It’s not just China anymore! Emerging markets in general have started to dominate the headlines. And while I’m looking really hard for some improvement, the truth is, things still look pretty grim. This week Standard and Poor’s announced that Brazil’s credit rating is junk again. For the hard currency debt that is, not local currency bonds, but still it’s the wrong way in any case. I admit rating agencies are not know for their timeliness.
IN CASE YOU MISSED IT! #BRAZIL IS JUNK AGAIN! http://t.co/m6TovxU4sS
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jeroen blokland (@jsblokland) September 10, 2015
South Africa is another one of the ‘BRICS’ that has run into trouble. GDP grows at the lowest pace since the financial crisis and business confidence fell to the lowest level in four years. Perhaps some good results at the upcoming Rugby World Cup would help.
There just no end to the negative news flow on EM. #SouthAfrica's business #confidence falls to lowest since 2011. http://t.co/31yyT2efOb
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jeroen blokland (@jsblokland) September 09, 2015
At least South Africa is still growing. That’s certainly not the case for Russia. GDP shrunk by almost 5% in Q2 compared to the year before. And given the ongoing pressure on commodity prices, oil prices in particular, things will not get better anytime soon. For next year growth of just 0.5% is expected and even this number could prove to be too optimistic.
In case you missed it! #Russia's economy is almost 5% smaller than last year! #recession http://t.co/L6Pot18pgd
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jeroen blokland (@jsblokland) September 08, 2015
No topic on emerging markets is complete without China. In yet another sign that the economy is cooling down, export and import growth came in negative. And, with the latter falling more than the former, uncertainties about China’s domestic consumption have again increased. That said, minor improvements are being reported in some pockets in the economy. The overall picture remains, at least for now, bleak.
#China's slowing growth! Both export and import growth have turned negative, with imports trailing exports. http://t.co/SRkjvqOKIf
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jeroen blokland (@jsblokland) September 08, 2015
Chinese markets are choppy at best. The Shanghai Composite Index gained some ground this week, but the performance is far from convincing. Also, the massive interventions have changed the market’s structure, which makes it even more shaky to invest. This week shocking numbers on Chinese equity trading surfaced, and got too little attention in my opinion. The number of future contracts traded on the CSI 300 Index, containing the 300 biggest A-share companies, dropped from 3.2 million in June to just over 34K now. So trading volume has collapsed by a factor 100. I guess this makes it easier for the government to prop up prices, but this development is far from healthy.
Futures trading on the CSI 300 Index, shrank to just 34,085 contracts, down down from 3.2 million at the end of June bloomberg.com/news/articles/…
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jeroen blokland (@jsblokland) September 09, 2015
There was some positive news in emerging markets, though. Turkey’s economy beat expectations. GDP growth was the strongest since the first quarter of 2014.
Silver lining! #Turkey's #GDP grows the most since Q1 2014, and more than forecast. http://t.co/rxuAZ8EqA7
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jeroen blokland (@jsblokland) September 10, 2015
Of course, this silver lining is eclipsed by the performance of the Turkish Lira. It fell more than 20% against the USD just this year. Over the course of the last five years the value of the Turkish Lira has halved.
The Turkish Lira has lost over half of its value against the USD in the last five years. #Turkey #TRY http://t.co/CK0cjBUUn8
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jeroen blokland (@jsblokland) September 07, 2015
But the Lira is not alone. Certainly not. Emerging currencies have been at the root of all emerging trouble this year. Just take a look at the graph below. It shows the 15 worst currencies, measured against the USD, since the beginning of this year. They are all down 20% or more, with the Belarusian Ruble taking first place. Also, the number of African and former Soviet countries that are in the top 15 is pretty striking.
Chart of the Day: Currency Madness! The 15 worst currencies this year. Lots of #Africa and former Soviet States. http://t.co/mfjc3WQJgX
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jeroen blokland (@jsblokland) September 11, 2015
For more upbeat news we have to look outside the emerging world. Europe is good place to start. Eurozone GDP growth was revised upwards for both Q1 and Q2. Interestingly, Draghi and his fellow ECB members lowered the GDP growth forecast at the last ECB meeting on monetary policy. Now, it’s, of course, the ECB’s task to look forward, but I do sense some eagerness to increase QE. For now things don’t look that bad, however.
EUREKA! #Eurozone #GDP revised upwards in both Q1 and Q2. Your reaction please, Mr. #Draghi? http://t.co/edmr8yxvbs
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jeroen blokland (@jsblokland) September 08, 2015
For Spain, things are looking great. Week after week, Spain reports record macro numbers. This week it was on industrial production, which rose the most in 15 years. With the composite PMI at record high, fast rising house prices, Spain is the European proof that austerity can work.
EUREKA AGAIN! #Spain's industrial production rise the most in 15 years!
#Draghi being too negative? http://t.co/klvCfPVzL9
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jeroen blokland (@jsblokland) September 10, 2015
Finally, there was pretty impressive event this week in Japan. The Nikkei staged the biggest rally since October 2008 , rising a massive 7.7% on Wednesday. True, this happened after a couple of days of heavy underperformance, but still it shows developed is the place to be.
Now this is what I call a rally! #Nikkei rises 7.7% to post biggest gain since Oct 2008! http://t.co/zq9n1f4Akp
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jeroen blokland (@jsblokland) September 09, 2015
Thank you for reading the Week End Blog! Enjoy your weekend.