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Christopher Wood
[email protected]
+852 2600 8516
Emerging neurosis
Verbier
Not so surprisingly, the normalisation scare has picked up momentum over the past week with
renewed focus on the ‘panic’ in the emerging market debt space and related equity markets.
But if this is the topic of the moment, in GREED & fear’s view it is all becoming a little silly in
the sense that the consensus is in danger of forgetting some of the fundamental positives that
drive the emerging market story and in particular the Asian story. That is superior economic
growth rates, healthy income growth and a continuing lack of welfare states and related
dependency cultures.
Figure 1
US 10-year Treasury bond yield
4.0
(%)
US 10-year Treasury bond yield
3.5
3.0
2.5
2.0
1.5
1.0
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Source: CLSA, Bloomberg
Figure 2
US Dollar Index
US Dollar Index
90
88
86
84
82
80
78
76
74
72
70
2008
2009
2010
2011
2012
2013
Source: CLSA, Bloomberg
But having said that, the practical reality is that the emerging world, including Asia, will remain
vulnerable to further selling so long as markets are anticipating normalisation of American
monetary policy and a related strengthening in the US dollar. This for now appears to be the
case with the further pick up in the 10-year Treasury bond yield over the past week (see Figure
1), even if this latest normalisation scare is different from the one that hit in June in that it has
not been accompanied as yet by a sell-off in gold. Likewise, while the US dollar has rallied
sharply of late against the likes of the rupee and the rupiah, that is not the case against the
Thursday, 22 August 2013
Page 1
Christopher Wood
[email protected]
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world’s major currencies, be it the euro, sterling or the yen. Thus, the US dollar index is now
81.4, whereas it was 83.1 at the end of last quarter (see Figure 2).
If the world was so sure of the relative strength of the American economy, surely the yen
should be selling off more against the dollar. This suggests to GREED & fear that the
normalisation story, which has been driving market action all this year, may be nearer an end
than the beginning. Still the real test of it will come, as previously mentioned here (see GREED
& fear - The “fiscal drag” hope, 25 July 2013), when the new fiscal year in America begins on 1
October. For then, based on the Federal Reserve’s forecast, the American economy is meant to
accelerate with the end of so-called ‘fiscal drag’. If this does not happen as anticipated, then
the issue will become whether the Fed is really prepared to exit unconventional monetary
policy. That seems most unlikely under a Fed led by Billyboy or his deputy Janet Yellen. But the
markets will be less sure under a Fed led by President Obama’s seeming favoured candidate,
Larry Summers. This is why the uncertainty posed by an Obama decision to nominate Summers
has the potential to trigger more of a normalisation scare in the form of a further back up in
Treasury bond yields and a further sell-off in equities, be it Asian equities or American equities.
Figure 3
Indonesia 10-year rupiah government bond yield
(%)
10.0
Indonesia 10-year rupiah government bond yield
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
5.0
Source: CLSA, Bloomberg
For now, the ongoing normalisation scare and related back up in sovereign bond yields is
causing research departments in Asia to recalculate their valuations based on the increase in
the so-called “risk free” rates. Thus, the Indonesian 10-year rupiah government bond yield is
up from 5.19% to 8.46% since the beginning of the year (see Figure 3). But the key driver
here, for the most part, is the action in the US Treasury market. In this respect CLSA’s technical
analyst Lawrence Balanco makes an interesting point in his latest weekly (Price Action – Where
the markets stand, 20 August 2013). This is the correlation between the US 10-year Treasury
bond price and emerging market assets so far this year. That is 0.93 with emerging market
bonds, 0.81 with emerging market equities and 0.71 with emerging market currencies (see
Figure 4).
Thursday, 22 August 2013
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Christopher Wood
[email protected]
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Figure 4
US 10Y Treasury bond and emerging markets bonds, equities and currencies
(1/1/13=100)
102
(1/1/13=100)
100
105
100
98
95
96
90
US 10Y Treasury futures
94
JPMorgan EM Currency Index
85
iShares EM Bonds ETF (RHS)
92
iShares EM Equities ETF (RHS)
90
Aug 13
Jul 13
Jun 13
May 13
Apr 13
Mar 13
Feb 13
Jan 13
80
Source: CLSA, Bloomberg
This is why the US 10-year Treasury bond remains the key price to watch globally. Under
GREED & fear’s base case, where American economic growth does not improve materially over
the current post-2008 trend real GDP growth rate of 2.2%, a major buying opportunity in
Treasury bonds is approaching which, in turn, would lead to relative outperformance of interest
rate-sensitive markets in Asia as excessive cyclical optimism on the US economic recovery
fades. But given the timing issues related to the hoped for end of ‘fiscal drag’ and confirmation
of a new Fed governor, such a buying opportunity may not be forthcoming until the start of the
fourth quarter. In the meantime, there is scope for the normalisation scare to continue which
means a further bond sell-off. Balanco’s technical target for the 10-year Treasury bond yield is
3.22%, compared with the current yield of 2.9%.
