When EM sneeze, developed countries catch a cold

Markets, especially stocks exchanges, will continue to suffer from a slowdown in global growth. IMF managing director Christine Lagarde warned on Tuesday that expansion in EM as well as in developed ones will be “weaker” than expected in July.

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What are the upside risks for EM in 2015?

ZURICH | UBS analysts | We have painted a fairly sombre picture for emerging markets assets next year. Our base case is that EM debt will generate returns of 0-2%, while EM equities should yield 5-7% returns for USD based investors. The main thesis that underlies this view is that the growth alpha between EM and DM will fall further, with sluggishness in exports a critical concern.

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EM: High yields offer some shelter

LONDON | By Koon Chow at Barclays | A pertinent question asked by some investors is whether EM markets have become complacent again and whether new exogenous shocks may catch investors at a vulnerable point just as they are settling down to ‘summer’ carry trades. We see this risk in some markets but it is far from a universal theme in our view. In EM local markets – FX and bonds – we see Turkey as probably the most vulnerable to exogenous risk aversion. At the other end of the spectrum are Brazil, Central Europe, and Colombia, which do not appear vulnerable in part because of the high local real yield levels.

The financial drawbacks of being an emerging economy

NEW YORK | By Markus Jaeger via Deutsche Bank Research | The US today, like Britain under the gold standard, acts as the world’s banker. It is the most important source of international liquidity, leading countries to hold USD-denominated assets. Not only does this allow the US and especially the US Treasury to tap into a large investor base ready to finance current account and fiscal deficits at a lower cost. To the extent that the demand for international liquidity and USD assets exceeds the US balance-of-payments deficit, it allows the US to recycle short-term foreign liabilities into long-term assets.