant wars remain a deterrent, but the Prime Minister stresses an economic reform agenda after the ruling AKP reclaimed its election dominance. The fiscal and current account deficits slimmed and growth this year is projected above 4 percent for a regional standout. In exchange for hosting refugees, Ankara will receive EU aid and easier visa-free travel, and Cyprus reunification may be in the cards after four decades, with heads meeting from both sides and Athens also pushing reconciliation. Despite its friendlier approach to the dispute, Greece has still not won over investors after its worst MSCI 60 percent stock market decline. The troika still has to approve detailed pension cuts and bank recapitalization programs under enduring exchange controls, as Syriza tries to maintain two-seat legislative sway.

In Asia, Indonesia and Thailand may be gaining favor with infrastructure stimulus and cabinet reshuffling, although the latter’s military has indefinitely delayed its departure pending another constitutional rewrite. The latest terror attack against coffee shop civilians in Jakarta prompted a tough response from President Jokowi in comparison with previous reticence. In Latin America Argentina is a sudden darling after President Macri floated the peso, slashed farm export taxes, and reopened negotiations with holdout bond funds and retail associations at home and in Europe. The Finance Ministry moved separately to restart cross-border commercial credit lines with the tentative thaw.





Emerging Market Risks Unrelenting Until End-Decade Rebound
2016 January 20 by admin

Posted in: General Emerging Markets


After more than 25 years providing independent analytical research and advisory services to public and private sector clients on developed and emerging economies through numerous economic and financial market crises, Kleiman International is for the first time publicly offering its views for 2016 in this summary previously reserved for clients. This brief analysis will offer the firm’s review of last year and opinions of the risks and vulnerabilities, and potential opportunities, facing emerging economies’ currencies and financial markets incorporating the broader global picture.

Last year’s dismal emerging market stock performance is expected to be repeated after the MSCI Emerging Market and Frontier stock indices fell more than 15 percent – with gains recorded in only Hungary in the former and Estonia, Lebanon and Jamaica in the latter – although externally issued sovereign bonds, as measured by JP Morgan’s EMBI measure, ended up 2 percent on double-digit advances by Ukraine, Argentina, Venezuela, and Russia. Similarly, currency depreciation – which resulted in declines of more than 20 percent against the US dollar in Brazil, South Africa, Colombia, Turkey and Russia in the major emerging markets – is expected to continue on the China slowdown, low commodity prices, and depressed global trade.

The US Federal Reserve is expected to tighten gradually while Europe, Japan, and China loosen monetary policy to spur growth and inflation. Geo-political risks – and the accompanying economic fallout – will remain elevated while commodity prices continue soft and global trade continues to deteriorate. Rising concern over excessive leverage in emerging economies – largely private as opposed to sovereign, which triggered past crises – will continue to weigh on investor sentiment even if battered currencies begin to recover against the US dollar as an estimated 90 percent of debt is domestic.

In the core emerging markets, vulnerabilities are evident across the universe but differ by country and risk factor. Over the past two decades, a US Federal Reserve rate hike has immediately resulted in virtually a wholesale flight to safety. We would argue that this time is different as anticipation of tightening grew steadily beginning with the 2013 “taper tantrum” which sent investors fleeing risky assets. Throughout the same period many of the largest core markets have slowed sharply, triggered either by global issues like commodity price falls, the slowdown in China, and geo-politics, or by domestic economic and/or political issues. The BRICS economies will remain particularly in the spotlight in 2016, as evidenced by the China-induced volatility in the first week of trading this year.

The economic slowdown and currency uncertainty in China, despite inclusion of the yuan in the IMF’s SDR, is expected to continue to deepen in 2016 as investors and the State Council try to gauge the extent of the slowdown amidst economic rebalancing and soaring debt levels. The December launch of a new trade-weighted RMB exchange rate index heightened expectations for currency depreciation, with a drop of 10-15 percent against the US dollar likely by year-end. At the same time, regulatory shifts on stocks, bonds and the currency are likely to continue apace – as well as reverberations from the anti-graft campaign – which will continue to weigh on investor sentiment as predictability is a key ingredient for foreign investor decision-making. Interest rates are likely to be cut significantly to prop up the economy as fiscal spending continues to accelerate after surging nearly 26 percent on an annual basis in November. Financial market volatility and a growing number of on- and off-shore corporate bond defaults will also undermine overseas investor sentiment. Real GDP growth data will come under heightened scrutiny, particularly after the state-run media reported that several regions inflated economic indicators reported to the central government by at least 20 percent.