Figure 5
Indonesia quarterly current account balance
6
(US$bn)
(%GDP)
5
4
4
3
2
2
0
1
(2)
0
(4)
(1)
(6)
Indonesia quarterly current account balance
(8)
as % of GDP (RHS)
(2)
(3)
(4)
(10)
Mar 13
Sep 12
Mar 12
Sep 11
Mar 11
Sep 10
Mar 10
Sep 09
Mar 09
Sep 08
Mar 08
Sep 07
Mar 07
Sep 06
Mar 06
Sep 05
Mar 05
Sep 04
Mar 04
(5)
Note: Data up to 2Q13. Source: CLSA, CEIC Data, Bank Indonesia
If this is the “big picture” view it is also the case that, in terms of the market action in Asia,
there have been self-inflicted aggravating factors in the cases of India and Indonesia, the two
stock markets which have been under the most pressure in US dollar terms. In Indonesia the
central bank’s decision not to raise rates at its most recent meeting on 15 August looked odd
when the latest quarterly BOP data released on 16 August showed an unexpectedly large surge
in the current account deficit. Thus, the current account deficit increased from US$5.8bn or
2.6% of GDP in 1Q13 to US$9.8bn or 4.4% of GDP in 2Q13 (see Figure 5).
Thursday, 22 August 2013
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Christopher Wood
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Investors should now probably factor in another 100bp of tightening by Bank Indonesia to
stabilise the currency even in an environment where GREED & fear’s base case on American
monetary policy turns out to be correct. For now with a GDP deflator running at 1.8%YoY (see
Figure 6), the rupiah is already offering reasonable real returns given that the pickup in
inflation of late should be a one-off driven by the cut in energy subsidies announced in late
June. An aggravating factor is that Indonesia remains the Asian stock market most geared into
the world of emerging market debt, in part because of the continuing large, albeit reduced,
foreign ownership of its government bond market. Thus, foreigners still owned 31.4% of
Indonesian rupiah government bonds on 20 August, down from 34.2% in April and a peak of
35.5% in July 2011 (see Figure 7).
Figure 6
Indonesia GDP deflator
25
(%YoY)
Indonesia GDP deflator
20
15
10
5
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: CLSA, CEIC Data
Figure 7
Foreign ownership of Indonesian rupiah government bonds
320
(Rp tn)
(%)
Foreign holdings of Indonesia government bonds
280
% foreign ownership (RHS)
240
200
160
120
80
40
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
39
36
33
30
27
24
21
18
15
12
9
6
3
0
2013
Source: CLSA, Indonesia Debt Management Office, CEIC Data
As for India, this remains to GREED & fear the Asian market and the Asian economy where the
problems are most self-inflicted in terms of the continuing lack of an investment cycle and a
growing currency crisis. The Reserve Bank of India’s tightening moves in July, which seem to
have been ordered from Delhi in an attempt to shore up the currency, clearly backfired in large
part because of misguided communication and conflicting signals. There have also over the past
week and more been retrograde steps to impose restrictions on residents’ capital outflow. Thus,
the limit for outward remittances was lowered from US$200,000 to US$75,000 per financial
year. The result has been a further loss of investor confidence and a further decline in the
currency.
Thursday, 22 August 2013
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Christopher Wood
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The rupiah has depreciated against the US dollar by 5.6% since the announcement to
Rs65/US$, and is down 15.7% year-to-date and 31% since the start of 2011 (see Figure 8). It
is also the case that the latest inflation data has also been less than stellar, which has further
highlighted the lack of scope for easing. Thus, WPI inflation rose from 4.86%YoY in June to
5.79%YoY in July (see Figure 9).
