Global Markets and Currency Trends Briefing: 9/6/16 by Samuel Taube, Investment U Research Team Market Trends
This week saw a number of jarring changes on the world economic stage. Some should ultimately be good news for investors...
Others, not so much.
Brazilians said tchau to former President Dilma Rousseff... South Korea’s monolithic shipping firm Hanjin declared bankruptcy... and the Nigerian economy - the largest in Africa - took a turn for the worse.
The causes of all three events have been building for some time now. Let’s start with the scandal in Brazil...
Brazil Gets a New President, Impeaches Rousseff
You have to give the country credit. Brazil did an impressive job with the Olympics this summer, in spite of everyone’s doubts. But now the spotlight is off of them. And Brazilians are back to dealing with the political dysfunction that has plagued them for a generation.
Former President Dilma Rousseff was convicted of illegally manipulating government budgets and financial statements on Wednesday. She was subsequently removed from office. Her impeachment represents the end of 13 years in power for her Workers’ Party government.
Rousseff and her predecessor Luiz Inácio Lula da Silva implemented interventionist economic policies. These resulted in very high government spending and a ballooning deficit. Critics say these contributed to Brazil’s two-year recession.
Acting President Michel Temer was sworn in the same day as Rousseff’s impeachment. He plans to implement a free-market agenda of austerity and regulatory reforms.
In the long term, this should help struggling Brazilian industries that had suffered under Workers’ Party policies.
But in the short term, austerity may cause more market turbulence. This could mean a buy opportunity for Brazilian ETFs containing beaten-down exporters, such as the iShares MSCI Brazil Capped ETF (NYSE: EWZ).
And speaking of exporters... they got some bad news from Seoul last week.
Hanjin Couldn't Hack It
South Korean shipping giant Hanjin Group filed for bankruptcy this week. It came as no surprise to folks who’ve been paying attention. The global logistics industry has seen a sluggish recovery from the Great Recession.
Hanjin’s demise could be bad news for the South Korean economy. Exports account for about half of its GDP. Despite this, Seoul decided not to bail out the sinking shipping firm. There may be rough times ahead for Korean ETFs that are heavily weighted toward exporters, like the WisdomTree Korea Hedged Equity ETF (Nasdaq: DXKW).
As one of the world’s largest shipping companies, Hanjin has been struggling for some time now. It has been through several rounds of debt restructuring. But this bankruptcy proceeding is probably the last one.
After creditors deemed a funding plan inadequate last week, Hanjin’s assets started getting seized at ports around the world. As a result, importers and exporters have failed to send and receive scheduled cargo shipments in many countries.
This could potentially cause a brief increase in the prices of some electronics and consumer goods throughout Asia and the West. So be sure to capitalize on those Labor Day discounts while they last.
Oil Drags Nigeria Down With It
Nigeria has been the largest economy in Africa since 2014. But it may not stay that way for long.
Just-released quarterly reports showed that Nigeria’a GDP has fallen more than 2% compared to last year. Given that the last quarter also saw a -0.4% growth rate, Nigeria is now officially in recession.
This is largely related to the global oil rout. Nigeria is a big fuel exporter. Making matters worse is the country’s internal conflict against the violent Islamist rebel group Boko Haram.
The combination of these developments could chip away at Nigeria’s economic status. And they certainly spell trouble for funds like the Global X MSCI Nigeria ETF (NYSE: NGE).
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