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Commentary

Thu 24 Jan 2019 / Global

Emerging market trials persist

Last year's thrashing in all emerging market investment classes, with debt, equity and currencies in simultaneous decline for the first time in a decade, prompted reconsideration of allocation rationale into the next decade. Crises in Argentina and Turkey in 2018 were in part a replay of 2013 Federal Reserve-induced 'taper tantrum', as retail foreign investors sold indiscriminately. Contagion may yet spread, but for now index performance will continue to be subdued without the spectre of uncontrolled crashes.

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Wed 23 Jan 2019

Data exaggerate impact of China slowdown

China is likely to grow at a rate of 6% in 2019, significantly lower than the 8.25% recorded each year on average over the last decade and the double-digit average growth rates in the years before the 2008 financial crisis. Although these figures appear alarming, onlookers should not be overly worried. Since 2005, China's share of the world economy has more than tripled to 16% from 5%. This larger share means 6% growth today is equivalent to 15% growth a decade ago.

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Tue 22 Jan 2019 / Global

Proper perspective on emerging risks

You can hear the bearishness in everyone's voices. They fear a market swoon in a world of unstable politics. Risks are mounting, as indicated by recent data signalling slight economic contractions in Germany and Japan. There is plenty of room for unpleasant surprises, especially from higher debt servicing costs and continuing pressures on some emerging markets. But it is important to keep these risks in proper perspective against a global economy that is slowing, but still very strong, and political tensions that are distracting, but unlikely to trigger recession.

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Thu 17 Jan 2019 / Europe

Swiss are collateral victim of Brexit

Amid all the Brexit excitement in London, no one seems to have noticed that Switzerland is as much embroiled in a row with the EU as is the UK. Switzerland has been engaged in on-off negotiations with Brussels since 1992. The EU cannot offer a special deal that allows Switzerland access to the single market but without respecting its rules, as this would set a precedent for the UK. Equally, the Swiss government and its members of parliament find it hard to agree a deal with Brussels that risks being repudiated in a referendum.

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Wed 16 Jan 2019 / Global

Central banks heading for exit

In among all the concern about economic growth rolling over, it is important to recognise that central banks are still heading to the exit. Just before Christmas the Sveriges Riksbank raised rates for the first time in this cycle, a move that went largely unnoticed. In its monetary report, the Swedish central bank acknowledged that countries were entering 'a phase of more subdued GDP growth' globally. The central bank referenced the uncertainties surrounding Brexit and 'the ongoing trade conflict between the US and several other countries'.

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Tue 15 Jan 2019 / Europe

Fiscal money solution for Rome

Fiscal money is a transferable and negotiable government-issued security that bearers may use for obtaining tax rebates two years from issuance. In the case of Italy, FM could fund public investments and social spending programmes, supplement employees' income and reduce businesses' tax-wedge on labour. These allocations would increase and sustain a higher level of domestic demand and improve business competitiveness. As a result, Italy's output gap would close without affecting the country's external balance.

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Fri 11 Jan 2019 / Europe

Back to Brussels on Brexit

Prime Minister Theresa May, facing a crucial House of Commons vote on 15 January on Britain's EU exit, is running down the clock until members of parliament feel they have no option but to back the government's deal over departure on 29 March. But the government will not be able to get May's deal through parliament and so will have to go back to Brussels, not just once, but maybe several times. If the EU refuses to budge, the automatic legal position is that the UK will leave on 29 March, even if there is no deal and stalemate in parliament.

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Wed 9 Jan 2019 / North America

Back to pre-1914 Fortress America

When Trump was elected in November 2016, I said he would be a unilateralist. In that spirit, he has redefined the aims of US foreign policy. We are back to pre-1914 'Fortress America'. The US entered the first world war only because of the German U-boat sinking of the RMS Lusitania. It entered the second only after the bombing of Pearl Harbor. Trump wants to confine US defence activity strictly to defend national interests. He no longer wishes to run the world, and has ended the doctrine of the US as global policeman codified by President John Kennedy in 1961.

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Wed 9 Jan 2019 / Global

Non-American should lead World Bank

Since the creation of the International Monetary Fund and World Bank at the end of the second world war, an American has led the Bank (Jim Yong Kim, who announced his resignation from the presidency on Monday, is Korean-American) and a European the IMF. This convention was logical in the post-war decades when the major advanced economies dominated the world economy, but the changing global landscape makes it outdated. To date, the duopoly has met no effective challenge. It is time for a change.

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Tue 8 Jan 2019 / Europe

British politics caught in zugzwang

The various pro- and anti-Brexit camps in the House of Commons are all caught in a sort of zugzwang, to borrow the phrase from chess – they are safe if they do nothing, but if any camp forces a vote it may end up triggering exactly the outcome it fears most. Prime Minister Theresa May appears to have the initiative, in that she can control the business of the Commons and decide what MPs vote on, when and in what order. But whenever she makes a move, whatever that move is, she risks weakening her position. And she cannot do nothing forever.

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