When the World Economic Forum 2014 was held in Davos, Switzerland, emerging markets were in jeopardy. Due to capital flight, the currencies of emerging countries such as Turkey, Argentina and Russia have fallen sharply. At the same time, after a record high, US stocks also ushered in "Black Friday" - on January 24, the S&P 500 index fell 2%, and the Dow Jones Industrial Average fell 1.96%.
What is the cause of the new round of turmoil in emerging markets? Is the Fed’s withdrawal from quantitative easing a culprits? How will this affect the economies of emerging countries and China's capital inflows? A survey of more than 1,000 business leaders published by information giant FTI shows that in the face of the Fed's monetary policy adjustment, countries with relatively independent economies such as China and Russia have little impact, while Brazil, Indonesia and South Africa rely on foreign investment. Countries that drive economic growth are more vulnerable.
The "Daily Economic News" reporter noted that the S&P 500 index fell 2.6% in the past four trading days, setting the biggest decline since June 2012. The Dow fell 3.5% over the same period. Analysts believe that due to various unfavorable factors, it is not ruled out that the US stocks have experienced a round of substantial correction.
Emerging market currencies plummet
How terrible is the market now? On Friday, the VIX index, which measures market panic, was arrogantly 32% to 18.14, the highest level since October 16, 2013, and the rise in the VIX index often means that investor panic is soaring. Is the profitability of listed companies falling? However, the "Daily Economic News" reporter consulted 122 companies in the S&P 500 stocks and found that the company's operating income increased by 4.2% year-on-year and net profit increased by 12% year-on-year, as of the latest fiscal quarter beginning on November 16, 2013. This is better than analysts' expectations, with net profit growth 6% higher than estimated.
The answer may be a sharp fall in emerging market currencies. According to data compiled by Bloomberg, since 2014, among the 24 most important emerging market currencies in the world, only the RMB has appreciated against the US dollar, and the rest have depreciated across the board. Among them, three currencies have fallen by more than 5%, followed by the Argentine Peso (-18). %), Turkish lira (-8%) and South African South (-5.4%).
Take Argentina, the second-largest economy in South America, as an example. With foreign exchange reserves falling to a seven-year low, the country cut the dollar’s ​​sell-off, which pushed the peso to its biggest decline in 12 years. In addition, Turkish Prime Minister’s cabinet members were involved in anti-corruption investigations. Investors' confidence in the lira, although the Turkish central bank may sell billions of dollars, it is still difficult to prevent the lira from falling to a record low.
The Chinese economy shows signs of slowing growth. The PMI index released by HSBC Holdings and Markit shows that China's manufacturing industry has shrunk for the first time in six months, which has increased investors' concerns about the slowdown in emerging markets. According to data compiled by Bloomberg, China’s official manufacturing PMI index has been expanding for 15 consecutive months, but December 2013 was the first time in six months.
Bhanu Baweja, head of cross-asset strategy at UBS's emerging markets, said investors are retreating from emerging markets because emerging market currencies are the most vulnerable, and although they dare not say today is the clearing day, more people will focus on other assets in emerging markets. which performed.
Weaken the "firewall" of emerging countries
What is the impact of the unprecedented wave of selling in emerging market currencies on emerging markets?
Emimon Aghdasi, a strategist at Société Générale, said that the current environment may be very unfavorable for emerging markets. Investors face two major problems: first, the uncertainty of the Fed's policies, and second, the uncertainty of economic growth, especially China. As a result, people naturally do not dare to buy assets in emerging markets.
For some emerging market central banks, in order to avoid the avalanche of the national currency, they can only use foreign exchange reserves to buy local currency and sell the US dollar, which is equivalent to weakening the "firewall." RareviewMacroLLC founder said, “A blizzard is coming, and the net foreign exchange reserves of emerging markets will fall rapidly until they enter a dangerous area. If you are a fund manager, the most important thing to do is to reduce the risk.â€
In addition to possibly further cracking down on the capital market, the economic outlook for emerging markets is becoming increasingly fragile. Once the currency is devalued, it will cause domestic inflation to accelerate, which in turn will prevent the central bank from stabilizing without raising interest rates, but this will curb economic growth.
IMF Managing Director Lagarde said that investors are very smart, they will decide the flow of funds based on economic fundamentals, government strength, and policy decisions. In some countries, there is almost no capital outflow, while in some countries large-scale capital flows have occurred.
Li Daokui, director of the China and World Economic Research Center of Tsinghua University's School of Economics and Management, said that the gradual withdrawal of the US quantitative easing policy is not a bad thing for China, and it can alleviate the pressure of RMB appreciation and hot money inflow. However, he believes that China still needs to guard against indirect risks, especially the excessive exit of QE to negatively affect neighboring countries and Chinese trading partners, thus causing an indirect negative impact on China.
US stock bull market has stalled
If the overall market economy slows down, it will weaken US multinationals whose businesses are mainly in emerging markets, such as Yum!, which has KFC and Pizza Hut, and 51% of its 2012 fiscal year revenue comes from China.
Since 2014, the Mozambican multinational company index, which measures companies with higher business outside the US, has fallen 3.4%. Of the 50 constituent stocks, only 7 rose in 2014, while the largest declines included General Electric, Time Warner, Nike and DuPont.
Is this bull market nearing the end? Fu Peng, dean of the China Macro Hedge Research Institute and chief adviser of Galaxy Futures, told the Daily Economic News that the previous round of US stock market gains benefited from the Fed’s low interest rate policy, which caused companies to issue bonds or buy back, but with As the Fed cuts QE and bond costs higher, US stocks appear to be somewhat high. Special consideration is given to this year's mainstream strategy is to short the US stocks, buy gold, the US stock bull market has stalled, does not rule out a round of 20% callback.
