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Emerging Market Vulnerability - The Most Likely For Disruption From Fed Liftoff
The build-up in credit or leverage in many Emerging Market economies has been an important focus for EM investors given historical episodes of credit crunches and subsequent growth slowdowns. While broadly speaking, EM stocks began to drastically underperform DM stocks at the start of QE3...
Goldman summarizes in a heat map, the EM nations with greatest potential for the upcoming Fed liftoff to cause a major disruption.
The darkest shaded regions indicate the largest risks.
The current credit landscape suggests investors should be cautious on various EMs, although not overly concerned about the aggregate picture.
- China is the “poster child” of credit imbalances and looks most exposed: a rapid private sector credit build-up has caused the credit gap1 to widen out to the highest level across EMs, with high levels of bank leverage as well. The offset is that external and government leverage are at very low levels. Korea is also exposed on similar dimensions, although to a somewhat smaller extent than China.
- Turkey and Mexico have relatively large credit gaps, but the former has seen a more rapid private sector credit buildup in recent years with a thinner reserve cover, whereas Mexico’s overall indebtedness is quite low.
- The Czech Republic and Hungary have high debt levels, with a high proportion of external debt, but other indicators are less worrying.
- India stands out as having a relatively manageable debt burden (and negative credit gap), but the banking sector there appears highly levered, which is a source of concern.
- South Africa has experienced the sharpest build-up in government debt.
Source: Goldman Sachs
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They call some of these countries 'emerging markets'?
Many have been around a lot longer than the USA. Maybe they should rank them according to the impovershed in each country as percent of total? Or maybe they are not as materialistic?
In any case, the biggest printer of fiat sees the dollar gaining in strength, contrary to historical standards, while others are losing value. Bad for US tourism and exports. People in Canada for example will choose to vacation and purchase in Mexico where they get more bang for their dollar.
The world is fuk$d but for US stocks and the dollar.
Did I get this right?
WTF? Israel?
We could just go to Toronto, same as the States, pretty much.
The dollar is already dead; still walking, but dead. Short term "strength" is predicated on its world reserve status, which will collapse as the Saudi's follow through with their threat to diversify and depeg from the Greenback. An equities crash might funnel investment into dollars and treasuries for a time, but not as much as some people assume. In the meantime the IMF is positioning the SDR to take the dollar's place as world reserve. Ask yourself, how is the U.S. Treasury going to pay off increasing national debts as foreign investors are decreasing U.S. bond buying overall and the Fed turns off the printing press? The way this scenario has been staged, the dollar is in a perfect position to be crushed. Hyperinflation will take place when all the dollars shipped overseas during QE come flooding back home.
Good stuff, cherryp.
The climate deal won't help make this situation any better. Carbon taxes are gonna' make these markets non-viable. Even if there is no enforcement this time 'round, COP22 won't be so generous.
I do not believe that a Chinese debt to GDP > 250%, most of it "private" sector (the term is meaningless in a semi-centrally planned economy, the whole debt pile is an interlocking mass of daisey-chaining default), running many multiples above growth trend can have an assets to equity ratio of 14x. Should 140x.
Canada didn't make the list?...nor Texas?...surely Illinois...though that state might not yet be considered 'emerging'.
Russia and Mexico look in good shape debt to gdp and the world looks down at them as they are only 'emerging markets'
Funny, the big mfg markets like China and the USA owe a ton of money. I thought mfg was good for the economy.
Zog hegemoney is backwards. Rich is debt, slavery is good, war is oeace. The bible says you will know people by their fruits, but western dominous is only death, desteuction, and lies.
And yet first world countries act so arrogant towards em countries, to the point that many people from em countries have a colonial mentality, where they think countries lioe europe and ussa are so great and self sabotage their own culture and history. These peolle with their infected psyche give up their pretty ckmfortable existence jn em countries and become indentured servants in ussa or europe. Then they work so hard and get sick, while losijg all their ancestors had built up, usually land. Then the europeans come and buy up thwt same land and rent it out to em citizens. Really sad.
Raise them rates bitch! 5%! C'mon! This economy is rockin' and rollin'!
We can do it! All is well! The politician's and banker's will save us!
NOW is the time to short the crap out of everything!
How can you short crap?
With more short craps?
.25% is a lift-off?