Saxo Bank Sees Opportunity in Emerging Markets Amid Falling Global Growth and a Tumultuous Start to Q4

PR62080

HELLERUP, Denmark, Oct. 6/PRNewswire=KYODO JBN/ --

    The plunge in the price of oil and other commodities has scores of emerging

markets under severe pressure. And yet, it is in emerging markets that Saxo

Bank sees most hope. As risks to global growth increase, the timing of a US

interest rate move remains a shadow over such economies, but the very

volatility this engenders creates its own trading opportunities.  

    Emerging markets have been battered by a debt-induced perfect storm, a

dizzy US dollar and crumbling commodities prices. However, according to Saxo

Bank's Essential Trades for Q4, there is hope - and investment opportunities -

even though the pretend-and-extend cycle of denial persists.

    Saxo Bank Chief Economist Steen Jakobsen, says: "The "pretend-and-extend"

policy triggered a negative vicious cycle whereby EM-issued, dollar-denominated

debt was converted into local currencies. Then, the stronger dollar increased

both the debt burden and lowered commodity prices, a main export for many EMs.

In turn, this meant less demand and less growth for EM. This happened in a

world economy based on fiat money, dollar reserves, dollar-denominated

commodities and debt and a rising US dollar. It's no wonder that world growth

is falling dramatically - the only surprise is that policymakers seem

surprised," added Jakobsen.

    Looking beyond the current volatility and rout in emerging markets, Saxo's

Chief Economist, Steen Jakobsen sees a silver lining, commenting:

    "The perfect storm raging through emerging markets is also the biggest

opportunity in decades."

    Steen Jakobsen believes the way to play this is via FX trades because of

liquidity and access issues. Many EMs are not deep enough to cater for robust

equity markets. Additionally, academic studies show more than 80% of all

returns in EM come from FX and not from owning bonds and stocks. That said,

Steen Jakobsen thinks EM overall are a buy. Steen Jakobsen believes the fact

that we are in the midst of a perfect storm should not fool us into believing

"the sun will never shine again".

    Saxo Bank key trading ideas for the next quarter are:

    - Commodities

    Commodities spent most of September stabilising after several raw

materials, such as industrial metals, hit levels not seen since the beginning

of the millennium. Rising supplies of key commodities from metals to energy and

crops continued to play havoc with those EM countries whose prosperity depends

on exports of raw materials.

    Saxo Bank's Ole Hansen expects that as we enter the final quarter of 2015,

we will see light at the end of the tunnel for commodities assuming that supply

is reduced. But if demand fails to keep up, the tunnel could grow even longer,

leaving only a glimmer of hope.

    - Macro

    Mads Koefoed, Head of Macro at Saxo Bank says the long-awaited Federal

Reserve rate hike will be the landmark fourth macro event. Emerging markets,

however, remain a factor as the extreme weakness seen after the late-summer

withdrawal of risk appetite may well prove overdone.

    - FX  

    Head of Saxo Bank's FX Strategy, John Hardy, believes September's Federal

Reserve decision signalled that Fed policy is global policy, and particularly

so for emerging markets. Although Q4 could see risk appetite-related rebounds

in currencies like the RUB, BRL, TRY, and ZAR, a more conservative approach

would look elsewhere - to Mexico and to Poland, for example.

    - Fixed Income

    Saxo Bank's Head of Fixed Income Trading Simon Fasdal says fear infected

markets during Q3 and remains a force to be reckoned with as we stand on the

cusp of Q4.

    Fasdal argues that emerging markets are where the road to opportunity

begins. Firstly, the overall rotation away from emerging market assets has

increased the yield difference between developed markets and emerging markets

significantly.  Secondly, the lack of growth is playing too big a factor.

    - Asia

    Saxo Bank's Asia Macro Strategist Kay Van-Petersen argues that although

many feel the sell-off in emerging markets is overdone and we have seen the

lows, he begs to differ. The cheap money that came out of the Fed's

quantitative easing, as well as China's massive stimulus during the financial

crisis, has inflated assets heavily. Global growth is decelerating, commodities

have yet to find a floor, and EM assets have yet to catch up with the

continuing deterioration of macro fundamentals.

    - Equities

    Saxo Bank's Head of Equity Strategy Peter Garnry says the third quarter of

2015 will be remembered as the big wake-up call as global equities spun into

their most violent period, measured by the first and second derivative of

volatility, since the 2008 financial crisis. Developed-market equities are down

6.2% for the quarter but emerging-market stocks are brutally down 16.2%.

    Garnry believes strong underlying forces in many emerging markets are

transforming themselves from pure export-driven and commodity producers into

more balanced economies with more growth coming from domestic consumption as

the middle class grows. The transition is already happening, and capital will

flow back into emerging markets as soon as there is clarity over the trajectory

of US rates.

    To access the full list of trade ideas produced by Saxo Bank analysts which

accompany the Q4 2015 outlook, please click here

[http://storage.saxobank.com/TradingFloor/EssentialTrades-Q4-2015.pdf ].

    About Saxo Bank

    Saxo Bank is an online multi-asset trading [http://www.saxobank.com ] and

investment specialist, offering private investors and institutional clients a

complete set of tools for their trading and investment strategies. Its

financial community portal, TradingFloor.com [https://www.tradingfloor.com ],

is the first multi-asset social trading platform. A fully licensed and

regulated European bank, Saxo Bank enables clients to trade FX, CFDs, ETFs,

Stocks, Futures, Options and other derivatives on both our award-winning

SaxoTrader [http://www.saxobank.com/saxotrader ] and newly launched SaxoTraderGO

[http://www.saxobank.com/saxotrader-go ] platform, accessible on PCs, tablets or

smartphones through a single account and available in more than 20 languages.

The platform is white-labelled by more than 100 major financial institutions

worldwide. Saxo Bank also offers professional portfolio and fund management as

well as traditional banking services through Saxo Privatbank. Founded in 1992,

Saxo Bank is headquartered in Copenhagen and has offices in 26 countries

throughout Europe, Asia, the Middle East, Latin America, Africa and Australia.

    SOURCE: Saxo Bank