Terry, Chief Strategist, Bank of America Wealth Management? Sandwin said that investors really need to wait and see, because there is not enough evidence in the short term to show that the stock market will continue to rise.
What is the cause of the new round of turmoil in emerging markets? Is the Fed’s withdrawal from quantitative easing a culprits? How will this affect the economies of emerging countries and China's capital inflows? A survey of more than 1,000 business leaders published by information giant FTI shows that in the face of the Fed's monetary policy adjustment, countries with relatively independent economies such as China and Russia have little impact, while Brazil, Indonesia and South Africa rely on foreign investment. Countries that drive economic growth are more vulnerable.
The "Daily Economic News" reporter noted that the S&P 500 index fell 2.6% in the past four trading days, setting the biggest decline since June 2012. The Dow fell 3.5% over the same period. Analysts believe that due to various unfavorable factors, it is not ruled out that the US stocks have experienced a round of substantial correction.
Emerging market currencies plummet
How terrible is the market now? On Friday, the VIX index, which measures market panic, was arrogantly 32% to 18.14, the highest level since October 16, 2013, and the rise in the VIX index often means that investor panic is soaring. Is the profitability of listed companies falling? However, the "Daily Economic News" reporter consulted 122 companies in the S&P 500 stocks and found that the company's operating income increased by 4.2% year-on-year and net profit increased by 12% year-on-year, as of the latest fiscal quarter beginning on November 16, 2013. This is better than analysts' expectations, with net profit growth 6% higher than estimated.
The answer may be a sharp fall in emerging market currencies. According to data compiled by Bloomberg, since 2014, among the 24 most important emerging market currencies in the world, only the RMB has appreciated against the US dollar, and the rest have depreciated across the board. Among them, three currencies have fallen by more than 5%, followed by the Argentine Peso (-18). %), Turkish lira (-8%) and South African South (-5.4%).
Take Argentina, the second-largest economy in South America, as an example. With foreign exchange reserves falling to a seven-year low, the country cut the dollar’s ​​sell-off, which pushed the peso to its biggest decline in 12 years. In addition, Turkish Prime Minister’s cabinet members were involved in anti-corruption investigations. Investors' confidence in the lira, although the Turkish central bank may sell billions of dollars, it is still difficult to prevent the lira from falling to a record low.
The Chinese economy shows signs of slowing growth. The PMI index released by HSBC Holdings and Markit shows that China's manufacturing industry has shrunk for the first time in six months, which has increased investors' concerns about the slowdown in emerging markets. According to data compiled by Bloomberg, China’s official manufacturing PMI index has been expanding for 15 consecutive months, but December 2013 was the first time in six months.
Bhanu Baweja, head of cross-asset strategy at UBS's emerging markets, said investors are retreating from emerging markets because emerging market currencies are the most vulnerable, and although they dare not say today is the clearing day, more people will focus on other assets in emerging markets. which performed.
Weaken the "firewall" of emerging countries
What is the impact of the unprecedented wave of selling in emerging market currencies on emerging markets?
Emimon Aghdasi, a strategist at Société Générale, said that the current environment may be very unfavorable for emerging markets. Investors face two major problems: first, the uncertainty of the Fed's policies, and second, the uncertainty of economic growth, especially China. As a result, people naturally do not dare to buy assets in emerging markets.
For some emerging market central banks, in order to avoid the avalanche of the national currency, they can only use foreign exchange reserves to buy local currency and sell the US dollar, which is equivalent to weakening the "firewall." RareviewMacroLLC founder said, “A blizzard is coming, and the net foreign exchange reserves of emerging markets will fall rapidly until they enter a dangerous area. If you are a fund manager, the most important thing to do is to reduce the risk.â€
In addition to possibly further cracking down on the capital market, the economic outlook for emerging markets is becoming increasingly fragile. Once the currency is devalued, it will cause domestic inflation to accelerate, which in turn will prevent the central bank from stabilizing without raising interest rates, but this will curb economic growth.
IMF Managing Director Lagarde said that investors are very smart, they will decide the flow of funds based on economic fundamentals, government strength, and policy decisions. In some countries, there is almost no capital outflow, while in some countries large-scale capital flows have occurred.
Li Daokui, director of the China and World Economic Research Center of Tsinghua University's School of Economics and Management, said that the gradual withdrawal of the US quantitative easing policy is not a bad thing for China, and it can alleviate the pressure of RMB appreciation and hot money inflow. However, he believes that China still needs to guard against indirect risks, especially the excessive exit of QE to negatively affect neighboring countries and Chinese trading partners, thus causing an indirect negative impact on China.
US stock bull market has stalled
If the overall market economy slows down, it will weaken US multinationals whose businesses are mainly in emerging markets, such as Yum!, which has KFC and Pizza Hut, and 51% of its 2012 fiscal year revenue comes from China.
Since 2014, the Mozambican multinational company index, which measures companies with higher business outside the US, has fallen 3.4%. Of the 50 constituent stocks, only 7 rose in 2014, while the largest declines included General Electric, Time Warner, Nike and DuPont.
Is this bull market nearing the end? Fu Peng, dean of the China Macro Hedge Research Institute and chief adviser of Galaxy Futures, told the Daily Economic News that the previous round of US stock market gains benefited from the Fed’s low interest rate policy, which caused companies to issue bonds or buy back, but with As the Fed cuts QE and bond costs higher, US stocks appear to be somewhat high. Special consideration is given to this year's mainstream strategy is to short the US stocks, buy gold, the US stock bull market has stalled, does not rule out a round of 20% callback.
Terry, Chief Strategist, Bank of America Wealth Management? Sandwin said that investors really need to wait and see, because there is not enough evidence in the short term to show that the stock market will continue to rise.
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