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COUNTRY INSIGHTS

Default talks bring volatility at the FX market
UKRAINE · In Brief · 09 Jul 2015

In early July serenity at the FX market was finally broken. The first disturbing signal came from black market few days ago when foreign currency operations’ spread started widening. Finally yesterday official market also reflected the tendency: on July 8th sell bids on cash operations moved to n...

Does the Chinese stock market crash matter?
CHINA FINANCIAL · In Brief · 08 Jul 2015

· It is hard to argue that the stock rally had any significant positive economic impact, so some analysts argue that it collapse will not impact the economy either. · This may be true in a direct sense. But there are three important ways the stock market decline might matter. The first is direct....

What can the government do to move markets move in China?
CHINA FINANCIAL · In Brief · 08 Jul 2015

· Because China’s market is highly speculative, policies that are directed at improving the fundamental value of stocks will have almost no impact on market prices. · Uncertainty is currently so high that it will have sharply undermined the ability of speculators to agree collectively on how to i...

What might cause speculators to buy?
CHINA FINANCIAL · In Brief · 08 Jul 2015

Broadly speaking speculators buy or sell assets for two reasons: 1. Some event is expected to cause, either for technical or fundamental reasons, a near-term change in the supply of or demand for an asset large enough to affect prices, even if only temporarily, and they transact in anticipation o...

What policies can stabilize the market?
CHINA FINANCIAL · In Brief · 08 Jul 2015

We must avoid the tendency to think of interventions aimed at stabilizing markets as being independent of the structure of the market. In my Peking University seminar I warn my students that because most of the world’s leading economists have been directly or indirectly trained in a tradition tha...

China’s markets are unpredictable but mechanical
CHINA FINANCIAL · In Brief · 08 Jul 2015

China’s Spinal Tap stock market is a volatility machine whose every knob has been turned to eleven. Value investors lack the tools they need to project or value cashflow, and so cannot play their stabilizing role no matter what policy enticements are implemented. Policy interventions undermine th...

Signs of Trouble, Despite Growth
MEXICO · Report · 08 Jul 2015

Executive Summary Economic activity continues to grow in 2015. During Q1, aggregate supply and demand of goods and services grew by a real 3.5% from Q1 2014. GDP expanded by 2.5% y/y, but just 0.4% q/q, seasonally adjusted, extending the flattening trend experienced since early 2013. The prospect...

2015 First Half Report: A False Dawn
CHILE · Report · 07 Jul 2015

Executive Summary In the first months of this year, economic data gave us some hope. But the optimism did not last long. In addition, the absence of presidential leadership during the first half of this year has been noticeable and damaging. In January we witnessed what could have been the ...

2015 First Half Report: A False Dawn
CHILE · Report · 07 Jul 2015

Executive Summary In the first months of this year, economic data gave us some hope. But the optimism did not last long. In addition, the absence of presidential leadership during the first half of this year has been noticeable and damaging. In January we witnessed what could have been the ...

Maduro's endorsement of the Greek referendum
VENEZUELA · In Brief · 06 Jul 2015 · 2 responses

Maduro’s rhetoric yesterday was more heated than necessary in favor of Tsipras’s referendum, in our view. It’s too early to judge whether Maduro simply took the opportunity to reinforce his nationalistic message, or whether he started building a narrative aimed at sustaining a decision to default...

Deconstructing polls and cash flows
VENEZUELA · Report · 06 Jul 2015

Executive Summary Surveys have shown the opposition leading by 15–20 points for the past three months. The most likely scenario for December’s parliamentary elections is for the opposition to win the popular vote and a majority of seats in the National Assembly. Owing to the country’s voting syst...

What is the Risk of Brazil Losing its ‘Investment Grade’ Rating?
BRAZIL ECONOMICS · Report · 06 Jul 2015

Executive Summary Brazil’s public debt as a proportion of GDP is lower than many other countries that have investment grade status, but almost none of these need primary surpluses to reduce the debt/GDP ratio. On the contrary, due to the low interest rates in those countries, that reduction ca...

Russia’s International Agenda
RUSSIA / FSU POLITICS · Report · 06 Jul 2015

Protests in Armenia against an energy price increase caused suspicions in Moscow of a potential Maidan-type scenario. Although the protests are not anti-Russian in nature, continued negligence and taking Armenia’s partnership for granted may eventually undermine Russian influence in the region. ...

Week of July 6
BRAZIL POLITICS · Report · 06 Jul 2015

President Dilma Rousseff launches the National Energy Plan, part of her positive agenda. The House votes on political reform and the change in the FGTS correction. In the Senate, the new Petrobras participation model for the pre-salt may be analyzed. The IBGE releases IPCA figures for June. Dilma...

What is the Trade Balance Trend?
BRAZIL ECONOMICS · Report · 06 Jul 2015

We recently presented empirical evidence that the depreciation of the nominal exchange rate does not assure better performance of exports. The reason is not a supposed inflexibility of exports to the stimulus of a weaker currency, but rather the fact that since 2011 the deprecation of the exchang...

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