Emerging Markets

Many Emerging Market countries have been financing huge trade deficits with artificial free Money from Developed Markets and now the flow of Money is reversing. A negative side effect of QE.

Emerging Market Outflow


Middle East & Oil

“As the chart below shows, an index of geopolitical risk in oil-producing countries recently hit a multi-year high. Elevated levels of the index have historically been associated with higher oil prices. The oil market is already tighter than most market watchers realize.” (Blackrock, Russ Koesterich)

Oil & Gas Risk Index

Mean Reverting

“The downside risk of investing when earnings and valuations are far above historical averages should not be underestimated. Peak earnings go hand-inhand with peak valuations. When earnings revert back to mean (and below), the valuation will also collapse.”

Mean Reverting Profits

More on valuation: https://brokenmarkets.wordpress.com/2013/08/19/valuation-metrics/ https://brokenmarkets.wordpress.com/2013/08/16/valuation-3/ https://brokenmarkets.wordpress.com/2013/08/20/valuation-5/

Raising the Debt Limit

“US will run out of borrowing authority in mid-October (Treasury secretary Jack Lew). That is earlier than expected and starts to ratchet up the pressure on Congress ahead of a crucial few weeks in which it must agree on spending plans for next year as well as raise the debt limit from $16.7tn.”

More on major policy events in september: https://brokenmarkets.wordpress.com/2013/08/14/september/

Currency Performance Asia

Interest rates have gone up and has caused borrowing costs to rise globally. The spike in U.S. debt yields along with the rising dollar has not been healthy for emerging markets with large current account deficits. The demand for emerging market assets have lessened. Capital leaving Emerging Markets and flowing back to Developed Markets.

Currency Performance

More on Currency Performance: https://brokenmarkets.wordpress.com/2013/08/21/currency-performace/