Although the valuation of the overall MSCI Emerging Markets (EM) Index is not unusually low, EM equities outside Asia and in some “cyclical” sectors now appear quite attractively valued by past standards. As in the case of developed market (DM) equities, …
7th April 2020
Government loan guarantees will help to limit the damage to banks from defaults in the short term. But the banks will inevitably be weakened by the crisis, leaving them with more non-performing loans and less capital. This will constrain their ability to …
The Finance Ministry’s response to the coronavirus so far has been tepid and, unless it steps up, it risks turning the public health crisis into a humanitarian and banking crisis. We assume it will do a lot more. One issue is that further stimulus will …
Brexit is clearly not a priority right now. But with negotiations shelved due to the coronavirus, it is becoming increasingly likely that the government agrees to extend the transition period beyond 31 st December 2020. This is now our baseline …
While COVID-19 related delays to construction might reduce supply in some markets, we think that the drop in occupier demand will far outweigh any potential benefits to rents. The euro-zone headline construction PMI for March, revealed that the index fell …
The upcoming GDP figures for developed markets will give an indication of the damage the coronavirus was already doing by the end of the first quarter. However, even at the best of times, there are question marks over how well GDP measures activity and …
The government today laid the groundwork for lockdowns in prefectures that generate nearly half of Japan’s economic output. The accompanying fiscal package has some impressive headline numbers attached but it is small set against the scale of the shock …
The fact that almost one-third of the Swiss workforce has reportedly applied for short-time work is a sobering illustration of the scale of the virus-related economic disruption. While the headline Swiss unemployment rate remained below 3% in March, we …
Natural gas prices have reached historic lows in recent weeks, with US natural gas (Henry Hub) last week plumbing depths not seen since 1995. The near-term outlook for natural gas is bleak, but prices are likely to pick up in the second half of the year …
The Reserve Bank of Australia (RBA) didn’t announce additional measures at today’s meeting and given the easing in tensions on financial markets we think it won’t adjust policy settings over the coming months. Looking further ahead though, the case for …
An increasing number of African governments have imposed lockdowns in an effort to fight Covid-19, but we think the risk that such restrictive measures fail to contain the outbreak is bigger in the region than in other parts of the world. The science of …
6th April 2020
As growing numbers of car companies idle production in response to COVID-19, we suspect that platinum group metals (PGM) demand will slow to a crawl. What’s more, job losses and income cuts due to lockdowns will curb car sales long after containment …
The rapid spread of coronavirus over the last month has dealt another body blow to UK retail. We expected the sector to see rental falls pre-COVID, but these could now be closer to 10% in 2020, leaving levels almost 20% below their mid-2018 high by the …
3rd April 2020
Oil prices have surged by about 30% in recent days after President Trump said that a deal between Russia and Saudi Arabia to jointly cut oil production would come in a “few days”. We are sceptical that a deal will be agreed and, even if it is, we don’t …
Retail property looks most heavily exposed to the disruption from the coronavirus crisis. But not all retail is equal and different sectors will see very different impacts. In our view, neighbourhood and community centres are better placed than either …
The slump in housebuilder share prices reflects the coming collapse in housing sales, which will force builders to shut down production for several months. Indeed, we now expect housing starts to drop by 25% in 2020, with only a partial recovery by 2021. …
Activity in some large parts of Italy’s economy – including manufacturing – appears to be down by more than 50%. Even if the lockdown is relaxed in May, we think that GDP will fall by about 10% this year. The latest economic data in Italy have been pretty …
We have developed a 45-sector spreadsheet model that allows clients to design their own shutdown scenarios and assess the impact on GDP in 20 major economies. You can access it by selecting the xlsx option from the dropdown in the download button above. …
The Fed’s balance sheet has already ballooned in size to $5.7trn, from just less than $4trn before the coronavirus pandemic struck, and that’s before the introduction of its new lending facilities and purchases of corporate and municipal bonds. Using …
2nd April 2020
Many EMs are now turning to the IMF for help in dealing with the fallout from coronavirus, raising questions about whether the Fund will be able to cope with the increased in demands on its purse. While the Fund should have enough resources to bail out …
Turkey’s banks muddled through the currency crisis two years ago, but they are now in a weaker position to confront the economic and financial market fallout from the coronavirus outbreak. At the very least, the recent sharp tightening of external …
The imposition of strict social distancing controls across the continent means that economic activity in the euro-zone is likely to slump even further than we had assumed two weeks ago. For the duration of the lockdowns, economic activity is likely to be …
Claims hit record high; vehicle sales plummet This Update was originally sent to clients as a Rapid Response immediately after the data was released on 2 nd April. The surge in initial jobless claims to a record high of 6,648,000 last week, from 3,307,000 …
