the 13 th seoul international derivative & alternative investment conference seoul, august 26,...

The 13th Seoul International Derivative & Alternative Investment Conference

Seoul, August 26, 2015Hung Tran

Fed’s Liftoff, China’s Devaluation: EM’s Perfect

Storm

Institute of International Finance 2

Source: Bloomberg, IIF.

0

1

2

3

4

5

6

7

t-6 t t+6 t+12 t+18 t+24

t=0 is month of first rate hike

First Rate Hike: Feb 1994

First Rate Hike: J une 2004 First Rate Hike: Expected

September 2015

FederalFunds Target Rates During Fed Tightening Cyclespercent, t in months, market expectations estimated from fed funds futures and Eurodollar contracts

Market Expectations (8/20/2015)

Median Fed Dots (6/17/2015)


Source: Blue Chips Economic Indicators and Blue Chip Financial Forecasts.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

07-J ul 14-J ul 21-J ul 28-J ul 04-Aug 11-Aug 18-Aug

Blue Chip consensusAtlanta Fed GDPNow

Evolutionof Atlanta Fed GDPNow real GDP forecast for 2015:Q3quarterly percent change (SAAR)


-8-6-4-2024681012-4

-3

-2

-1

0

1

2

3

4

5

00 02 04 06 08 10 12 14Real GDPU.S. broad trade-weighted dollar (rhs, inverted)

U.S. Trade Weighted Index vs. GDP percent, yoy, 4QMA (both scales)

Source: Federal Reserve, BEA, Bloomberg, IIF.


1.5

2.0

2.5

3.0

3.5

4.0

2007 2008 2009 2010 2011 2012 2013 2014 2015

AverageHourly Earnings for All Employees: Total Privatepercent change from a year ago

Source: FRED, IIF.


70

75

80

85

90

95

100

105140

190

240

290

340

390

440

490

2005 2007 2009 2011 2013 2015

CRBUSD index (inverted, rhs)

ThomsonReuters/Core Commodity CRB level


Institute of International Finance

1894-1932

1932-1971

1971-1999

1999-ongoing

Peak year 1817 1951 1973 2010Percent rise in prices during upswing

50.2% 72.0% 38.9% 81.3%

Percent fall in prices during downswing

-54.6% -43.3% -52.5% -

Length of the cycle (years)

38 39 28 -

Upswing 23 19 2 11Downswing 15 20 26 -

7

Total non-oil commodity prices

Source: UN Department of Economic and Social Affairs.


0 50 100

US High Yield

HY ex-Energy

10yr Breakeven Inflation

US Treasuries 5s 30s

MSCI EM Equities

MSCI ACWI Equities

CADUSD

NOKUSD

LT percentile

current 6m correl.

Correlationto Oil Very Positive and Unsually Highpercent

Source: Bloomberg, Morgan Stanley Research.


-2

0

2

4

6

8

10

2007 2008 2009 2010 2011 2012 2013 2014 2015

HeadlineConsumer Pricespercent change oya

Mature Economies

Emerging Economies

Global

Source: IIF.


0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

J un 10 J un 11 J un 12 J un 13 J un 14 J un 15

Monetary Policy Ratespercent (both scales)

EM excl. Brazil, Russia and Ukraine

EM Aggregate

Mature Economies

Source: Bloomberg, Datastream, IIF.


38

40

42

44

46

48

50

2000 2005 2010 2015

Maufacturing/constructionServices

ChineseManufacturing and Services Sectorpercent of GDP

Source: MRB Partners.


Source: Haver, IIF.

-10

-8

-6

-4

-2

0

2

4

6

8

10

0

3

6

9

12

15

18

21

2005 2007 2009 2011 2013 2015

real IP growth

PPI (rhs)

Chinese Producer Prices and Industrial Productionpercent yoy (both scales)

Correlation: 0.65


35

40

45

50

55

60

65

2006 2008 2010 2012 2014

ManufacturingServicesComposite

Caixin China Output PMI50=no. of change on previous month, S. Adj. CaixinChina Output PMI50=no. of change on previous month, S. Adj. CaixinChina Output PMI50=no. of change on previous month, S. Adj.

Source: Haver, Markit/Caixin.


6.2

6.25

6.3

6.35

6.4

6.45

Yuanholding pattern against USDlevel



Source: IMF, Haver, BIS, IIF.

-15

-10

-5

0

5

10

15

20

25-30

-20

-10

0

10

20

30

40

50

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Export growthNEER (rhs, inverted)

China: strongcurrency weighted heavily on exportspercent, yoy



7580859095

100105110115120125130

Aug 12 Feb 13 Aug 13 Feb 14 Aug 14 Feb 15 Aug 15

CNY twi

EM FX twi

CNY and EM FX Index, 8/1/2021=100


0

0.5

1

1.5

2

2.5

3

3.5

4

J an 15 Feb 15Mar 15 Apr 15 May 15 J un 15 J ul 15 Aug 15

SHIBORpercent




-500

0

500

1000

1500

2000

2005 2010 2015

ChinaNew Yuan Loansbillion yuan


-60

-40

-20

0

20

40

60

80

2007 2008 2009 2010 2011 2012 2013 2014 2015

Emerging Economies

Mature Economies

NominalMerchandise Exportspercent change, 3m/3m saar

Source: Haver.


