June 24, 2008 - Courtesy of Bespoke Investment Group - The recent selloff in equities has really spared no one. As shown in our trading range charts below of 22 major country indices, the trend has been down across the board in recent weeks. Even Brazil, Mexico and Russia, who had all held up relatively well this year, have sold off quite a bit. Currently, 19 of the 22 countries are trading in oversold territory (Canada, Japan and Russia are neutral). European countries like France, Germany and Italy have really taken it on the chin, while China and India remain the biggest losers in 2008. After forming short-term uptrends off of the March lows, global equity markets have now lost most of their gains and are looking to move back into downtrends.
May 12, 2008 - Jerome Booth, Head of Research at Ashmore Investment Management, UK, has written an insightful article for FT.com, Insight: A Global Rebalancing Act, May 12, 2008. Here are a few excerpts:
Gross national savings are over 30 per cent of GDP on average in emerging countries, and for a decade private and official savers in these countries have been investing overseas – in the US and Europe – under the impression that these were safer markets than at home. Yet the dollar is far from the safest currency and not the store of value it was. US Treasuries are not zero risk – the implicit myth in the term “the risk-free rate”. Treasuries have currency, curve and volatility risks. Investors in triple A structured credit got a shock when they realised their investment was risky.
Likewise emerging market savers are getting a shock about Treasuries and other US and European assets. The money is returning home, and the move is structural, not cyclical. The global imbalance of a negative US personal savings rate on the one hand being financed by high emerging savings on the other is starting to reverse.
With this reversal, or rebalancing, is coming, we believe, a currency realignment and a series of investment booms across emerging economies as investment focus shifts. Rather than using “decoupling” in describing the impact of the credit crunch on emerging markets, we should use “negative correlation”.
The policy asymmetry between the US and emerging markets is that the emerging markets, with undervalued currencies, have an additional degree of freedom. They have the choice to mess up (do nothing) or control inflation (let the currency rise, raise interest rates). In our view, emerging market central banks will largely pass this test and do the sensible thing, though this is not what the market appears to have priced in yet.
As recently as ten years ago, emerging markets still held their hands out for development loans and foreign aid. Today, their fiscal prudence and wealth has put them in the position of bailing out the western banking system.
Why are investors taking so long to realize this critical distinction and its meaning?
April 30, 2008 - CIBC World Markets Chief Strategist, Jeff Rubin, says that Oil will eventually reach $150/barrel in 2010 and over $200/barrel by 2012. He cites among the leading reasons, the advent of cheap cars from India and China, or rather Tatas and Cherys, that will enable millions of middle class Asians who couldn’t previously afford a car, to do so, Take these developments and place them agaisnt the backdrop of peak oil and a decline in oil exports from key suppliers, Saudi Arabia, Russia and Kuwait, and we are in the midst of a long term supply/demand imbalance. Here are couple of excerpts:
Whether we are already at the peak in world oil production remains to be seen, but it is increasingly clear that the outlook for oil supply signals a period of unprecedented scarcity.
Our latest review of probable supply suggests oil production will hardly grow at all, with average daily production between now and 2012 rising by barely more than a million barrels per day (see pages 4-7). Despite the recent record jump in oil prices, the outlook suggests that oil prices will continue to rise steadily over the next five years, almost doubling from current levels.
While global oil supply is not growing, global gasoline demand is, and will continue to grow as cheap cars from Tata and Chery dramatically cut barriers to car ownership in the developing world. Millions of new households will suddenly have straws to start sucking at the world’s rapidly shrinking oil reserves.
Car purchases in Russia, for example, are exploding as US sales stagnate (Chart 2), while in India the advent of the Tata Nano, a car that will sell for as little as US$2,500 will allow millions of households in the developing world to own automobiles when they otherwise could not. It is the savings necessary to buy a car, not the price of gasoline that poses the greatest obstacle to fuel demand growth in those countries. But between rapidly rising domestic incomes and rapidly falling car prices, that obstacle is becoming more and more surmountable.
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