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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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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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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 6 Nov 2018 / Europe

Country risk from credit derivatives

Countries swapping their foreign currency debt back into their own currency or their domestic debt are as much at risk from credit derivatives as investment banks were 10 years ago. If one counterparty defaults, this could be a huge cost to the other. Most market participants agree to pay some form of collateral when the value of the swap moves one way or another. However, most countries cannot post collateral.

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Tue 30 Oct 2018 / Europe

Ukraine's thorny IMF relationship

The IMF's relationship with Ukraine has always been among its most high profile and difficult interactions. The US and Europe have consistently encouraged the IMF to remain engaged in Ukraine, viewing this as a means of laying a foundation for greater market orientation, integrating Ukraine with the West and diminishing Russia's regional influence. Though the Fund has spared no effort, the relationship cannot be viewed as a success, and the economic promise of the 2014 revolution is not yet close to fruition.

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Fri 26 Oct 2018 / Europe

No-deal Brexit threat to rich EU nations

When examining the potential fallout from the two greatest risks facing European markets, a no-deal UK exit from the European Union and possible Italian contagion, the impact on EU supply chains and cross-border banking exposures is especially important to consider. The EU regions that would be most impacted by a no-deal Brexit are richer and have lower unemployment rates, including southern Germany and the Netherlands. Such regions stand in contrast to Italy and Spain, which are less exposed to the UK through supply chains.

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Tue 9 Oct 2018 / Europe

Euro will not survive if Italy fails

An Italian debt default would trigger a European banking crisis with global economic and financial market ramifications. Italy is the euro area's third largest economy. If it fails, the single currency cannot survive. It is also too costly for its European partners to save. However, the country's new populist government is engaging in wishful thinking that somehow the country will grow its way out of its debt problem. Its policies show complete disregard for euro area budget rules and are bound to deal the economy a serious blow.

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Mon 8 Oct 2018 / Europe

Five proposals for post-programme Greece

After eight years of hardship, Greece is finally emerging with renewed optimism from this difficult time. Although the international economic environment is relatively volatile at the moment, I have long believed that the Greek case is manageable for an exit from the memorandums of understanding in late August without a precautionary credit line. Policy-makers must focus on conditions for Greece to achieve a sustainable return to capital markets. My five proposals include setting up a new advisory task force to regain the investment grade held in 2008.

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Thu 4 Oct 2018 / Latin America Caribbean

Argentina and the IMF – Take Two

Amid a plunging peso and falling confidence in Argentine economic policy, President Mauricio Macri turned to the International Monetary Fund for the second time in three months. His government is working with the Fund to implement a viable programme, owned by Argentina. With a revised framework at hand, some commentators have advanced criticisms of Argentina and the IMF, which I highlight below. They miss the bigger picture. Argentina's revised IMF programme merits the support of the international community.

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Tue 2 Oct 2018 / Global

Central banks face 'hot breath' over QE

Political constraints on the US Federal Reserve and the European Central Bank restarting large-scale asset purchases to combat a future recession will be much greater than after the 2008 financial crisis. Interest rates are unlikely to rise high enough during the current tightening cycle to quell any downturn simply with rate cuts. Experts recognise that QE will be part of central banks' toolkit for dealing with the next dip. With the 'hot breath' of politicians 'on central bankers' shoulders', leeway for purely technocratic solutions is constrained.

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