Figure 8
Indian rupee/US$ (invested scale)
Indian rupee/US$ (inverted scale)
42
44
46
48
50
52
54
56
58
60
62
64
66
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13
Source: CLSA, Bloomberg
Figure 9
India WPI and CPI inflation
21
New CPI inflation
Food WPI inflation
India WPI inflation
Core WPI inflation
(%YoY)
18
15
12
9
6
3
0
-3
2006
2007
2008
2009
2010
2011
2012
2013
Source: CLSA, CEIC Data, Ministry of Commerce & Industry
The result is that India remains in GREED & fear’s view the Asian market most at risk of a
sovereign debt crisis with chatter apparently growing in Delhi of a potential need to sound out
the IMF. This is despite the fact that India does not have a debt market reliant on foreign
capital given the lack of foreign ownership of rupee debt. Thus, foreign ownership of Indian
government securities was only 1.61% at the end of March, though it is up from 0.88% at the
end of March 2012 (see Figure 10). In this sense India is not directly correlated into emerging
market debt dynamics. Where the foreign ownership is, of course, is in Indian equities.
Foreigners currently own an estimated 22.4% of Indian equities (see Figure 11). Indeed, it
remains remarkable how little foreign net selling of Indian equities there has been in recent
years, given the macro distress and the related plunge in the GDP growth rate. CLSA’s
economics team is now forecasting real GDP growth of 5.2% this fiscal year and 5.9% next
(see CLSA research Infofax Daily – India GDP: Growth asphyxiation, 6 August 2013). Thus, FIIs
Thursday, 22 August 2013
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Christopher Wood
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have sold a net US$3.2bn worth of Indian equities since mid-June, after buying a net
US$15.4bn since the beginning of this year (see Figure 12).
Figure 10
Foreign ownership of Indian government securities
(%)
1.8
Foreign ownership of Indian government securities
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Dec 11
Mar 12
Jun 12
Sep 12
Dec 12
Mar 13
Source: CLSA, RBI
Figure 11
Foreign ownership of Indian equities
24
(%)
India FII holdings of Indian equities
22
20
18
16
14
12
Mar-13
Sep-12
Mar-12
Sep-11
Mar-11
Sep-10
Mar-10
Mar-09
Sep-09
Mar-08
Sep-08
Mar-07
Sep-07
Mar-06
Sep-06
Mar-05
Sep-05
Mar-04
Sep-04
Mar-03
Sep-03
Mar-02
Sep-02
Sep-01
Mar-01
10
Source: CLSA
Figure 12
Cumulative FII net equity investment and BSE Sensex
Cumulative FII net equity investment
130 US$bn
BSE Sensex (RHS)
120
110
100
90
80
70
60
50
40
30
20
10
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
24,000
22,000
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
Source: CLSA, Bloomberg
Thursday, 22 August 2013
Page 6
Christopher Wood
[email protected]
+852 2600 8516
The relative lack of foreign selling of Indian equities is explained by the fact, as previously
discussed here (see GREED & fear – Tapered off?, 6 June 2013), that foreign investors are
crowded into ‘quality’, albeit expensive, stocks that have outperformed. Still the devastation in
the currency means that, in US dollar terms, the long term investment returns for foreign
holders of the likes of a HDFC or an ITC have declined dramatically. Thus, the compound annual
average return over five years of an owner of these two stocks in US dollars terms is now only
4% and 20% respectively compared with 13% and 30% in rupee terms. This is increasing the
risk of foreign investor capitulation in such ‘quality names’, even if it is only done reluctantly as
a result of redemptions.
The higher interest rates and the slower GDP growth also imply declining loan growth and rising
NPLs in the banking system, most particularly in the ‘cheap’ state owned banks. Current Indian
gross NPLs are 3.7% of total loans but there are also another 4.6% of loans which are in the
‘restructured’ category (see Figure 13 and CLSA research Indian Financials – A tepid quarter,
15 August 2013). Despite the temptation to buy “cheap” banks on a contrarian basis, GREED &
fear will stick with the expensive quality private sector banks geared to the consumer space
since it is far from evident that India has passed the worst. It is also the case that the credit
problems are primarily in the corporate and related infrastructure space.
