A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
U.S. index futures are higher this morning, bouncing back from an emerging markets pummeling Monday that saw the iShares MSCI Emerging Markets ETF down by almost 2 per cent.
For Canadians, the risk is that developing world market instability spreads from its current base in Turkey, but FT Alphaville finds that the fears are overdone,
“Emerging-market currencies are falling sharply. The South African Rand, the most over-traded currency in the world and therefore the best proxy for EM risk according to Charlie Robertson of Renaissance Capital, recorded its steepest drop against the dollar in two years before rebounding slightly … But forex desks are overreacting. The sell-off we’ve seen, says Andrew Kenningham of Capital Economics, is not justified by the fundamentals. First, Turkey is not a significant player in the global economy…. And when it comes to foreign exposure to Turkish assets, the impact is equally limited.”
There are other experts who are far less sanguine, and I’ve also linked to those stories below. Domestic investors should watch oil prices to gauge market concerns because with 50 per cent of oil demand predicted to come from China and India alone (according to the International Energy Agency), crude demand is an emerging markets story and the possibility of contagion will likely be evident in the commodity price.
“Turkey contagion fears are overblown” – FT Alphaville (free with registration)
“What a ‘textbook currency crisis’ looks like (and why you shouldn’t shrug off Turkey’s troubles)” – Report on Business
“Turkey's crashing currency likely to unleash wave of bad loans in region” – CNBC
“Before the Bell: TSX, Dow set for strong open as investor shrug off Turkey crisis” - Report on Business
Rona Ambrose , a member of Canada’s NAFTA Advisory panel, warns that U.S. President Donald Trump is serious about imposing a 25-per-cent tariff on Canadian auto exports to the south, a move that would 20 per cent of the country’s manufacturing employees and “devastate” the Ontario economy,
“@BNNBloomberg Ambrose: Trump is 'serious' on auto tariffs “ – Twitter (video)
Merrill Lynch’s widely followed monthly fund manager survey highlighted major inflows into U.S. equities and growing pessimism towards emerging markets,
“Biggest overweight [in U.S. stocks] since Jan 201, US [earnings per share] outlook at 17-year high, investors long US-heavy tech & healthcare sectors … trade war [seen as] biggest “tail risk” for third straight month…investors small underweight EM equities, industrials, materials; note prior EM crises lows (GFC, taper tantrum, China/ Oil) saw EM underweight on average -27% vs. -1% today”
“@SBarlow_ROB ML: Global PMs long U.S. , underweight EM” – (research excerpt) Twitter
Tweet of the day:
Diversion: “Purity Through Food: How Religious Ideas Sell Diets” – The Atlantic