Tuesday, 1 March 2016

Asia : India to Japan

I must admit that reading my prediction for 2015 in China, I feel I could have written a better one. Much of it is vague, as if anticipating the smog that plagues the city of Beijing , but it also suggests internal dissatisfaction. It is unfortunately hard to get a real view of what is happening in the country politically ( even economically there is severe doubt over the published statistics) on a month by month basis so it is very hard to substantiate my claims.
I expected increased power and energy, but also pressure for change and even conflict. I even predicted industrial unrest around June.
What we can say is that China did continue to extent its global influence, despite an economic slowdown. There is an acknowledged need to shift focus as the country moves away from exports to a more internal consumer based economy. And it does have some internal conflict within government – there is pressure on Xi to focus on development rather than ending corruption  
And we know that strikes and worker protests in China increased noticeably during the third quarter as the manufacturing sector in particular continued to stall. CLB’s Strike Map recorded 593 incidents during the quarter.
So not bad, given the lack of reporting of all but the most serious of events.
Where I really nailed events was on the one child policy where I expected something to arise around September. On 29 October 2015, China's state news agency, reported a change in the existing law to a two-child policy- it is effective from 1 January, 2016 after the law was passed in December, 2015
I’m given myself 85% though that is probably mid of a range of 75-95% depending on unknown information.
My 2014 forecast talked about the move toward a free floating currency. But noted that there were practicalities and restrictions that would prevent this in early 2015 I was both right and wrong. We aren’t yet on the direct path of free float, but we are on an indirect path as the Renminbi becomes increasingly important globally:
In fact 2015 has been a banner year for the Chinese currency. It surpassed the Japanese yen to become the world’s fourth most-used payments currency, in spite of an unexpected devaluation in August and concerns about slowing Chinese growth. In November the IMF accepted it as a reserve currency. This is arguably more than even I anticipated in such a short time.
Specifically I didn’t expect many decisive developments in the first half of the year. And this proved correct.
But I expected June to august to be quiet with the biggest changes therefore take place around September 2015. ( I did not specifically state it but I imply  that a float might happen then)
And I anticipated problems finding the fundamental value of the currency .
In fact there was no float. But in August  China carried out the biggest devaluation of the renminbi in two decades -The 1.9 per cent downward move by the central bank was its biggest one-day change since 1993 — and since China abandoned its tight currency peg for a managed float in 2005
(This is a close enough for my 3 moth rolling forecast timescales)  and the fact that the debate raged about whether the currency was in fact overvalued or undervalued as the US claim is also relavant.
In the last few months of the year I expected almost complete lack of movement in the exchange rates as the market awaits indicators. This proved to be so.
80% ( my core assumption failed but everything else was pretty much spot on)
Shanghai Composite
I said that the first quarter of 2015 would probably see nothing new happening. There was a chance of some speculation at but the signs were not 100% certain. There was more likely to be a boost in the period around March and April than in the first two months.
This proved spot on with a flat index in January and February followed by rapid rises in March to May
Then  I thought the market would be restricted until September. That doesn’t really do justice to events though. While by September it was back to March levels, it had fallen a lot in June and August to get there.
Still I think that I called the turn in September ok
I thought the last few months of the year would see a return to the conditions of January to April but that the indicators would remain mixed with the net effect more likely to be negative at this time, with doubts and restrictions dominating.
This was pretty accurate. Despite the September/October recovery, for much of the last 2 months  the index fluctuated in a range, (before turning negative in 2016)
I’m very pleased with this one. 90%  Though we still have the issue that direction is predictable whereas extent of movement is less so.
I am always surprised by how much future information the HK$ is able to impart to me, given that it is still pegged. But reading my forecast for 2015 is tells the whole story of the Renminbi developments very well, indirectly highlighting June to August currency flows, and even the last quarter IMF Renminbi  decision ( external events).