Figure 13
Indian banks’ total stressed loans
PNB
OBC
Canara
Union
PSU bks
BOB
Corp
SBI
Sector
BOI
ICICI Bk
Axis Bk
Pvt bks
IndusInd
HDFC Bk
Yes Bank
Gross NPL
Restructured loans
(% of loans)
0%
3%
6%
9%
12%
15%
18%
Source: CLSA
Meanwhile, amidst all these negatives, the one potential positive is that the gathering
macroeconomic crisis could trigger an improvement in governance. In this respect, it hardly
inspires confidence that Congress leader, Italian-born Sonia Gandhi, appeared in the Indian
parliament this week talking up her expensive “food security” bill. The Indian stock market’s
greatest hope in this respect is the emergence of Gujarat Chief Minister Narendra Modi as the
BJP’s prime ministerial candidate. While the odds are definitely stacked against him, GREED &
fear’s view is simply that the worse the sense of crisis the better Modi’s chance of winning. This
is why a decision to go to the IMF would appear to be political suicide for the current Congressled government. Modi is certainly raising the rhetorical level with his growing public attacks on
a ‘direction-less’ government and his focus on the collapsing rupee. The rhetoric is increasing
because the general election season is approaching. Remember that an election has to be held
by May next year.
As nervousness has increased towards emerging markets, the sentiment on Euroland has been
improving with the stabilisation of the GDP data for the second quarter based on flash
estimates published by Eurostat on 14 August. Thus, Euroland real GDP rose by 0.3%QoQ in
2Q13, led by a 0.7%QoQ increase in Germany and a 0.5%QoQ rise in France. This is the first
QoQ increase in Euroland real GDP in seven quarters (see Figure 14). But on a year-on-year
Thursday, 22 August 2013
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basis, Euroland real GDP still declined by 0.7%YoY in 2Q13, compared with a 1.1%YoY decline
in 1Q13. Meanwhile, European equities have also outperformed since late June. The MSCI
Europe Index has risen by 11.1% in US dollar terms since 24 June, compared with a 6.1%
increase in the MSCI AC World Index (see Figure 15).
Figure 14
Eurozone real GDP growth
(%)
4
%YoY
%QoQ
3
2
1
0
(1)
(2)
(3)
(4)
(5)
Jun 13
Mar 13
Dec 12
Jun 12
Sep 12
Mar 12
Dec 11
Sep 11
Jun 11
Mar 11
Dec 10
Sep 10
Jun 10
Mar 10
Dec 09
Jun 09
Sep 09
Mar 09
Dec 08
Jun 08
Sep 08
Mar 08
Dec 07
Jun 07
Sep 07
Mar 07
(6)
Source: CLSA, Eurostat
Figure 15
MSCI Europe relative to MSCI AC World Index
(1/1/12=100)
104
MSCI Europe relative to MSCI AC World Index
102
100
98
96
94
Aug 13
Jul 13
Jun 13
May 13
Apr 13
Mar 13
Feb 13
Jan 13
Dec 12
Nov 12
Oct 12
Sep 12
Aug 12
Jul 12
Jun 12
May 12
Apr 12
Mar 12
Feb 12
Jan 12
92
Source: CLSA, Datastream
While a catch up rally in European equities is not surprising given the seeming stabilisation in
the data, combined with the continuing hopes that Flexible Mario will be allowed to ease more
aggressively after the German election, GREED & fear remains firmly of the view that the
Eurozone crisis is not over. Indeed investors are now as complacent on the Eurozone as they
are neurotic about emerging markets.
Thursday, 22 August 2013
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Figure 16
Eurozone loans to the private sector
12
(%YoY)
10
8
6
4
2
Eurozone loans to the private sector
0
-2
-4
1999
2001
2003
2005
2007
2009
2011
2013
Source: CLSA, ECB
The first point to note about the hype generated by the stabilisation of the Eurozone GDP data
is that it is based on flash estimates with no detail in terms of the breakdown of GDP
components. The second point is that this is just a stabilisation of activity, not a meaningful
pickup in growth. Indeed looking more closely there remains no sign of a meaningful pick up in
either credit or investment. Rather the evidence is the opposite. Bank lending in the Eurozone
continues to decline, while money supply growth continues to slow. Thus, loans to the private
sector in the Eurozone shrank by 1.6%YoY in June, down from a 1.1%YoY decline in May (see
Figure 16). While Eurozone M1 and M3 growth slowed to 7.5%YoY and 2.3%YoY respectively in
June, compared with 8.4%YoY and 2.9%YoY in May (see Figure 17). As for investment, the
latest data published by Eurostat on 30 July shows the lowest rate of corporate investment
since the advent of the Eurozone. Thus, the business investment rate of non-financial
corporations in the Eurozone, measured as gross fixed capital formation as a percentage of
gross value added, declined from 19.5% in 4Q12 to 18.8% in 1Q13, the lowest rate since the
data series began in 1999 (see Figure 18).
