Forget BRICs & PIIGS; Meet The Fragile 5 Emerging Markets

Tyler Durden's picture

Despite an apparent belief among the US mainstream media that 'taper' is priced in, Saxo Capital Markets warns that Emerging Market countries with large current account deficits like Brazil, India, South Africa, Indonesia, and Turkey face increasing problems. As the following chart shows (and highlghted most recently by Brazil's highest FX outflows since 2002!) could see their currencies weaken even further if the Fed's taper plans result in a deterioration of global risk appetite.



Think it will be different this time? Think again - Brazil just saw its largest outflows since 2002!!!

Via WSJ,

Dollars flowed out of Brazil in 2013 at their largest volume in more than a decade amid growing investor risk aversion and shifting capital movements around the globe.


The country's central bank Wednesday reported net dollar outflows of $12.3 billion, compared with net inflows of $16.8 billion the previous year, and the largest outflows on record since 2002. The outflows were also the country's first reported since 2008, when net dollar outflows totaled $983 million.




The central bank reported the country posted $8.8 billion in net dollar outflows in December alone.


The net currency outflows in 2013 were led mainly by investment outflows, which reached $23.4 billion. That was down from $8.4 billion in net investment inflows the previous year.




"Every bit of good economic news for the U.S. has been problematic for the rest of the world," said Mr. Galhardo. "It's hard to see good news on the horizon that will alleviate the pressure on the real in the short term."


The dollar outflow trend has been compounded, meanwhile, by growing scrutiny of Brazil's fiscal health and heightened investor risk aversion.


Source: Saxo Capital Markets

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BKbroiler's picture

Your guide to shorting countries.

Trading margin products can lead to losses that exceed your initial deposit

kaiserhoff's picture

Developing countries rarely develop,

and emerging markets tend to submerge..

Not PC.  Just the way to bet.

WayBehind's picture

They all need the EURO currency, that will solve the problem. Just look at Cyprus, they jumped on the bangwagon and it really worked out hahaha. Buy more gold and ammo and you dont have to worry about your money.

pitz's picture

Or maybe the whole model of the 'emerging markets' being riskier is flawed, and a correction to such is around the corner?

After all, if you look at most of those "emerging" economies, they're not clapped out on debt.  Pretty hard to shove much more credit down the throats of Americans, but Malaysians or Indonesians generally would leap for the chance to borrow as much as Americans do/have.

max2205's picture

Guess zirp doesn't mean much when their currency blows up

Stuck on Zero's picture

If everybody in every country is moving their cash to another region of the world for safety ... isn't this musical chairs?


kaiserhoff's picture

The velocity of money approaching warp speed.

   Cool beans.

BLOTTO's picture

It does seem all tainted doesnt it? Everything - everywhere...the grip is on.


The only safe place is in your heart and your soul - never let 'them' get that. Ever.

gwar5's picture

The globe is in a bad way and a global reset is around the corner. If a couple of breakaway countries (Russia/China) don't stake a claim to a WRC then it will be IMF SDRs with some gold backing now that China is a player at the table.



new game's picture

theives looking for a seat (all hands on the table please)...

Johnny Cocknballs's picture

All these debts... they are never going to be paid.  It's already impossible, especially with the derivatives time bomb.

Nor should they be paid.

The thing is, for the most part, these are sham debts.  Fiat created out of nothing, or acquired for a de minimus cost, and exchanged for a promise to pay at interest, is a fraud.  I know that's preaching to the choir for the most part here, but even if you don't agree... these debts can't be paid back. Not with interest accrual. 

Privatization of public resources, and more buying of realty and other real assets for pennies on the dollar must continue, apparently.

I figure repudiation is inevitable on some massive scale - but unsure how it happens or what the end game is.  Do we get a global basket of currencies/sdrs under the BIS or do we get a single currency for the EU, north america, and maybe a handful of other countries?

It would be helpful to get a better picture of just what foreigners have bought in Greece or Spain or Ireland over the past 5 years. 

Anyway - as to Brazil, I don't think an outflow of dollars is necessarily a bad thing for them at all.  They're turning more to China anyway and China has money to spend and the yuan is likely to increase in value.  I may, of course, be wrong, however.


disabledvet's picture

I understand inflation...that means "higher interest rates on cash." Gold resets as all the derivatives are "re-valued" both as the paper collapses in price and gold surges in value (no counter party.) but i still don't get the whole "and then interest rates collapse and equities go to the moon" part of the story though. "and then when we get a miracle we change everything"? ummm...okay..."hit the reset button" (taper)...but i didn't even understand why the QE thingy was working the way it did...if the Fed explained to me why they thought QE was working so well (paying for profligacy is always good news) then I would understand "and this is why we need to Tapir." Instead it's "and now for my next amazing trick!....

laosuwan's picture

Are there ANY countries that are doing well? That seem to have a bright future in the coming decade?

Gromit's picture

Uruguay and Paraguay making solid progress.....real economies selling products which will always be in demand.

August's picture

I wouldn't say that New Zealand is "doing well", as it has its own unsustainable housing bubble, and cheap money has led to Kiwis living beyond their means for years. 

However, the above issues are less acute than those found in the Great Economies of the world (US, Europe, Japan), and New Zealand is basically a big farm with abundant hydro-power: don't look for food supplies, or power supplies, to fail there.  I wouldn't say that New Zealands future is "bright", but a functioning human economy there is sustainable, and a heck of lot more so than on most of the planet.

Kirk2NCC1701's picture

Are you saying that the International Man and Sovereign Man had it "bass ackwards" regarding capital flight from the US to these countries?

Oh regional Indian's picture

It is actually more like the obvious and inescapable death of the petrodollar gets harder and harder to forecast. 

Dollar strength (Hah) = US MIL 

Perhaps the best indicator of USD strength shoudl be MIL spending. But, then there are the black budgets.........



Big Johnson's picture

So this means that ass gets cheaper in these countries?

radu.ursu's picture

This is madness!

smacker's picture

Outflows of foreign money from Brazil will have no effect on local Brazilian prices which are still outrageous relative to wages.

Brazil is possibly the world's worst example of "socialist corporatism". Virtually everybody lives on credit. Consumer prices for many everyday products often being 3-5 times what they are in the US & Europe with average wages typically about one third.