However I put more emphasis on October as a time when the peg would be threatened than was really the case
Here is what Jennifer Hughes of the FT in Hong Kong said on 29/9/2015
Hong Kong’s dollar peg is tough. In its 30-plus years it has withstood landmark currency accords, two financial crises and Sars, not to mention perennial debate about its suitability. But now the world’s longest-running unchanged currency regime is facing a new challenge: its neighbour, the renminbi.
…… Hong Kong’s peg to the US dollar has become something of a gauge of just how much the August devaluation has unsettled investors.
China’s shock devaluation …. has whipsawed the Hong Kong dollar within the narrow range of its band versus the US unit. Initially, speculation mounted that a weaker renminbi would force Hong Kong to devalue its currency, pushing it lower. China’s still-tight control of its currency since its mid-August move, however, has eased that pressure.
That’s good enough for another 80% I reckon
Hang Seng
I saw January and February 2015 as difficult with a lot of investor caution. In fact the index was pretty much static over the period and perhaps that was better than I expected, though the caution was correct.
But I was wrong about  March to May. I saw  the index all over the place as there would be tech issues etc. despite positive sentiment. But positive sentiment dominated by a long way.  The index shot up by over 15%
Nevertheless I saw June as a turning point – but I didn’t forecast the extent of the July-August drops
I did see September as another turning point  with positive news causing short term speculative buying. But this is less impressive when viewed in the light of the size of the previous 6 months’ movements
Again, I pretty much nailed direction in October and November as well as the perspective in December ( re Jan 2016).
So once again 85% ( that’s 100% for timing and turning points offset by negative 15% for weakness in relative significance)
I’m not especially happy with my Japan forecast.
I thought that there was a probability of signs of change, especially economic, in 2015, but that these may be held back in the first half of the year.
I predicted that in March there might be quite difficult rockiness-  geological or merely economic, with the theme continuing for some months and being particularly acute around June time. Technological shifts were likely.
It was certainly touch and go in the first quarter as Japan seemed doomed to slip back into deflation. I was right in some ways, there were changes in the pipeline that were then delayed, such as the return to active nuclear reactors,  there was an attempt to curtail working hours and plans in train for allowing Japan military back into the global fold ( for the first time since WWII)
But the rockiness I expected in March to June was not really visible.  Indeed there was glimmer of light as June stats showed the economy growing.
After July and August were quieter, the process was expected to start again in September, but be more about changing the leadership. August saw the economy reportedly contract in Q2 .
I thought the year would end with increasing impetus for radical change. There was mixed data in the last quarter as Japan was at first thought to have fallen back into recession in Q3 but revised stats showed growth.
Over the year there was change and this might possible be a sign for the future. But I feel that I overstated the importance of the second quarter.  55%
I said trade in the currency would be suppressed in January 2015 and February would see brief volatile conditions. In fact there was little direction throughout the period and volatility was mild.
I correctly saw the next months as being calm though. However I failed to note some rapid weakening in May. But my prediction for June/July of no particular trend dominating currency wise was moderately ok
I expected a positive move in August though and this was correct, But I thought that trend would continue and it did not.
The more mixed expectation for the year end was right though with strengthening despite the US$ rate rise.
Not a great result, I missed some movements but was right more than I was wrong 60%
I thought  January and February  likely to be a difficult time with depressed valuations. It was slightly true of January but not February when the market rose.
I was more accurate on March and April, positive but no significant rises. However the market hit 20000 for the first time in 15 years in late April (though the last few steps of this was gradual) and such a milestone should have been more obvious to me.
I thought there would be no significant change from May through to September either. The difficult situation would remain, although somewhat alleviated by positive news etc. But in fact after trading within a range from May to August, in August the market followed other world markets downwards.
The positive blips in September and October can’t really be matched with my statements either.
I saw October onwards as being better with moderately positive trend in November and December. Partially correct – November was OK but December less so.