Figure 17
Eurozone M1 and M3 growth
14
(%YoY)
12
10
8
6
4
Eurozone M3 growth
2
Eurozone M1 growth
0
-2
1999
2001
2003
2005
2007
2009
2011
2013
Source: CLSA, ECB
Thursday, 22 August 2013
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Figure 18
Euro Area and EU business investment rate
24
(%, sea. adj.)
EU27
Euro Area
23
22
21
20
19
Mar-13
Mar-12
Sep-12
Mar-11
Sep-11
Mar-10
Sep-10
Mar-09
Sep-09
Mar-08
Sep-08
Mar-07
Sep-07
Mar-06
Sep-06
Mar-05
Sep-05
Mar-04
Sep-04
Mar-03
Sep-03
Mar-02
Sep-02
Sep-01
Mar-01
Mar-00
Sep-00
Mar-99
Sep-99
18
Note: Gross fixed capital formation as % of gross value added of non-financial corporations. Source: CLSA, Eurostat
For such reasons, GREED & fear would be tempted to reduce positions in European equities.
The reason not to is that the German election on 22 September is almost bound to result in a
new coalition government led by Angela Merkel, with Merkel benefitting electorally from the
current sense of calm in the Eurozone. Such a victory will increase market expectations that
Merkel will allow the ECB to move more overtly into unorthodox monetary policy. Similarly,
there will be hopes of a more decisive move by the Germans away from austerity and towards
eurobonds, banking unions and the like. Such expectations are likely to be met at least in part.
This is because Merkel will depict the election result as a mandate for her European policy, of
which the most significant aspect was the decision last year to back Draghi’s ECB over the
Bundesbank.
Figure 19
Opinion poll result on September German federal election
PIRATEN AfD
3.0%
2.0%
Others
4.0%
DIE LINKE
7.0%
FDP
7.0%
CDU/CSU
39.0%
GRÜNE
13.5%
SPD
24.5%
Source: Allensbach (21 August 2013 poll results)
The one potential obstacle to this assumed way forward is if the recently established euro
sceptical party, the Alternative für Deutschland (AfD), manages to secure 5% of the vote and
therefore parliamentary representation. For this would mean an anti-euro party had a platform
in the legislature which as a practical matter would likely reduce Merkel’s political room for
manoeuvre. Official opinion polls continue to show AfD polling below 5% (see Figure 19). This
is surprising since common sense would suggest that more than 5% of the German electorate
has reservations about funding continuing ongoing bailouts of the periphery; though one
explanation is that the AfD continues to be almost completely ignored by the establishment
Thursday, 22 August 2013
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Christopher Wood
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media in Germany. Still it is possible this party may derive better than expected support from
the 18.2m voters who did not bother to vote in the last German federal election in 2009.
Meanwhile, the Latin part of Euroland is clearly hoping for a relaxation of German policies once
the election is over and Frau Merkel receives her anticipated mandate. At that point ‘radio
silence’ in the Eurozone will end and the supplicants in the periphery will start raising their
voices. If their hopes for a softer Germany and easier ECB are not met to their satisfaction,
then the question will become whether the politics in the periphery will continue to take the
strain of the deflationary adjustment, most particularly in counties like Italy and France. GREED
& fear is sceptical though for now it remains the case that opinion polls continue to show strong
support for the euro in the periphery countries, even as these same polls show hostility to
austerity.
Figure 20
Portugal PSI Financials Index
250
Portugal PSI Financials Index
240
230
220
210
200
190
180
170
160
150
Aug 13
Jul 13
Jun 13
May 13
Apr 13
Mar 13
Feb 13
Jan 13
140
Source: Bloomberg
Figure 21
Contribution to Portugal real GDP growth
10
(ppt)
5
0
(5)
Net external demand
Domestic demand
Real GDP growth %YoY
(10)
Jun 13
Mar 13
Dec 12
Jun 12
Sep 12
Mar 12
Dec 11
Sep 11
Jun 11
Mar 11
Dec 10
Sep 10
Jun 10
Mar 10
Dec 09
Sep 09
Jun 09
Mar 09
Dec 08
Sep 08
Jun 08
Mar 08
(15)
Note: Breakdown for domestic and external demand for 2Q13 not yet available. Source: Statistics Portugal
GREED & fear has looked in some detail at the specific example of Portugal over the past week
where sentiment has improved considerably in recent weeks following a political scare in early
July. Indeed the Portuguese banking sector has rallied by 22% since 3 July (see Figure 20).