Elsewhere in emerging Asia, attention will focus on falling exports, slowing growth, and elevated levels of corporate and household debt. Oil-exporter Malaysia, where the ringgit lost 19 percent last year and was the worst performing currency in the region as the stock market fell by 22 percent in dollar terms on the MSCI Index[1], will remain under pressure despite evidence that the heavily indebted state investment company 1MDB is reducing its leverage from asset sales. Commodity prices will continue to weigh as the budget deficit will remain stubbornly above 3 percent of GDP despite the widely hailed launched of a goods and services tax, while political risk will similarly continue to dent investor confidence with the ongoing investigations over graft against the Prime Minister. Next door in Indonesia, commodity prices will continue to weigh on the world’s biggest palm oil grower and thermal coal exporter after the stock exchange lost 20 percent in 2015 and the rupiah was down 10. 9 percent against the greenback. Both markets are at risk of further currency pressure due to heavy foreign holdings of local government bonds. Thailand, where the stock market lost a quarter of its value while the currency was down 8. 5 percent, is likely to outperform neighbors as a stimulus program, rural debt relief, and USD 50 billion multi-year infrastructure plan offset concern about falling trade, high household debt and the delay of constitutional reform and return of civilian rule.

In South Asia, the Indian economy expanded 7. 4 percent on an annual basis in the third quarter after growing 7. 0 percent three months earlier. The Paris-based OECD is projecting that India will have “one of the highest levels of growth” among emerging Asian economies this year, and projects economic expansion of 7. 3 percent boosted by consumption and investment. Inflation continues to tick up on food prices, which account for almost half of the CPI basket, after a poor monsoon season. Investors have welcomed liberalization under the Modi government but worry that key reforms, including tax rationalization and legislation on labor and land reform, will stall in parliament. The commodity price crash has resulted in a narrowing of the current account deficit which is expected to remain steady in 2016, as the currency holds up better than ASEAN neighbors – it fell only 4. 9 percent against the dollar in 2015 – while the stock market loss of just over 7 percent was the least in the core Asian emerging market universe. Nearby frontier stock markets Bangladesh, Pakistan and Sri Lanka turned in losses averaging 20 percent. In Pakistan continued IMF program observance is expected to result in economic expansion in the 4 percent range, although both the country and neighboring Sri Lanka are expected to see yields on their recently issued global bonds tick up on the global sell-off and strong dollar.

In Latin America, attention will continue to focus on the continent’s biggest market in 2016 as Brazil continues to grapple political and economic chaos as it prepares to host the Olympics. The currency, off more than 30 percent against the US dollar last year, is expected to drop by a similar amount in 2016 as bond yields rise following the sovereign downgrade to junk status by two ratings agencies with the economy expected to contract more than 3 percent. Funding the twin fiscal and current account deficits is increasingly expected to be challenging as the economy remains in deep recession while politics surrounding the impeachment of the president and the Car Wash corruption scandal are likely to deter needed fiscal and structural reform. In next door Argentina however, investors welcome the rapid return to free markets under President Macri who in his first full week in office lifted capital controls culminating in a large scale currency devaluation. While talks with hold-out creditors and high inflation following the lifting of capital controls will be areas of concern, the medium-term outlook for the economy is, particularly in terms of trade and investment, the brightest since before the sovereign’s 2001 default.

Exporters Chile, Colombia, and Peru – where stock markets sank 18 percent, 43 percent, 32 percent, respectively, while their currencies plummeted in line with commodity prices – are expected to continue to turn in soft growth and higher inflation. Peru’s presidential election in April is likely to go to a second round two months later, while stalled reforms in Chile are unlikely to be resolved. Overall economic performance in all three markets will remain dependent on commodity prices, which could force fiscal overhauls on rising deficits. The December election in Venezuela resulted in a short-term bond rally after President Maduro’s party took only a minority of seats but the prospect for a default continues to rise on low reserves and oil prices.

To the north, Mexico – where the peso and stock market fell 15 percent, the least of the major Latin American markets – inflation is at a record low and the currency’s depreciation has spurred manufacturing which is expected to continue to grow as the US recovery continues. Authorities hedged the price of oil and the IMF estimates the move saved the country USD 6. 4 billion last year as oil prices sank. Despite the global emerging market sell-off, international investors continued to buy peso bonds and foreign direct investment rose sharply. The 2016 outlook for Mexico is strong with the IMF predicting GDP growth of 2. 5 percent even with higher interest rates on strong domestic consumption.