6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

0

2

4

6

8

10

12

14

16

18

20

10Q1 11Q2 12Q3 13Q4 15Q1

World Trade Volume vs. EM Asia Growthpercent, q/q saar, 4-quarter moving average, both scales

World Trade Volume

EM Asia RGDP

Source: CPB World Trade Monitor, IIF.


Source: OECD-WTO, UNCTAD, Credit Suisse.

0

2

4

6

8

10

12

30 35 40 45 50 55 60Trade Similarity Index

Asia: Exposure to ChinaExports as %of GDP

HKTW

KR

MY

PH

SG

IN

IDTH


0

10

20

30

40

50

60

70

80

90

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Non-financial corporationsGovernmentHouseholdsFinancial Sector

EmergingMarkets: Total Debt Outstandingpercent of GDP, GDP-weighted average

Source: BIS, IMF, OECD, McKinsey, IIF;*Brazil, China, Czech Republic, Hungary, India, Indonesia, Mexico, Poland, Russia, Saudi Arabia, South Africa, Thailand, Turkey



0

50

100

150

200

250

USD loans

USD bonds

EM-30USD-denominated Corporate Debt OutstandingUSD billions, Q1 2015 or latest available; includes financial and non-financial corporate debt

Total:$ 1.97 trillion


02468101214161820

-20

-10

0

10

20

30

40

50

2010 2011 2012 2013 2014 2015

EM corporate earnings

World trade (rhs)

EmergingMarket Corporate Earnings vs. World Tradepercent, y/y (both axes); earnings = 12m forward

Source: MSCI, Bloomberg, IIF.


85

90

95

100

105

110

115

120

125

130

135

J an 14 Apr 14 J ul 14 Oct 14 J an 15 Apr 15 J ul 15

U.S.Emerging marketsEuro AreaJ apanChina

Global Equity Marketsindex, 1/1/2014 = 100



0

10

20

30

40

50

60

70

80

0.3 0.4 0.5 0.6 0.7

average of domestic, external and policy vulnerability indices in April*

*A higher value implies higher vulnerability and vice-versa. Source: IIF, Bloomberg.

IIF Heat MapVulnerability Measures vs. EMBIG Spreadschange in EMBIG spreads since mid-May 2015

ID ZACO

MY

PE

TR

HU RO

IN

RU

CL

MXPH

PLCN


Source: EPFR, IIF estimates; includes mutual funds and ETFs.

6

7

8

9

10

11

12

13

14

10

12

14

16

18

20

22

2008 2009 2010 2011 2012 2013 2014 2015

Equity

Bond (rhs)

Emerging Markets: Fund Portfolio Weights, by Asset Class%of global bond/equity allocations, dashed line: 2008-15ytd avg.


Source: Haver, NN Investment Partners, IIF.

-350

-250

-150

-50

50

150

250

350

2005 2007 2009 2011 2013 2015

C

Flawed Net Flows Estimates

Estimates of Net Capital Flows to Emerging Markets$ billion, dashes indicate incomplete source data

Correct Net Flows Estimates


-2000

-1500

-1000

-500

0

500

1000

1500

2000

1996 1999 2002 2005 2008 2011 2014

Official Reserve Accumulation"Private" Resident OutflowsNon-Resident InflowsNet Flows (ex. Reserves)Net Flows (incl. Reserves)

EM Capital Flows by Residency of Investors$ billion

Source: IIF.


0

1

2

3

4

5

6

7

8

9

1996–1998 2002–2004 2006–07 2011–2012 2015–2020

Potentialand Differential OutputGrowth in Mature and Emerging Marketspercent change oya, period averages

Mature Market Economies

Emerging Market

Differential

Source: IMF, IIF.


-1.0

0.0

1.0

2.0

3.0

4.02015-2025

2005-2015

Average Annual Growth in Working Age Populationpercent, y/y, period average

Source: UN, IIF.


40

45

50

55

60

65

70

75

80

1980 2000 2020 2040 2060 2080 2100

India: DependencyRatiodependents as percent of working-age1 population

India

World

Source: United Nations.1-Age 15-64 years

Institute of International Finance

percent Equities Bonds FX*2014-now -26.2 -3.4 -9.2Taper tantrum -15.7 -10.8 -1.5Financial crisis -66.1 -26.6 -5.2Dot-com crisis -53.1 12.9 -5.5Asian crisis -33.2 -3.1 -17.7

33

Change from peak to trough, EM Assets

*FX: GDP weighted average of 20 EM currencies vis-à-vis USD.Source: Bloomberg, IIF.

the 13 th seoul international derivative & alternative investment conference seoul, august 26,...

Documents

iif estimates

financial crisis

asian crisis

em currencies vis

nn investment partners

dotcom crisis

blue chips economic

em assets