The coronavirus and low commodity prices are putting pressure on most African economies’ balance of payments positions and pushing many sovereigns closer to default. Besides Zambia, which is already moving towards debt restructuring, the risks are highest …
Although analysts’ expectations for corporate earnings have been revised down quite significantly since the coronavirus began to spread around the world, stock prices suggest that investors are braced for an even worse outcome. With that in mind, we think …
Euro-zone unemployment will rise sharply in the coming months but short-time working schemes will help to prevent it from skyrocketing. While this will incur significant fiscal costs, the support to household incomes should mean that consumer spending …
Single-family housing starts were in a strong position prior to the arrival of the coronavirus and builders would, in normal circumstances, look through what is anticipated to be a temporary dip in demand. But disruption to supply chains and the …
We forecast that the credit spreads of euro-zone peripheral bonds will fall back further this year and remain low in 2021 thanks to unwavering support from the ECB. But public finances will be deteriorating, especially in Italy, which raises the risk of a …
The economic recovery underway in China gives some useful pointers to what lies ahead for the rest of the world. An initial increase in activity can happen rapidly once lockdown measures are eased. But this will soon run into constraints resulting from …
Last month’s survey data for Brazil and Mexico don’t capture most of the impact of the ramping up of social distancing measures in the second half of March, but they still suggest that both economies are heading towards deep recessions. Indeed, the …
While COVID-19 will hit co-working hard, given the relative size of this subsector, we don’t think it will be large enough to impact rents in the overall office sector. WeWork has been gracing headlines again this past week as the co-working firm is …
Reports of a further leap in new claims for Universal Credit suggest that the government support designed to keep people employed isn’t working and that the unemployment rate could jump from 3.9% in January to about 5.5% in April. Our forecast that the …
1st April 2020
The rebound in the EM manufacturing PMI in March offers little comfort as the survey masks the true weakness of industry. What’s more, the services sector may fare worse during this downturn. The rebound in the EM manufacturing PMI to 49.1 last month, …
While the coronavirus epidemic will probably weigh on the US economy much beyond the end of this year, we suspect that the S&P 500 will start recovering in the second half of 2020. According to the NBER’s Business Cycle Dating Committee, there have been …
The past relationship suggests that the recent 10% to 50% fall in real estate equity prices provide an indication of the direction values will move in the direct market, but not the likely extent of the falls. Over the past month, real estate equity …
March’s small rise in the global manufacturing PMI was driven entirely by a rebound in China and masked sharp declines elsewhere. The survey already points to falls in global production, but it is probably understating the extent of current weakness and …
Elevated corporate bond yields suggest that property investors should be concerned about future cashflows. However, unprecedented policy support should help most companies stay afloat. And evidence from the start of the 2007-09 recession suggests that the …
EM central banks have acted swiftly in response to the coronavirus crisis, including adding bond purchases to their toolkit. These are aimed primarily at reducing credit spreads and stabilising the financial system rather than a QE-style loosening of …
Given how far they have fallen, we think EM equities in Latin America and EMEA will outperform their Asian peers once the coronavirus comes under control, even if the economic fallout in the former two regions is more severe. This would be similar to what …
In recent days several governments from across the region have announced shutdowns or tightened measures already in place. The economic impact of these measures will be huge, with service sectors set to bear the brunt. We think shutdowns will lower GDP in …
The combination of virus-related disruption and a crunch in cash flows for energy firms means that the Norwegian economy is more exposed than most at present. And with oil prices likely to increase gradually at best later this year, the post-COVID …
Although China’s official and unofficial PMIs improved in March, the underlying picture is that the economy remains weak and is unlikely to offer much support to commodity prices . The Caixin manufacturing PMI jumped from 40.3 in February to 50.1 in March …
Chile’s central bank suggested that, having cut its policy rate to 0.5% yesterday, rates will remain at this low level for an extended period of time. But given the scale of the economic hit from the coronavirus, we think that the policy rate will, …
While the worst may be yet to come for emerging market currencies, we expect that most will end this year stronger than they are now. Emerging market currencies have had a difficult year so far : our equal-weighted index of twenty large EM currencies has …
Brent crude is closing in on $20pb and, if there are no signs of a recovery in the coming months, the chances that Saudi Arabia pushes for fresh oil output cuts will grow. Meanwhile, we are approaching the point at which financial support for Oman needs …
31st March 2020
Policymakers in Peru and Chile have been quick to introduce economic policy and containment measures in response to the coronavirus, but peers elsewhere – particularly in Brazil and Mexico – have made less progress. This increases the risk that regional …
