I’m back writing this week after taking time off to take care of our daughter while we transitioned between childcare providers and transitioned her to preschool (!).
After several conversations at PMR and war-gaming various scenarios, I’ve decided to distill the list to a specific set of 25 countries. I’m going to take the opportunity this week to briefly discuss why each country on the list made the cut. In January of each year, I’ll reassess and rebuild that list of 25 (and perhaps they will be the same in 2024 as it is already almost October). Happy Fall by the way, it’s the best season of the year.
Never fear, the overview sections will still have all 47 ETFs in it, and I will still cover the charts of the non-25 when they look interesting. I’m excited about this change and what growth I’ll experience as an analyst as I continue writing this letter. We’re going to continent jump this week.
Passport Dashboard
PMR Passport Global Matrix - YTD
PMR Passport Global Matrix - MTD
PMR Passport Global Matrix – 5D
YTD – Americas
YTD – Europe
YTD – Africa/Central
YTD – Asia
Dollar – Weekly
The dollar is wrecking everything in EM. It’s at an important horizontal line. We could see a lot more movement this coming week across the PMR Passport portfolio if it continues its climb. Add oil prices spiking to all of this, and it explains where all the returns from the country ETFs have gone in the last few weeks.
News/Research
South America
“Despite the economy’s unexpectedly stronger performance, revenue collection has been weak in recent months, casting uncertainty on the government's ability to balance public finances as promised under new fiscal rules.”
“Southern Copper, controlled by Grupo Mexico…expects its production of the red metal in the Peru to bounce 17% this year to 400,000 metric tons…”
Europe
“Poland’s ‘most important role has been as a transshipment point to get weapons from across NATO and other countries into Ukraine,’… ‘The PM noted that would continue.”
“In a best-case scenario for Poland, Ukraine will defeat Russia and expel Russian forces from all its territory. But even if Russia keeps portions of Eastern Ukraine for itself, someone will have to rebuild Ukraine’s infrastructure. Hundreds of Polish companies have already signed a joint program expressing their eagerness to do just that, and considering Poland’s proximity to Ukraine, the large number of Ukrainian refugees living there, and Poland’s steadfast support for Ukraine since the beginning of the war, it is a good bet that Polish companies will be at the forefront of rebuilding Ukrainian industry and infrastructure in the years ahead.”
Jacob’s whole piece on Poland was great and I highly suggest following his podcast: Cognitive Dissidents
Africa/Central
“…Erdogan said he and Netanyahu had agreed on mutual visits in the coming period, and that energy cooperation would ramp up after these. ‘God willing, we will take this step without much delay and we will start energy drilling operations with Israel. We will also start operating energy transfer networks to Europe through Turkey, not just to Turkey,’ [Erdogan] was cited as saying.”
“The Election Commission of Pakistan (ECP) on Thursday announced a general election for January, almost 3 months later than scheduled, removing political uncertainty over the timing to help salvage a falling economy.”
“Among the challenges the U.S. faces in brokering a wide-ranging deal would be satisfying MbS’s demands. He is reported to be seeking a treaty committing the U.S. to defend the kingdom if attacked, and also wants advanced weapons and assistance for a civilian nuclear program. From the Israelis, MbS is pushing for significant concessions to the Palestinians to keep alive prospects for statehood in the occupied territories…”
“Egypt will switch to sourcing almost half a million tons of wheat from France and Bulgaria, after Moscow blocked the supply of Russian grain…”
Asia
“What makes BRI debt crises different is that these contingent liabilities are owed to Chinese policy banks rather than to private corporations, and China is conducting its debt renegotiations bilaterally. Beijing is also clearly negotiating hard, because BRI countries are increasingly opting for bailouts from the IMF, even though they often come with tough conditions, rather than trying to negotiate further relief from Beijing. Among the countries that the IMF has intervened to support in recent years are Sri Lanka ($1.5 billion in 2016), Argentina ($57 billion in 2018), Ethiopia ($2.9 billion in 2019), Pakistan ($6 billion in 2019), Ecuador ($6.5 billion in 2020), Kenya ($2.3 billion in 2021), Suriname ($688 million in 2021), Argentina again ($44 billion in 2022), Zambia ($1.3 billion in 2022), Sri Lanka again ($2.9 billion in 2023), and Bangladesh ($3.3 billion in 2023).”
“The prime minister’s US visit comes as his government works to boost a struggling export-dependent economy amid a global slowdown in demand for Vietnamese goods. Vietnam’s exports dropped for a sixth straight month in August, the longest slump in 14 years.”
“Hong Kong’s half-century reign as the world’s freest economy has ended…fell to second place in the Economic Freedom of the World Index for the first time since records began in 1970.”
World
“Goldberg is among those who see broader negative consequences for the global economy from a growing split. Those include higher inflation as the cost of manufacturing rises, less innovation as international research cooperation becomes rarer and more poverty and global inequality as investment in poor countries stalls. Like-minded rich countries investing in each other means less investment for poor countries that arguably need it more.”
“Total debt – spanning sovereigns, corporates and households – rose by $10tn to about $370tn in the six months to June, the IIF said in its global debt monitor report published on Tuesday. The previous peak for global debt was in early 2022, before central banks started aggressively raising interest rates.”
“The year is proving to be a roller-coaster for emerging-market equity investors as post-Covid recovery expectations give way to slowing growth and stubborn inflation concerns. At the core of the underperformance is a $600 billion selloff in China driven by its economic slowdown and debt woes.”
Great Chart Pack - Charting the Global Economy: ECB Hikes, Cuts Growth Outlook, 16 September 2023
Charts of the Week
Source: Financial Times -- Global inflation tracker
This has been a discussion at PMR this week. Is this an unforeseen consequence of pulling Russia’s treasuries post-Ukraine invasion? Oil imports from KSA are down since then but not enough to explain this move.
Source: Financial Times
What jumped off the page to me was the fact that there are a couple of EM darlings in India and Brazil grouped in with countries everyone sees as very risky.
Source: Bloomberg
Source: Reuters
Source: Bloomberg Intelligence EM Fixed-Income Chart Pack
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