Only 50%- no better than chance
I expected a quiet start to the year, positive with some economic concerns. This summed up January well as positive growth was accompanied by lack of confidence in the stats.
Modi’s reforms continued and particularly those affecting the corporate sectors. I predicted shocka/dramatic  events  between February to May which had the potential to undermine the leadership but wouldn’t in the short term . Shocks was probably too strong a word- upheavals better describes the anti-corruption and modernisation reforms and it is true that the Corporates were happy but Modis wider reputation was undamaged.
There was less outright opposition than I forecast in the period June to August. But there was parliamentary opposition to reforms with no bills passed in the session due to opposition pushback.
I also thought note that this period would have major themes pertaining to global events and to the value of assets, but also to the religious and cultural foundations of India.  It is therefore nice to see that the markets responded accordingly in July/August but also that international yoga day became a reality.
I expected some clamping down on personal freedoms in September and October though  to accompany a swelling mood amongst the population. This was mixing apples and oranges I think. There were restrictions due to droughts affecting 14,708 of its 40,053 villages in one regions. On the other hand surveys of the general public showed swelling support for Modi
I the predicted  more unsettling events for the leadership near the year end. In fact this was an error of interpretation- Modi was physically “unsettled” continuing his foreign visits including surprising ones to Pakistan etc. There was also the loss of some elections In November which was a setback.
I also expected  leaps in terms of women’s rights in the country in the year and near the year end the Delhi high court ruled that the eldest female member of a family can now act as the legal head of household, and, in October, the Ministry of Defence approved the induction of women as combat pilots in the Indian Air Force
It is difficult to sum up a score for India. So much is in flux, condensing it into a few paragraphs is impossible. Indeed the actuals are far longer than the forecast. All things considered though a good effort. 80%
I expected  the first three months conditions to be relatively stable and this was so with the currency trading within a narrow range. I also correctly surmised that inflation issues might need to be addressed.
I thought April and May would be much more exciting- not all bad, but gradual value changes . This was true but too a more limited extent than I probably anticipated.
I was wrong about June and July – there weren’t any falls and little fluctuations.  I was spot on about the value being undermined in August and that it was global events that triggered things ( bonus points for that).
September will probably see a revaluation and the new currency taking shape.
I expected more currency price stability in the last quarter but this wasn’t so with the currency recovering slightly in October and then returning to its September levels around the year end.
The stability came in the form of interest rates- after 4 reductions, (the final one larger than the rest) the rate stayed firm for the last quarter.
Some good stuff here, but not perfect 75%
I expected January and February of 2015 to be very mixed with a return to volatility again and a lack of clear direction despite the fact that the longer term mood was one of market expansion. This was so, with a peak being reached and no direction for the two months as a whole.
However I predicted  that March to May would see naivety and liquidity sending  the market  higher. This was most definitely not the case. The market fell by 10% in March to May.
I expected the index  to rise around June rise –I was talking bubbles though and it seems that that had come and gone by then.
I also go August completely wrong as I missed the effect of global falls here, though I was right to note that things would tail off in September.,
My forecast for the last quarter was better, anticipating on the one hand exuberance being maintained but on the other there is a sense of caution returning. Gains in October were wiped out in November and December. In fact the whole of the last quarter was lower than December 2014.
Missing out on two lots of definite falls, even if I did note a bubble peak in the year,  means I can’t score more than 55% on this.
I expected more openness from Pakistan in 2015
I did not expect  much relief from  violence, economic hardship and  earthquakes  though- and this was also true ( though anyone could have predicted the continued violence and economic problems the fact that there was an earthquake in October is worth noting).
I expected not too much change ( ongoing reactions to past events in March to May) and this was so. Violent incidents did continue and there was a revisiting of the alleged 2013 election rigging.
