By Devi Tan & Seen Meng Chew, Morgan Stanley
Tan and Chew look at the ways a global growth slowdown could hit Indonesia. They conclude trade linkages are unlikely to be a major conduit given Indonesia’s strong domestic demand orientation. But the economy remains vulnerable to global risk aversion (albeit less so than a few years ago). Despite the possibility for near-term turbulence, they remain bullish on Indonesia’s medium-term growth prospects.
EM Muser: This story applies to other EMs as well, with Brazil and Turkey fitting a similar mold. Like Indonesia, they are big emerging markets with large populations and strong domestic demand. And, like Indonesia, they remain vulnerable to global risk aversion, at least in the near-term.
Turkey, in particular, looks vulnerable to external funding shocks. The ratio of short-term external debt to fx reserves is close to 100%. Indonesia has a high ratio by ASEAN standards at over 30%, according to Tan and Chew.
By Portfolio.hu (free registration may be required)
“Hungary’s State Debt Management Agency (ÁKK) received only HUF 30.2 billion in bids for a proposed HUF 40 billion debt issue in 12-month zero-coupon treasury bills (D120822) on Thursday. This marks a historic record low bid-to-cover ratio for the 12-month facility since January 2000 (since when data are available) and the lowest volume of total bids since April 2003…”
EMMuser: Not looking good for Hungary. As I’ve detailed in a number of posts, the economy has a host of longer-term structural problems, accompanied by a government in denial, and investors seem to finally be waking up to that fact.
By Maria Kolesnikova and Agnieszka Troszkiewicz, Bloomberg
(Hat tip David K.)
“Copper, which reached a record $10,190 on the London Metal Exchange in February, sank to $6,800 on Sept. 26, a 14-month low. The contract traded at $7,067.50 today, taking this year’s decline to 26 percent. The metal is on track for its second- worst year in almost a quarter century, exceeded only by a 54 percent retreat in 2008.”
Blogger Barry Ritholz shows a nice chart that suggests copper’s downturn is one more signal that we’re headed for another global recession.
EM Muser: While the sharp fall in copper prices may signal global recession, it will have a more direct effect on certain EMs, particularly Chile, which is still very much copper country. Chile is the world’s largest copper supplier, producing roughly a third of global supply. (See my earlier post: Chile: Latin America’s Wunderkind)
By Jan Cienski, Beyond Brics
“[R]ecent opinion polls are showing steady growth for the right-wing opposition Law and Justice party, threatening to introduce an element of political risk to assessments of the Polish economy and the Polish currency. A new opinion poll has Civic Platform, headed by premier Donald Tusk, with 36 per cent support, with Law and Justice (PiS) just behind at 32 per cent…PiS’s tumultuous two years in power from 2005-2007 were marked by populist economic policies and by bitter fights with Brussels, Berlin and Moscow that left Poland marginalised in the EU.”
EM Muser: Poland’s economy has shown remarkable stability in recent years. It was the only EU economy to avert recession in 2008-09 so one might think the ruling Civic Platform party would be a shoe-in, but it’s not.
This story provides a good reminder of why we should not take political risk for granted. Hungary’s a case in point. Commentators did not expect much of a shift in economic policy when the Fidesz government came to power in 2010, and that was a mistake.