DM Asia/Emerging Markets Investment Strategy Update

***The roundup below is an example of our data-driven internal research process. Specifically, it helps our team contextualize the key economic releases and policy developments occurring across Developed Asia and Emerging Market economies on a daily basis. To the extent you'd like to be BCC'ed on such emails please shoot us a quick note and we'll add you to the list.***



In Australia, Commonwealth Bank became the second bank to lift mortgage rates in as many weeks. Speculation ensued that the RBA may be forced to add to their -50bps of rate cuts in the YTD, which weighed on the AUD. Does the RBA risk quashing household consumption growth – which is accelerating on a trending and sequential basis – in hopes of stimulating industrial production and inflation? Recall that headline CPI and PPI are structurally depressed, as is core CPI, which is decelerating on a trending and sequential basis. All told, we've been [admittedly lazily] short the AUD since introducing the thesis in mid-2012 and have yet to encouter a fundamental reason to cover given that we remain "mid-cycle" from the perspective of the bull market in U.S. dollars that is being perpetuated by the G-3 monetary policy divergence theme we authored in 4Q14.


DM Asia/Emerging Markets Investment Strategy Update - Australia Economic Summary


DM Asia/Emerging Markets Investment Strategy Update - DM Asia Idea Flow Monitor


In Brazil, the stench of stagflation continues to force BCB’s hand, as evidenced by their decision to leave their benchmark SELIC rate unchanged. Recalled that we discussed these dynamics earlier this week, when we highlighted the structurally depressed nature of Brazilian economic growth and structurally elevated nature of Brazilian inflation. To make matters worse, the deepening nature of their political crisis only adds to the consternation experienced by investors. We continue to view Brazil as a structural short and to the exent you are looking for a non-consensus way to play a bounce in reflation assets [to lower-highs], we strongly suggest you look elsewhere (i.e. Russia). CLICK HERE for more details.


DM Asia/Emerging Markets Investment Strategy Update - Brazil Economic Summary


In Mexico, the latest reading of household consumption growth accelerated to a near 10Y-high, preserving the trending and sequential acceleration in this sector of the Mexican economy. With exports and industrial production trending higher, business confidence and consumer confidence trending lower and various metrics of inflation structurally depressed, one could argue that Mexico is in the “sweet spot” of post-crisis equity investing – solid growth with no threat of policy tightening. This dynamic is being confirmed in the marketplace, with the WoW moves in the MEXBOL and MXN (+0.8% and -1.2%, respectively) corroborating the associated YTD deltas (+3% and -11.1%, respectively).


DM Asia/Emerging Markets Investment Strategy Update - Mexico Economic Summary


Best of luck out there today,




Darius Dale


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