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The Next Steps For The EM Crisis (In 4 Charts)

Tyler Durden's picture




 

Asia outperformed emerging market peers in Europe and Latin America during the recent selloff, which coincided with a drop in China’s PMI below 50. As Bloomberg's Tamara Hendereson notes, that was partly due to 'smoothing' by Asian central banks to temper volatility and partly because of the region’s reputation for strong growth and ample current-account cushions. Still, she warns, emerging market investors may in time focus more on Asia’s vulnerabilities, including higher valuations, lower real yields and greater sensitivity to Fed tapering and China’s rebalancing.

Via Bloomberg's Tamara Henderson,

Expensive Currencies

Asian currencies tend to be more expensive than those of emerging market peers in Europe and Latin America. After adjusting for trade and inflation, the Chinese yuan and Singapore dollar have a cost disadvantage of more than 10 percent, according to the latest data from the BIS. Exceptions are the Japanese yen, Indonesian rupiah and Indian rupee — which are among the most competitive in emerging markets.

Sensitivity to Fed Tapering

Economies with larger reliance on investment for growth will face stronger headwinds from the higher yields associated with the U.S. Federal Reserve’s tapering of asset purchases. Investment accounts for a more than average share of economic growth in the Asia Pacific region — especially in China (48 percent), India (36 percent), Indonesia (35 percent), Thailand (31 percent), South Korea (29 percent) and Australia (28 percent).

Limited Real Yield Appeal

New Zealand has the highest five-year real yield in the Asia-Pacific region at 2.5 percent, followed by South Korea at 2.1 percent. In the rest of Asia, real yields are below 2 percent or even negative, providing little-to-no reward for the added risk and limiting the appeal to U.S. or European investors who can earn comparable or better returns on domestic assets. Emerging market peers in Europe and Latin America have yields above 3 percent.

Exposure to China

While it is a long-term positive for Asia and beyond, the rebalancing of China’s economy toward consumption is slowing growth and import demand. Emerging Europe and Latin America have less exposure to Chinese trade than Asian counterparts. South Korea, Japan and Taiwan are particularly vulnerable, each accounting for 8.7 percent to 10.2 percent of China’s imports. Australia, Malaysia and Thailand have import shares above 2 percent.

 

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Wed, 02/05/2014 - 12:15 | 4404183 Sudden Debt
Sudden Debt's picture

THAT'S LIKE EVERY FUCKING VACATION DESTINATION ON EARTH!!!!

DO I HEAR DISCOUNTS?!!

SUMMER WILL BE SO GREAT!!!

Wed, 02/05/2014 - 13:24 | 4404369 The Dunce
The Dunce's picture

Crisis after crisis after crisis.  It's all part of being human.  At least this ain't the Black Death.  Word to your mother.

Wed, 02/05/2014 - 14:39 | 4404625 Leopold B. Scotch
Leopold B. Scotch's picture

"This is fantatistic primer on which nations' women will be on steep discount.

Tootaloo!"

- Sleezie McHedgie

Wed, 02/05/2014 - 12:18 | 4404206 Sudden Debt
Sudden Debt's picture

HAHAHAHAHAHAHA!!

Wed, 02/05/2014 - 14:41 | 4404635 Leopold B. Scotch
Leopold B. Scotch's picture

What's the risk to their insurer?

Wed, 02/05/2014 - 12:35 | 4404258 BandGap
BandGap's picture

Hey, don't go giving the Fed any ideas.

 

Wed, 02/05/2014 - 12:37 | 4404272 DavrosoftheDaleks
DavrosoftheDaleks's picture

The biggest Irony in this is that Iron Mountain hasn't budged today, nor is there any mention on their website.  I hope they have enough insurance for this.  For all we know the plight of Argentina might now be resting upon IRM's shoulders. 

Wed, 02/05/2014 - 12:50 | 4404297 Ban KKiller
Ban KKiller's picture

Devalued currency records burn faster. A good flood is OK too.

Cooked books! 

Sorry for the firemen and their families. 

Wed, 02/05/2014 - 12:50 | 4404305 The Wisp
The Wisp's picture

fire of unknown origin???                         Oh I can Guess

Wed, 02/05/2014 - 12:56 | 4404312 SAT 800
SAT 800's picture

any arabian student pilots in the area at the time?

Wed, 02/05/2014 - 12:55 | 4404311 SAT 800
SAT 800's picture

That's an amazing story; it was an insured storage facility; particularly protected against fire. The Bank paid them to store their records in their "fireproof" warehouse. WTF? this is beyond strange.

Wed, 02/05/2014 - 12:19 | 4404203 youngman
youngman's picture

Slowing imports because they cost more is going to be a big factor in the future

Wed, 02/05/2014 - 12:26 | 4404220 SAT 800
SAT 800's picture

A factor that might be called "a deflationary spiral into disaster"; as far as foreign trade is concerned. I was always amazed at the American Citizens who put their retirement funds in the Stock Market; but the ones who put them in the "Emerging" markets; like India, India ! for God's sake !; really made me shake my head in wonder. A kind of triumph of ignorance, or something.

Wed, 02/05/2014 - 12:25 | 4404222 philosophers bone
philosophers bone's picture

What time today does the "double POMO" start?  Or is the Fed shooting blanks now?

Wed, 02/05/2014 - 12:33 | 4404224 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

No Asian countries won't be suspectible to FED tapering at least not to the degree emerging markets are. Everyone's suspectability is combination of FED's QE and Abenomics combined.

Most volatile

QE and ABE 20B + 20B lost in flow max in most susceptable markets.

Less volatile

QE or ABE 20B max lost in flow 

US is sucking about 20B off of Abenomics in it's faux taper of flow to the US stock market so less susceptable markets are only taking a max 20B hit in the global markets

Least volatile

Neither QE nor ABE - Asian markets in the main aka BRICS

Money printer pumping that region is primarily China. If China implodes then the Asian markets will reflect it in volatility accordingly to flow lost.

It is simple there are 3 printers working overtime printing money those closest to the Chinese press will suffer the least from tapering right now aka the Asian markets Abenomics flow redirection or not.

Wed, 02/05/2014 - 12:31 | 4404250 BandGap
BandGap's picture

I, for one, am very glad someone took the time to chart out the next steps. If they hadn't, this process might get a little haphazard and perhaps spin out of control. But seeing this makes me feel a bit better about the steps that Emerging Markets should execute in order to once again take their places as third world countries.

Wed, 02/05/2014 - 12:36 | 4404270 fijisailor
fijisailor's picture

Trouble is, what is Japan emerging from?

Wed, 02/05/2014 - 13:08 | 4404337 glaucon was right
glaucon was right's picture

Fukushima?

Wed, 02/05/2014 - 17:47 | 4405624 pondview28
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Tsunami. It killed 20,000 people. Please don't get your Fukishima news from Zero Hedge. It is almost universally provided by ax grinders and sensationalists. Do your own research. Treat any article referencing Gundersen as an expert as extremely suspect.
Yes, Fukashima is a major long-term problem. No, the Japanese government and Tepco are not doing nothing - there has been intense work going on since March 2011. No, you have not heard about the dangers recently in the main stream news because they are being suppressed - it is because they are being (slowly) addressed and reduced. Could things go wrong in a hurry? Sure. Just do your own research and only rely on ZH for economic issues.

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