There are certainly some signs of progress. In terms of the macro data, net exports are making
a growing contribution to GDP growth as domestic demand has weakened, helped by an
increase in exports to countries outside the EU. Thus, net exports contributed 2.3ppt to real
GDP growth in 1Q13 while domestic demand subtracted 6.4ppt (see Figure 21). Also
Thursday, 22 August 2013
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Portuguese exports to countries outside the EU rose by 13%YoY in 2Q13, compared with
3.6%YoY in intra-EU exports (see Figure 22). As a result, the share of exports to countries
outside the EU has risen to 30% of total exports, up from 20% in 2005.
Figure 22
Portugal export growth
(%YoY, 3mma)
35
Itra-EU exports
Extra-EU exports
Total exports
30
25
20
15
10
5
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
11
11
11
11
11
11
11
11
11
11
11
11
12
12
12
12
12
12
12
12
12
12
12
12
13
13
13
13
13
13
-5
Source: Statistics Portugal
Household deposits in Portugal have also remained remarkably stable given what has been
going on in recent quarters. Thus, household deposits declined by only 0.1%YoY to €132bn in
June and were up 11% since the end of 2010 (see Figure 23). Still in aggregate terms there
remains a fundamental lack of growth even if the rate of contraction is slowing. Real GDP
declined by 2%YoY in 2Q13, compared with a 4.1%YoY decline in 1Q13. Government debt
remains perilously high at 127% of GDP (see Figure 24), while the banking system’s loan-todeposit ratio is still 125% even if that is down from 161% in 2009 (see Figure 25).
Figure 23
Portugal deposits
37
(€ bn)
(€ bn)
140
35
130
33
120
31
110
100
29
Non-financial corporations
27
90
Households (RHS)
80
Jun 13
Mar 13
Dec 12
Jun 12
Sep 12
Mar 12
Dec 11
Sep 11
Jun 11
Mar 11
Dec 10
Jun 10
Sep 10
Mar 10
Dec 09
Sep 09
Jun 09
Mar 09
Dec 08
Sep 08
Jun 08
Mar 08
Dec 07
25
Source: CLSA, Banco de Portugal
Thursday, 22 August 2013
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Figure 24
Portugal gross general government debt as % of GDP
130
(%GDP)
120
110
100
90
80
70
60
50
Jun 12
Mar 12
Dec 12
Dec 11
Dec 11
Jun 10
Dec 10
Sep 11
Jun 11
Jun 09
Dec 09
Jun 11
Jun 08
Dec 08
Jun 07
Dec 07
Jun 06
Dec 06
Jun 05
Dec 05
Dec 04
Jun 04
Jun 03
Dec 03
Dec 02
Jun 02
Jun 01
Dec 01
Jun 00
Dec 00
Dec 99
40
Source: CLSA, Banco de Portugal
Figure 25
Portugal Banking System loan-to-deposit ratio (LDR)
180
(%)
Portugal loan-to-deposit ratio
170
160
150
140
130
120
110
100
90
Mar 13
Dec 12
Sep 12
Jun 12
Mar 11
Dec 10
Sep 10
Jun 10
Mar 10
Dec 09
Sep 09
Jun 09
Mar 09
Dec 08
Sep 08
Jun 08
Mar 08
Dec 07
Sep 07
Jun 07
Mar 07
80
Source: CLSA, Banco de Portugal
The realities still facing the likes of Portugal means that the issue in the Eurozone will become
whether Merkel’s post-election anticipated softening will happen with sufficient speed to keep
politics in the periphery stable. Clearly, if this assumption is wrong and there is no such
softening, European equity markets and periphery bonds will be vulnerable. And that sell-off
will then create market pressure on Berlin to relax its stance. Meanwhile, Flexible Mario will
surely also want to see the euro weaken.
Thursday, 22 August 2013
Page 13
Christopher Wood
[email protected]
+852 2600 8516
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