Current Events In Emerging Markets

[Market Economy]

Hello

Dolores is correct about Market Economy's identity.


The markets are still jittery even with the DOW's impressive run over the last two days, but releases from the last FOMC meeting suggest there will be another 25 bps tightening in June. Who's right ? Who's wrong?

Hold in mind that the U.S. economy is hitting on all cylinders and inflation is still nowhere to be found.


Note: This is my personal opinion, an should not constitute investment advice. E-mail me at my personal address if you want to develop a dialogue

 

[NALs]

Hello

Dolores is correct about Market Economy's identity.


The markets are still jittery even with the DOW's impressive run over the last two days, but releases from the last FOMC meeting suggest there will be another 25 bps tightening in June. Who's right ? Who's wrong?

Hold in mind that the U.S. economy is hitting on all cylinders and inflation is still nowhere to be found.


Note: This is my personal opinion, an should not constitute investment advice. E-mail me at my personal address if you want to develop a dialogue

The worst business news came from Wal Mart, blaming its less than expected sales on higher gas prices affecting its customers.

When Wal Mart feels a little so so, the market listens.... and this time it did by dipping down.

All in all things are not well. In fact, from 2001 onward everything has been running on pure debts -- not good at all.

-NALs

 

[mondongo]

Deelt & Dolores, thanks for the info.

M.E., what factors have the greatest influence when assessing the risk of E.M. sovereign debt? Have you seen cases when private/corporate debt has had higher ratings than sovereign debt?


thanks in advance

 

[Market Economy]

Mondongo

I'll answer the easier question first. There have been cases in which a company in an emerging market (EM) economy can received a higher rating than the sovereign, but this is not usual. Rating agencies believe that given as countries can raise taxes and print money (and companies can't) they have more flexibility in making debt service payment.

Some companies in EM economies may derived their revenues from hard currencies countries and as such are insulated from this risk, and in fact Grupo Gruma (a Mexican tortilla maker that get most of its revenues form sales in the U.S) argue this to the rating agencies. CVRD, a steel producer in Brazil, has indeed a higher rating than the country (BBB+ vs. BB). Moody's recently changed their rating methodology to allow strong corporates to "pierce the sovereign rating". In the U.S. GE is a case where the company has the same rating as the soverign.

Regarding your first question, I believe rating agencies assess credit risk on a a stand alone basis for the most part. For example, oil is a factor that is affecting a set of EM countries positively while at the same time exerting pressure on other, so oil is a risk as well as a blessing for some. For Caribbean countries tourism flows losses is a risk, but not for some South American coutries, so I go back to the beginning of this paragraph where I say that risks are credit specific, while some are shared.

A list of notable risk may look like this:

* Political ( a change of government and continuance of debt service pmts)
* Geographical ( in the path of hurricanes?
* Economic (loss of hard currency or difficulty of getting it?)

Note: This is my personal opinion, an should not constitute investment advice. E-mail me at my personal address if you want to develop a dialogue

 

[Market Economy]

All eyes are glued to inflation indicators. Turkey (an EM heavyweight) increase rates by 175 bps for the first time in 5 yrs. The European Central Bank announced a 25bps increase in its meeting today. The FED meets toward the end of the month to deliberate on US rates.

The markets feel heavy and more volatility is expected.

Note: This is my personal opinion, an should not constitute investment advice. E-mail me at my personal address if you want to develop a dialogue

 

[Market Economy]

Emerging markets stocks worldwide fell for the 4th straight day erasing this's year gain. Ouch !!!




Note: This is my personal opinion, an should not constitute investment advice. E-mail me at my personal address if you want to develop a dialogue

 

[mondongo]

M.E., thanks for the response. What I take from your post is that a government that is willing to raise taxes is good news for holders of sovereign debt.

Another question, if I may:

Would it be good or bad if an EM country's source of hard currency is somewhat de-coupled from the local economy?

 

[Market Economy]

Mondongo,

I'll come back to your question regarding local issuances.


Note: This is my personal opinion, an should not constitute investment advice. E-mail me at my personal address if you want to develop a dialogue

 

[Market Economy]

To All:

Would love to here your opinions on the below article:

Fund Managers Push Emerging Markets: Financial News - Yahoo! Finance

If you prefer, I can send you the pdf.


Note: This is my personal opinion, an should not constitute investment advice. E-mail me at my personal address if you want to develop a dialogue

 

[Market Economy]

Mondongo,

Regarding your questions of whether it is good or bad for an economy to decouple its US$ earning ability from its economy I think it depends. Look at Venezuela, why oil is the biggest source of hard currency earning I would say its somewhat de-coupled from the economy, yet with the recent run-up in world market oil prices, credit rating agencies have done little in terms of credit upgrades (it's the politics stupid !!!). And then you have cases like Mexico, where PEMEX is pretty much the backbone of the economy and the credit ratings agencies love the Mexican credit story.

PDVSA is in better shape than PEMEX because PEMEX is way behind in upgrading its infrastructure, yet PEMEX is one of the biggest, if not the biggest, tax contributor the government coffers. I believe that for most countries the generation of US$ earnings is, for better or worse tied to one or two industries and that is way the recent commodities boom (ignited by China & India) has helped LatAm economies so much on the fiscal side.

Note: This is my personal opinion, an should not constitute investment
advice. E-mail me at my personal address if you want to develop a dialogue.

 

[rockero]

WELL Just Heard on Alex Jones show Steve Quayle was on he said in late august the dollar will continue to fall again and with the flu swine scare coming in the fall things will just keep on crashing more and more In The Usa,,,What change from Nobama too??? Hope the dollar dont get affected in THE DR,,Stay tuned,,Rockero...