After his victory in the December 2014 elections, Japan’s Prime Minister Shinzo Abe has pledged to turn Japan into ‘one of the greatest powers in the world’ by implementing the new foreign policy approach of ‘proactive pacifism’. Abe is seeking to foster Japanese international engagement, which will increasingly reach beyond the regional boundaries of the Asia-Pacific.
The debate on fiscal reform in Japan has been heating up. The working assumption so far has been that tax hikes will be sufficient to solve the fiscal problem. Fortunately the fiscal debate has now gone beyond this innocent simplicity and spending control is finally on the agenda. So is privatisation, with the government promising it will ‘implement public service reforms which aim for more efficient administrative work and privatisation’. But how much can privatisation actually contribute to fiscal reform?
The US dollar is firmer but is largely within the range seen yesterday. The market awaits developments from the G20 meeting that concludes today and meeting of European finance ministers followed by the heads of state gathering.
As in other areas, the reform of state-owned enterprises (SOEs) in China has been a gradual process. Now, almost 25 years after SOE reforms began, the government must tackle new problems: breaking down special interests, distancing the state from the daily operation of enterprises — and associated issues of corruption — and improving the overall efficiency of the economy.
The rebound in oil prices and the sliver of hope of a peace treaty in Ukraine is serving to soften a few of the trends in EM assets in recent months. We doubt that this is the start of a new trend, and more likely just a positioning adjustment. Although oil can continue to correct higher, we think the downward pressure will remain intact. And even if an agreement in the Ukraine is reached, the implementation and longevity of a deal will be highly debatable.
1. The swing in the pendulum of expectations back toward a mid-year Fed rate hike is one of the key developments that will shape the investment climate. The data in the week ahead, including the broader measures of the labor market, like the Fed’s new index (Labor Market Activity Index) and JOLTS (Job Opening and Labor Turnover Survey), and core retail sales will strengthen the view. The rise in US interest rates will lend the dollar support and allow the appreciating trend to continue after a consolidating over the last few weeks.
Investors are having a tough time of things today. Three issues have eclipsed the firming of expectations for a mid-year Fed hike.
First, Greece’s Tsipras remained committed to his campaign promises in a speech to parliament that keeps it in loggerheads with Europe.
China, like much of the developed world, faces slower growth and an ageing population. Africa in contrast offers the potential of ‘catch up’ growth and a growing young pool of low-cost labour, alongside plentiful natural resources. The economic prospects of both intertwine. The path of China’s trade and investment ties with Africa offers insights into China’s ongoing economic reforms and internationalisation.
Over the last week, Russia (+12.2%), Hungary (+7.2%), and UAE (+6.3%) have outperformed in the EM equity space as measured by MSCI, while Turkey (-4.0%), Hong Kong (-0.8%), and the Philippines (-0.2%) have underperformed. To put this in better context, MSCI EM rose 1.6% over the past week while MSCI DM rose 3.0%.
The European Central Bank (ECB) symbolises the strange mix of politics and technocracy that marks EU governance. The bank was pushed to centre stage by the Eurozone debt crisis and the unwillingness or inability of Europe’s national governments to come up with timely solutions. Its rise as a political actor started while it was led by Jean-Claude Trichet, but it has become much clearer under his successor, Mario Draghi.
