Good EM, Bad EM
One good thing that emerged from the mini EM crisis that erupted in Jul, lasting into August is that markets have become more discerning over this whole EM business.
The ensuing correction over extended itself on the US debt ceiling extension, EM fervour finally came to a halt last week led by losses in the Brazilian Real, Czech Kroner, Hungarian Forint, South African Rand and Indonesian Rupiah.
With growth stories waning and waning fast, the focus is more country specific and no longer on a basket which was the case with the risk-on and risk-off days of endless QE.
It is not that QE is going away and we still have about USD 85 billion added a month which makes it over a trillion dollars for QE3 which has no end date in mind yet. People are just more discerning now and like Nomura alluded in their latest note, the correlations between some EM currencies and the S&P, for instance, has gone awry and it is best to focus on “specifics” than “global beta” going forward.
The fashionable trend amongst the strategists’ reports these days is to sing about the external imbalances of countries (except the US). So India gets pummeled because of its 5.88% deficit even though the UK has a bigger one at 6.1%, not to mention Greece -9%, Spain -10.6%, Portugal -6.4% and why not Japan at -8%.
Nobody bothers about Europe because Europe is back in fashion and there is a big party there and strategist reports are unlikely to bring such facts up.
So lets just go ahead and continue with the EM bashing. And since we are always fixated black and white, risk on and risk off, we can now throw ourselves into the idea of Good EM and Bad EM.
I present a table of the debt/gdp, gdp growth and the most important … SURPLUS/DEFICIT table.
Nice to note that Singapore has the 2nd highest surplus % in the world, after Norway.