Global View December 2015: Emerging Markets in 2016…Yes But No

by Michael J. Howell2. December 2015 18:40

After more than five years of underperformance, it must be Buggin’s turn for Emerging Markets to excel in 2016? We agree that the positives are slowly coming together, but based on liquidity data we may still be a few months away from returning to EM assets. One reliable indicator is the excess of EM over DM liquidity and this is still in negative territory. Another is the risk positioning of investors in EM assets: despite the large sell-off over the past 12 months, it would appear from the data that investors’ risk appetite still looks high, on average.

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Global Liquidity Conditions (Risk) Emerging Markets, November 2015

by Michael J. Howell30. November 2015 15:57

Asian markets head the risk rankings 

The October bounce in equity markets and associated jump in the Exposure Risk Index to 38.0 were more than offset by the pick-up in liquidity. Financing Risk fell to 70.7: better than the year’s high of 79.4 recorded in September but still too high. Asia is the problem.

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Global View November 2015: How Will The 'New' Fed Tighten?

by Michael J. Howell30. November 2015 15:54

It is virtually certain that US interest rates will rise by 25bp in December 2015, but the World has changed hugely since the US Federal Reserve last hiked. The wholesale markets and the market in off-shore US dollar borrowings are much more important than they were in 2008. We ask in this report what the Fed will likely do to in order to enforce higher rates and what are the risks?

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Global View November 2015: A Maverick View of Bond Markets in 2016

by Michael J. Howell27. November 2015 16:01

The World is coming down against bonds. Unfairly. It is not that bad. Bond markets are driven by three things – short-term rate expectations, medium-term inflation risks and movements in the real term premium. Most investors are currently worried by the first factor (rising short-term rates) and some are becoming exercised by the second (rising inflation risks). Consequently, many pundits are calling for the end of the long bond bull market. But this call may be premature because it ignores the third factor (real term premia) which lately has been the most important for bond performance. Liquidity, in turn, is overwhelmingly the major influence driving these bond risk premia and determining curve reshaping.

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Global Liquidity Conditions (Liquidity) Emerging Markets, November 2015

by Michael J. Howell25. November 2015 14:39

The October 2015 Emerging Market sub-component (EMLI™) of our GLI™ (Global Liquidity Index) rose to a reading of 27.7 (‘normal’ range 0-100) from an index of 19.6 for end-September. The GLI™ measures the growth of credit and cash savings relative to trend and it currently tells us that the pace of these leading money flows into EM risk asset markets is sub-par.

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Asia Markets - Latest GLI Data, November 2015

by Michael J. Howell25. November 2015 13:40

The October 2015 Asian Market component of the GLI™ (Global Liquidity Index) rose to a reading of 22.4 (‘normal’ range 0-100) from an index of 17.8 for end-September. The GLI™ measures growth relative to trend and it currently tells us that the pace of money flows into Asian risk assets is sub-par.

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Global Liquidity Conditions Major Markets, November 2015

by Michael J. Howell25. November 2015 13:39

The October 2015 GLI™ (Global Liquidity Index) rose to a reading of 42.8 (‘normal’ range 0-100) from a revised down 34.2 index for end-September and an essentially stable end-August index of 37.9. The GLI™ measures the growth of credit and cash savings relative to trend and it currently tells us that the pace of leading money flows into World risk asset markets is sub-par.

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Global View November 2015: How Likely Is A 2016 Global Liquidity Shock?

by Michael J. Howell24. November 2015 07:53

Risk officers should beware. At the very least, holding less risk when the Fed starts to hike rates seems prudent. More generally, looking 6-12 months ahead, the odds of a negative shock to Global Liquidity will remain high. Ironically, they are probably higher than in early 2008, because then having fallen sharply through 2007 the US currency was not strong; most economies seemed robust; policy-makers, led by the US Fed, apparently were on top of (or so they claimed) the growing funding problems and no one thought that the US Treasury would allow a key financial counter-party (Lehman) to fail. Today, the financial planets line up more ominously. Economies are either bafflingly slow speed, or like the Eurozone heavily lop-sided. 

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TSS - Emerging Markets Report, November 2015

by Michael J. Howell23. November 2015 10:30

From a risk perspective, Emerging Markets are looking slightly better. Overall liquidity inflows hit an index value of 27.7 in October, or up from 19.6 in September. Set against a ‘normal’ range of 0-100, this remains unattractively low, but at least it is improving. China remains the overwhelming negative influence on the sector. Our concern, emphasised since the February 2015 Lunar New Year, is that the People’s Bank (PBoC) is tightening, and not easing, policy.

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TSS - Major Markets Report, November 2015

by Michael J. Howell19. November 2015 16:49

Even though the GLIindex of World liquidity conditions rose in October 2016 to a value of 43.8 from September’s much lower 35.0, this volume of liquidity is still not particularly supportive of risk assets. The recurring 8/9 year pattern of market crises – 1973/4, 1980/1, 1989/90, 1997/98 and 2007/8 – threatens to repeat again in 2015/16?

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