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.
“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)
“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.”
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/
“Recent data from ICI showing another $11B pulled from bond funds last week (against small inflows for stock funds). That makes it 12 out of 13 for weekly outflows from fixed income after inflows for what seemed like forever.”
“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/
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.
More on Currency Performance: https://brokenmarkets.wordpress.com/2013/08/21/currency-performace/