Download - Brics RequiEM
BRICS RequiEM16 December 2015
War Room
HiddenLevers War Room
Open Q + A
Macro Coaching
Archived webinars
CE Credit
Idea Generation
Presentation deck
Product UpdatesScenario Updates
Market Update
EM 101: BRICS + EM crushed
End of BRICS Era?
Scenario: EM Loses Footing
BRICS RequiEM
HiddenLevers
MARKET UPDATE
Market Update
sources: HiddenLevers, Bloomberg, Goldman Sachs
1
Unicorn / Unicorpse
2
3
Big Oil Cutting Dividends
High Yield Bonds Cringeworthy
Fed Rate Hike – First 25 bps rise in a Decade 4
sources: HiddenLevers, Fed, WSJ, USA Today
Fed expects 4 more hikes
in 2016
central banks
breaking ranks
BAD TIMINGEM currencies
+ high yield
GOOD TIMINGjobs +
housing
Hello Rate Hike: HiddenLevers quite useful
Research+
Model Accuracy
+Functionality
BAD
UGLY
HiddenLevers
EM 101: BRICS + EM CRUSHED
EM 101: Overview
Top 10 emerging markets according to Global Intelligence Alliance survey
BRICS = BrazilRussiaIndiaChinaSouth Africa
EM 101: Equities Markets
sources: HiddenLevers
Since 2003
Last 5 Years
EEM +234%
SPY +190%
EFA +149%
EEM -25%
SPY +78%
EFA +17%
Emerging Markets a long-term winner.
Since 2011, Emerging Markets have been stagnant.
EM 101: Correlation with Copper / USD / Rates
sources: HiddenLevers
Choppy inversion to USD
Copper tracks EM
Mixed interest rate impact
EM 101: Downside Impact on USA
source: Business Insider, HiddenLevers
Major exporters – USD rise will pinch profits
Energy + Materials Sector – Bankruptcies loom
Energy, Materials, and Tech all get over 50% of rev overseas
-86% YTD -86% YTD-80% YTD
HiddenLevers
END OF BRICS ERA?
BRICS RIP: Commodities Countries
sources: HiddenLevers
BRAZIL
RUSSIA
S.AFRICA
CEW v OILEM currency ETF
BRICS RIP: Asian Juggernauts INDIA CHINA
Buyer of Oil. Cheap prices help, not hurt.
Diversified economy + young population.
sources: HiddenLevers 1, 2
Buyer of Oil. Dumping lately. Yuan peg to USD.
Consumer economy now + artificial baby bust.
BRICS RIP: Emerging Opportunities
sources: The Economist, 1, 2
HiddenLevers
SCENARIO: EM LOSES FOOTING
Fall 2013 – Bad News BRICS
Fall 2015 – EM currencies gutted / BRICS divergence
Scenario Update
commodities rebound
US recovers alone
falling BRICS sink US
Bad News BRICS
EM Loses Footing OIL PRICES QE ENDED RATE HIKE
GOOD: Commodities Rebound
source: HiddenLevers
Unlikely due to Commodities Perfect Storm
EM rebound not that beneficial
to US
Oil still falling so no real catalyst
on horizon.
USD comes in due to rate hike
fears over
EM-commodity price link
unavoidable
BAD: USD Too StrongUSD has skyrocketed since QE ended Oct 2014
source: HiddenLevers
Rising rates don’t always
hurt EM
Priced in anticipating
rate hike
Currency risk double
whammy
US domestic sectors
unaffected
UGLY: Crippled by US Rate Hikes
Weakness could undermine
governmentssource: HiddenLevers
Monolithic EM ETFS and funds
a bad idea
Fed raising rates leads to money flowing out of EM
Bankruptcies in energy/material
sector
Global Deflation aggravates EM
slowdown
SCENARIO: EM Loses Footing
Copper
-33%S&P
-12%
Copper
-7%S&P
0%
Copper
+50%S&P
+10%
EM commodities producers are hoping for this outcome, but there’s no plausible driver for this yet. US markets might under-perform in this scenario, in a reversal of 2012-2015.
A rising dollar will keep pushing down commodities and foreign currencies, with negative impacts on US commodities producers and major multinationals.
Equity markets could face a correction if EM GDP growth slows considerably, with bankruptcies likely in the energy and materials sectors on weak pricing.
GoodCommodities
Rebound
BadUSD Too
Strong
UglyCrippled By Rate
Hikes
BRICS RequiEM – Take Aways
USD Strength + Commodities crushed Emerging Markets
Not all EM should be thrown out with commodities producers
BRICS ERA IS OVERBRICS + EM = 50% of global growth