I said, however, that a gradually evolving picture would start to take shape over the June to September period and it would be more positive. In fact despite ongoing violence the level of it was reducing ( indeed there was a 56% decline in incidents between 2014 and 2015). Unfortunately this is probably due to some militants leaving for Iraq/Syria but it did improve Pakistan’s prospects.
I also get a bonus for noting the opening up in the end of the year as Pakistan received the Indian leader for the first time in over a decade.
 South Korea
I thought that January and February would be mixed, with difficulty getting things off the ground and moving forward, even though the leadership would be able to seize some opportunities to progress with April seeing the country appear erratic in the eyes of  others.
This was pretty well assessed. The economic situation was becoming harder and was constraining the President’s spending pledge. Furthermore the new Prime minister’s attempts to tackle corruption after his appointment in February ended with his resignation in April re alleged corruption. April also saw a nationwide strike.
June through  August, I saw confusion and  no long term stability in view. In fact the “confusion” took the form of a MERs outbreak and growth falling to a 2 year low.
I thought September and October would be better, with more well- being ( appropriate as the Mers outbreak ended)  and there was some evidence of consumption picking up and at least the deal-making numbers were high, even if growth was subdued.
As expected the last part of the year continued the themes of the spring and my summary for the year end position as being tough but with positives on balance was a fair assessment.  80%
North Korea
As usual the dearth of reliable media reports is a barrier to prediction assessment.
I think we can assume the continued  economic difficulties forecast for the early part of the year is correct as the US increased sanctions.
And as predicted there were no reports to suggest any aggressive actions in the first few months.
I thought the time around June might show some unexpected aggressive events. But the only known one was an internal execution in May. There was a short spate of firing between North and South Korea in mid August but this soon dissolved into the background economic events.
I saw a longer term change in September, when NK re-started its nuclear programme and I saw more power to the leader in the last quarter which is likely the result of the above
70% ( difficult to score very high due to lack of data)
I said that January and February would still see the shakiness that pervaded the last quarter of 2014, but there is renewed vigour and determination .  In fact the Q4 2014 stats showed growth at a 5 year low but in February interest rates were cut to fend off deflation.
I thought March and April would be mostly positive, and though growth continued to be slow the rate cut made things more positive overall.
I said May to August would be more challenging. In May a cabinet reshuffle attempted to address falling popularity and a possible coalition partner fell through making economic reform harder. Then of course this was followed with further poor growth stats and the August global difficulties and 1 September saw a rally of factory workers.
I thought September as a whole would be less eventful with only the background issues continuing and this was so.
I predicted the last quarter would be another period of energetic advancement, perhaps too much so. In fact the 2nd part of the stimulus was put into action at the end of September and resulted in the economy expanding faster than expected in the last quarter.
I also noted that the year would be dogged “petty” concerns – by which I meant issues not pertaining to the structural economy – and issues  surrounding women’s freedoms. These were fulfilled through a mix of aviation investigations, forest fires and changes in Islamic attitudes.
This was a particularly good forecast overall  with a lot of detail right and no bad calls– 90%
My forecast for the first quarter was for not a lot of change ( the currency actually ended up where it started) but a lot of external factors and more inflation. All of which was correct.
I saw the second quarter sees a return to the focus on longer term structural issues and the balance of payments.  And the currency fell gradually over the period to June reflecting that trend.
However I thought the background mood in July and August would result in little change of direction but with the possibility of a sudden shock causing brief volatility in this period. In fact the currency fell rapidly from mid-July to early September and then just as dramatically recovered. Not quite what I meant but I can at least see the relationship between my forecast and the reality.
I rightly then forecast that the end of the year would be more moderated with little movement  in either direction and with December is probably one of the most stable months for some time – this was particularly the case in the second half of December post the US Fed announcement.

2015 Review: Americas ex USA


Readers will know that there is one currency where I have almost consistently failed to get things right; indeed it was the only country where I completely revised the base data I was using. That country is Brazil and 2015 was no exception to my failures.
