SEB sees better times ahead for two BRIC economies
The Nordic bank’s latest study of emerging markets suggests that the battered currencies of both Brazil and Russia could soon enjoy some relief.
The Nordic bank’s latest study of emerging markets suggests that the battered currencies of both Brazil and Russia could soon enjoy some relief.
Low interest rates in developed markets and continued policy stimulus in China ahead of the leadership transition next year look set to further whet the appetite for emerging market (EM) assets, suggests Nordic corporate bank SEB.
In its latest report, Per Hammarlund, the bank’s chief EM strategist, comments: “The rally in EMs this year has further to run. The main risks to the generally positive outlook are, conversely, an unexpected jump in inflation and a sharply hawkish turn by the US Fed, as well as a hard landing in China.
“However, low global inflation and loose monetary policies look likely to persist in most advanced economies. In addition, while policy makers in China will reduce monetary stimulus to cap excessive credit growth, they will step up fiscal policy stimulus.
“As a result, the conditions are in place for global risk appetite to remain strong and for the EM rally to continue, albeit at a slower pace than during the first half of the year. In an environment when commodity and oil prices do not fall continuously, investing based on expected carry should generate good returns.”
The report examines the prospects for the currency and interest rates for key EM economies, including the so-called BRICs (Brazil, Russia, India, China):