In Central Europe, Hungary outperformed last year with the stock market turning in the only positive performance in the core MSCI emerging market universe, with a strong 33 percent advance. Interest rates are at a record low, the current account is in surplus and onerous levies on largely foreign institutions are due to be cut. Despite years of unease over government policies targeting foreigners, the government’s unpopular tax take on banks and other sectors has righted finances and the debt level is decreasing. A return to investment grade is likely this year as the government pushes ahead with bank privatization. In contrast, the Warsaw Stock Exchange lost more than a quarter of its value and the currency fell sharply against the euro while benchmark local 10 year bond yields rose, with the heaviest losses following the election of the Law and Justice Party. The new government vows to seize more control over the economy and concern over policy was heightened by the removal of executives at state-run enterprises and a new law which brought state media under government control. To the East, the Russian stock market ended flat as the ruble lost 20 percent against the dollar on falling commodity prices, international sanctions, and a deepening recession which will extend at least through this year as inflation remains in double digits. Ukraine’s stock market was down 42 percent last year and the currency has depreciated 65 percent since the former President fled the country, sending inflation over 40 percent. While parliament adopted a 2016 budget, there is worry that the IMF will not approve it and release the much-needed delayed tranche of funding this month, after having received nearly USD 10 billion from the IMF and other lenders last year.

To the south, Greece, recently returned to emerging market status, turned in the worst core market performance, with the market down 62 percent following elections, capital controls, and a third bailout. While banks have been recapitalized again, capital controls remain in place and fear is growing that the government will be unable to complete its first review with lenders under its bailout agreement and/or the government will be unable to pass needed legislation with only a slim parliamentary majority. In next door Turkey, where the lira lost a quarter of its value against the dollar and the stock market was off by one-third, concern over geo-political risks is rising as the country grapples with the fall-out of the war in Syria and the end of a truce with Kurdish militants. Despite the political void in the run-up to the second parliamentary election last year, the budget and current account deficits narrowed but investors and ratings agencies will continue to focus on the country’s vulnerability to external risks due to its high reliance on foreign capital.

Finally, in the Middle East and Africa commodity producers saw stock, bond and currency market routs. In the Gulf region, stock markets sank 15-20 percent as Saudi Arabia posted a budget deficit of 15 percent of GDP spurring investors speculate that the Kingdom will be forced to break the currency peg as oil prices remain low. To the west, the Egyptian stock market lost a quarter of its value while the pound fell 9 percent pushing inflation up to near 10 percent. Foreign reserves remain low and the shortage of hard currency is likely to worsen as tourists stay away after the downing of the Russian jet worsened security concerns. Commodity producer South Africa saw its share market plunge by more than one-quarter as the rand plummeted 35 percent in 2015. The sovereign is likely to lose its investment grade status this year as the twin current account and fiscal deficits widen. Finally, the continent’s biggest economy, Nigeria, also saw nearly a quarter of its stock market value disappear while the currency dropped 10 percent even with heavy central bank support which wiped more than 15 percent off of reserves despite moves to limit the availability of hard currency to importers mid-year. In the frontier African markets, the numerous nations that have come to market with Eurobonds in recent years will continue to see yields spike and currencies drop, as Zambia, for example, saw its currency fall 42 percent in 2015 and inflation soar to over 20 percent as the copper producer suffered from the commodity price drop.

In developed markets, a series of potential risks in Europe could threaten this year. Alongside the Greek government’s potential loss of its slim parliamentary majority over pension and other reforms, which would threaten the bailout program and return the world’s attention to the crisis, Portugal could lose its last investment grade rating, making its sovereign bonds ineligible for ECB purchases, and Spain may have a prolonged policy void if it goes to another round of elections. At the same time, the refugee crisis may change the political landscape in Germany, where the previous euro-skeptic, turned anti-refugee AfD party continues to gain support ahead of 2017 federal elections, while the right-wing National Front in France continues to draw support.

In the emerging market universe, the vulnerabilities will continue to weigh throughout the year, driven by the China slowdown which will impact not only on neighboring markets but also commodity and goods exporters across the globe, including Germany, Brazil, and South Africa. Ten days into 2016 data out of most emerging markets is dismal: China’s FX reserves were down USD 512. 66 bn in 2015 to USD 3. 33 trillion with December recording the biggest monthly decline on record, Brazil reported 2015 annual inflation of 10.