I thought early 2015 would start with optimism ( albeit partially illusory). I also saw a risk of flood related problems and inflationary concerns. The situation for the leadership would be mixed. There are attempts to improve the economy but there are also unsettling groups trying to undermine this.
This wasn’t that bad . Rousseff was just beginning her new term –and things were mixed due to the Petrobras scandal that was beginning to unravel . There were also inflationary problems – but there were no floods – instead there were ongoing droughts.
I thought April and May would be mixed but still positive sentiment. This was trash. The economy was unravelling, with higher unemployment and inflation coupled with lower growth  and March saw anti-government protests
I saw the themes continue in June to August. They did but they weren’t the right themes!!!
At least I wasn’t wrong in August expecting doubt about the direction of travel of the government. and short term unsettled events. But this is little consolation.
I suppose my September forecast was closer to the truth ( but still massively misguided),  and I can take some solace in the fact that the indicators were there even if I misinterpreted them. What I saw as exuberance was really the inflationary pressures.  By December the country had had 2 credit downgrades to junk and inflation was the highest in 12 years.
Given that the leader was impeached in December it probably wasn’t that good for the government contrary to my prediction!! And this was before we heard about Zika.
Dire: well below chance -10%
I thought 2015 would be a whole new world for the Real- major debt issues would require adjustment of the value of the currency. That was true but I wasn’t great on this either – though I did better than with the country itself.
After falling in 2014 the Real felt no need to stop falling in 2015. So yes the themes of 2014 continued  but there was no support for the currency. Fortunately I did give some disclaimers on the environment.
I was right to see debt issues and volatility in July to September at least.
And I did finally get something right seeing a slight rally around October, but I thought that would lead to improved conditions in November. It most definitely did not.  
My year end as facing longer term global unstable was a reasonable estimate though.
55%. Some right, some wrong. But enough noting of the indicators to be marginally better than a coin toss.
I thought 2015 would be characterised by the strength of purpose of the leadership. This was a reasonable assessment – certainly Mexico kept its head above water and the government remained stable throughout the year. There was growth, lowish inflation and continued consumer confidence throughout the year.
There really was nothing new to note in the first few months as predicted and I think my assessment of most problems being external in April and May was good too.
My assessment was somewhat more mixed for the period to August- with possible sudden events affecting the leadership. The most notable event was the escape of the drug lord El Chapo and  the president’s approval rating fell somewhat due to this and economic issues which as stated were mainly externally created. September and October were calmer as forecast.
I also correctly thought that there might be more disruptive conditions in the last 2 months, and Nieto was forced to focus on initiatives to reduce the kidnappings and disappearances that plague the country but I was correct that overall the rewards of economic progress would continue.
I thought that events elsewhere  would affect the trade of the Peso  in early 2015 creating instability through April. This was reasonably accurate with fluctuations which were initially positive and on balance flat in April.
May and June were expected to be much more tricky suppressing the Peso value for these few months despite some positive sentiments ( see Mexico itself) and indeed the currency lost value in line with many others in this period. Though there were no interest rate changes.
I then said that confusion and uncertainty would reign in July and August  with August in particular being challenging . This was spot on. But September was not even worse – but the volatility was more prolonged . There were no interest rate changes then either though
I can also be proud of my comments that one shouldn’t see the problem as the Peso itself, it is more likely to be a knock-on effect from elsewhere.
My October forecast was more vague but still close with more volatility, and November did indeed see a return to normality.
And finally I got it right re rates in December .
90% - it would have been 100% if I had assessed the rate changes better. Makes up for Brazil and restores my faith in the techniques.
My forecast for the country in the first 6 months was for a very difficult situation but with still some positives.
The reality was of course that Venezuela already had structural problems even before the oil price decrease. The latter exacerbated them severely. Nevertheless despite the rising inflation, the queues and the talk of default if the situation continued, the country still continued to operate without such default and without overturning the fragile leadership throughout this period.
