Black Swan

Black Swan Risk Shifts to Emerging Markets: SocGen

SocGen is out with a lengthy report titled Global Economic Outlook: Looking under the hood of recovery. In the report there is an interesting tidbit on black swan risks. Below is an excerpt on that segment.

H/T Sam Ro

Black Swan

black swan risks

Risks have become more balanced for the advanced economies, but shifted to the downside for emerging economies. As the Fed prepares to taper, the focus is on US Treasury yields. It would take a substantial upward leap in US Treasuries to make the Fed reverse its strategy. Our central scenario assumes the US 10-year yield at 3.75% by this time next year.

In emerging economies, risks have clearly shifted to the downside and notably for the BIITS (Brazil, India, Indonesia, Turkey and South Africa). Geopolitical tensions, moreover, add to these downside risks via the oil price channel. SG’s oil specialist, Mike Wittner, sees only a temporary spike from Syria, assuming there is no significant contagion. In China, the risks centre on the credit channels and taming of the shadow banking sector. A hard landing for China would see a hard landing for the global economy too.

Black-swans-2

The state of credit channels for the euro area holds both upside and downside risks and this is also true for political decisions in broader terms when it comes to debt sustainability, austerity, structural reform, and fiscal and banking union. Consequently, we see risks as more balanced for the euro area growth outlook in the short term. The risk of “pretend, extend, spend” lifts growth near term; medium term this would increase risks as public sector debt loads continue to grow.

In Japan, the consumption tax hike forecast for October 2014 is viewed with trepidation as it brings back memories of the previous hike in 1997 which ultimately proved to be a policy mistake. It is a risky move and will require a fine tuning of offsetting policy measures to be successful.

 

LEAVE A COMMENT


X
Saved Articles
X
TextTExtLInkTextTExtLInk

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Are you an intelligent investor?

ValueWalkPremium is a website and newsletter for smart investors like yourself. We focus on the latest hedge fund industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today for only a few dollars a day and get a 3 day no obligation trial with a targeted 20% discount coupon code.

Cancel anytime during trial and you are never charged.

Limited time offer: For first 50 subscribers

0