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 downgrade triggers prospect of further turmoil for EMs

Jonathan Wheatley – Financial Times, 9/11/2015

Brazil’s downgrade to junk status this week by Standard & Poor’s, the credit rating agency, is not only a severe blow to investors, policymakers and citizens in Brazil, but it also opens the prospect of a wave of further downgrades across emerging markets, as credit spreads widen and investors become increasingly gloomy about a global economic slowdown.

“We are entering a different phase,” says Bhanu Baweja, emerging market strategist at UBS in London. “For the longest time we have thought that even if EM growth is weak, EM balance sheets, or their ability to service their debts, have been broadly OK. But now things are getting more serious.”

Analysts say the three main global rating agencies — S&P, Moody’s and Fitch Ratings — are increasingly basing their ratings decisions on broad macroeconomic criteria rather than on a country’s narrow ability to service its foreign currency sovereign debts, traditionally the agencies’ main focus.

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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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Emerging Markets-Brazil interest rates rally on central banker’s remark

Walter Brandimarte – Reuters, 6/17/2015

Yields paid on Brazil’s interest rate contracts rallied on Wednesday after a central bank director said recent progress in inflation expectations was “not good enough,” while Latin American currencies weakened slightly ahead of a U.S. monetary policy statement.
Brazil’s interest rate futures for January 2017 rallied 8 basis points to 14.04 percent as comments from central bank director Tony Volpon led investors to bet rates would remain high for longer than expected next year.
In a meeting with investors in London, Volpon acknowledged a recent improvement in inflation expectations for 2016 but suggested more must be done to meet the government’s target of 4.5 percent.

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Soiled by oil scandal, Brazil’s model is primed for makeover

Juan Pablo Spinetto, Anna Edgerton, Sabrina Valle – Bloomberg Business, 05/27/2015

Oil was to be the elixir of Brazil’s dreams to build a formidable economy, promote industrial development and fund a more generous welfare state even as it attracted billions in private global investment.

Instead, crisis and disappointment in the oil sector are beckoning Brazil’s leadership to move — if grudgingly — toward more deregulated industries and to temper the government’s hand in using state-run companies to forge broader economic policy.

Which helps explain why, as her second term takes shape, some of President Dilma Rousseff’s ministers have jettisoned the statist language of her first four years in office and those of her popular predecessor, Luiz Inacio Lula da Silva. Instead, they are floating some liberal notions more in keeping with the pre-Lula years.

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China to invest $50b in Brazil infrastructure

BBC, 05/15/2015

China is planning to invest up to $50bn (£32bn) in Brazil for new infrastructure projects.

The deal is due to be signed by banks from both countries during a visit by Chinese Prime Minister Li Keqiang to Brazil next week.

The money will go towards building a railway link from Brazil’s Atlantic coast to the Pacific coast of Peru to reduce the cost of exports to China.

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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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