My forecast by the summer was more severe and indeed the situation was only getting worse.
I thought there was a possibility  ( though not a definite) of change in leadership around November . In fact early December brought general assembly elections and the opposition gained the majority ( (the ambiguity is caused by the fact that presidential elections are not until 2018)undermining the government’s power to act.
I thought the end of the year looked somewhat better. In reality the country was close to hyperinflation and default but of course the change in balance of power created some (possibly misplaced) optimism.
75% ( I probably underestimated the severity of conditions but it is difficult to say what the people were really experiencing)
Little point in going into detail over the Bolivar. Basically I saw the whole year as bad with a mix of serious falls in value and restrictions.
Of course the problem is that there is not one Bolivar. And the international official one was fixed while the others were depreciating at a rate of knots.
This bifurcation means that I can’t really claim a very high score even though my forecast was essentially 100% accurate.  So 85%
I thought that January would see some continued support for government despite some very tricky economic conditions, but somehow things would hold together. February would see a return to uncertainty possibly in relation to the aforementioned bondholders and would be a tricky time.
In fact the beginning of the year was difficult due to shortages triggered by the impact of the legal default in July 2014. But the real difficulty was the suspicious death of Nisman.
I expected matters relating to debt to continue to dominate in the following months and a sense of not being able to harness the country into any sort of direction would continue. However I expected calming factors and by June enthusiasm for a new era ( I was puzzled when I wrote that as the elections would be months away)  In fact what happened was that Argentina issued some new Bonars to specific investors agitating the hold- out creditors yet again, but on the other hand the mood was improving as the expectation of a new government by the end of 2015 was indeed creating some optimism even though there was still six months to go.
Around August I expected more instability and of course this took the form of the global market volatility.
I correctly didn’t see much change in the next few months. The difficult underlying conditions were offset by the optimism for change.
I saw the shift as being in December  when I saw definite signs of the people being split in their views of the government and of the start of a new cycle in the country.  In fact this was when the elections were finally held and there was a split with the opposition gaining power and promising a raft of changes :to debt negotiations, capital controls etc.
Pretty good assessment and timing 90%
 Argentine Peso
Again I’ll cut this one short as my forecast described in detail a trend throughout the year of slight decline with restrictions throughout until October. This was of course the reality ( though not quite as I expected) as the Peso was being tightly managed vs the dollar so that it was only declining by 10% until the change of government. Of course the reality was that devaluation pressures were building up.
I didn’t forecast the December devaluation but I did correctly see a change as the past was left behind and a new environment began to dawn.
80% - ok but missed the key move in direction in December.
I expected that the first few months of the year would be difficult though there were mitigating factors. In fact Canada was beginning to notice the impact of the global oil price on its economy.
I thought that the effects would be noticeable March to May as the economic changes filtered through to households and the housing boom and that credit would be harder to come by. In fact it was slowing demand that was impacting housing in all but a couple of major cities ( which distorted the index) and the government cut interest rates twice in a short time to try to address the general economic slowing.
It is somewhat ironic that I wrote in Canada’s forecast that August was a time of big exchange movements. It certainly was globally but the Canadian dollar was only marginally affected vs the US one.  Nevertheless there was a concern that Canada had fallen into technical recession.
I thought September would be significant. It was as the economy bounced back a little and there were a series of marked shifts in political sentiment prior to the election.
I thought that the opposition would be strong but that there was alignment with the existing party, yet I also foresaw the shifts. This is one of the times when a little more knowledge of the country would have helped as I wrote as if there were two main parties when there were three. It was this that created the initial opposition, thus swinging back to the incumbents prior to October and then shifting again for the election itself. So I was right and wrong simultaneously.
I also said that the country wouldn’t l have seen the back of the long term structural economic questions in October through December and in fact the stats were mixed in the last quarter as the country was split between struggling areas such as Calgary and booming ones such as Vancover.