China, Brazil among emerging markets at risk of bank crisis

Tom Beardsworth and Lyubov Pronina – Bloomberg Business, 9/13/2015

Credit growth in China, Brazil and Turkey doesn’t only risk spurring a hangover in bad debt — it also signals a banking crisis is on the horizon, according to the Bank for International Settlements.

A ratio of credit to gross domestic product, a measure of how much private-sector credit has deviated from its long-term trend, stands at 25.4 percent in China, BIS said in a report on Sunday. That’s the highest of any major economy and compares with 16.6 percent in Turkey and 15.7 percent in Brazil.

“Early warning indicators of banking stress pointed to risks arising from strong credit growth,” according to the bank. Historically, a country with a ratio above a 10 percent threshold has a two-thirds chance of “serious banking strains” occurring within three years, BIS said.

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Brazil Real gains as China measures support commodity producers

Paula Sambo – Bloomberg, 9/9/2015

Brazil’s real climbed to a one-week high as efforts by China to add to growth triggered a bounce in the prices of raw materials.

“There is scope for emerging-market currencies such as the real to strengthen given the improvement in risk sentiment,” Mark McCormick, a foreign-exchange strategist at Credit Agricole SA, said from New York.

The local currency advanced after China, Brazil’s largest trading partner, pledged to accelerate construction of some major projects and reduce companies’ tax burdens. The real also gained as President Dilma Rousseff’s administration was said to be studying a tax increase on Brazil’s top earners to raise revenue and narrow an expanding budget deficit.

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A silver lining to Brazil’s troubles

Joe Nocera – The New York Times, 9/4/2015

Of all the BRICS, Brazil would seem, on the face of it, to be in the worst shape.

BRICS, of course, stands for Brazil, Russia, India, China and South Africa, a catchphrase that was meant to connect their rapidly growing economies. But that was then. Today, their economies are sluggish at best, and their prospects no longer seem so bright.

Everybody knows about China’s troubles: its falling stock market, its slowing economy and the amateurish attempts by the government to revive them, as if they should somehow snap to when the Communist Party gives an order.

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India first, Brazil worst in emerging stocks after Fed increase

Maria Levitov – Bloomberg Business, 8/14/2015

Bet on India’s growth stories and shun Brazilian behemoths when the Federal Reserve raises interest rates, emerging-market stock-pickers say.

India will probably do best among the 10 largest emerging equity markets after the Fed boosts rates for the first time in nine years, and Brazil the worst, according to a Bloomberg survey of 10 stock fund managers in the U.S., Europe and Asia.

A Fed increase, which may come next month, would herald the end to an era of record-low U.S. interest rates that supported demand for riskier assets. Higher U.S. borrowing costs threaten to lure money out of developing nations, making it costlier to finance budget and current-account deficits.

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Brazil hopes to strengthen trade relations with Russia

Sputnik, 7/27/2015

Brazil wants its trade relations with Russia to strengthen and continue past the end of the Moscow-imposed ban on agricultural imports from Western countries that hit it with sanctions, Brazil’s Minister of Agriculture, Livestock and Supply Katia Abreu told Sputnik Brazil.

The European Union, the United States and their allies imposed several rounds of sanctions against Russia for its alleged involvement in the Ukrainian crisis in 2014. Moscow has repeatedly denied those claims, and, in August 2014, responded by imposing a year-long ban on certain food imports from the countries that imposed the economic restrictions.

In late June, Russian President Vladimir Putin signed a decree extending the countermeasures.

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Brazil ETFs Set to Continue Struggle in 2015

Jared Cummans – ETF Database, 1/19/2015

Brazil has long been one of the most alluring emerging market economies, earning itself the “B” in the popular BRIC nation group. Its economy was once bustling and offering handsome growth for investors, but that has screeched to a halt in recent years. What’s worse is that it does not appear the emerging market will get back on track anytime soon.

From 2010 to 2014, EWZ had an average annual return of -9.81%; from 2005 to 2009 that figure was 47.74%, a stark contrast. The poor returns come as GDP continues to disappoint, among other things. 2014 saw a trade deficit of $3.93 billion, the largest since 1998. Exports in 2014 dropped 7% while inflation continues to rise. The hefty costs of hosting the 2014 FIFA World Cup certainly did not do the country any favors. To put it simply, the Brazilian economy is facing a number of headwinds, none of which are quick fixes.

Looking forward to 2015, the outlook is not much better. GDP growth fell from 2.3% in 2013 to 0.15% in 2014, as the economy suffered a sharp slowdown at the end of 2014. Analysts are forecasting GDP growth of 0.5% for this year; while that may be higher than 2014, it is certainly not a number that is going to get the economy back on the right track, as it still lies on the brink of a recession. On top of that, inflation continues to rise, forcing the central bank to raise rates to attempt to keep prices at bay.

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Why Brazil Is A Surprisingly Closed Economy

Otaviano Canuto – Business Insider, 1/12/2015

According to traditional macro-level measures of trade penetration (share of exports and imports in GDP), Brazil is an unusually closed economy. For Brazil this measure was only 27.6% in 2013 – a figure among the lowest in the world. Notably, Brazil’s trade openness lags far behind its peers among the BRICS countries, all of which reached trade-to-GDP ratios of at least 50% in recent years.

Brazil’s size is often used to explain the country’s relative closedness. As the comparison with other large economies already indicates, this argument does not hold up to close scrutiny. While it is true that large economies tend to exhibit lower percentages of exports and imports to GDP, this feature fails to explain the exceptionally low levels of trade penetration observed in Brazil.

Looking at 2013 data from 176 countries available through the World Bank’s World Development Indicators (WDI) database, the average trade-to-GDP ratio is 96%. Even among the six countries with a larger economy than Brazil, the average is 55%.

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