Did Trump just launch a trade war?

https://youtu.be/SGatqAGp1YM

LAST Thursday, US President Do­­­nald Trump signed a proclamation to raise tariffs for steel by 25% and for aluminium by 10%.

It sent shockwaves across the world not only because of the losses to metal exporters, but due to what it may signify – the start of a global trade war that will cause economic disruption and may damage, if not destroy, the multilateral trade system.

The United States, joined by Europe, has been the anchor of the global free trade system since the end of World War II. In practice, this rhetoric of free trade was hypocritical because the West continues to have very high protection of their agriculture sector, which cannot compete with those of many developing countries.

Moreover, the developed countries champion high intellectual property rights standards through an agreement in the World Trade Organisation (WTO), under which their companies create monopolies, set high prices and make excessive profits. This is against the free competition touted by free-trade advocates.

In manufacturing and metals, the developed countries have pressed the others to join them in cutting or removing tariffs and to expand trade, through negotiations in the WTO and its predecessor, the GATT (General Agreement on Tariffs and Trade).

They have argued that poorer countries can best grow richer by cutting their tariffs, thus benefiting consumers and forcing their producers to become more efficient.

Trump’s move upends the ideology of free trade. According to his America First philosophy, if cheaper imports displaced local steel and aluminium producers, these imports must be stopped because a country must make its own key products.

Since the US has been the flag-bearer of the free-trade religion, this has profound effects on other countries. If the leader has changed its mind and now believes in openly protecting its industries, so too can other countries. The basis for liberal trade is destroyed and the old rationale for protectionism is revived.

The WTO rules allow countries adversely affected by imports to take certain measures, but they have to prove that the producers of exporting countries unfairly receive subsidies or set lower prices for their exports. Or they can take “safeguard” measures of raising tariffs but only for a limited period to help affected local producers to adjust.

Trump however made use of a little-used national security clause (Section 232) in the US trade laws to justify his big jump in steel and aluminium tariffs. The clause allows the President to take trade action to defend security. The WTO also has a security exception in GATT Article XXI.

But what constitutes national security is not clearly spelt out either in the US or the WTO laws, and countries can abuse this clause.

The Trump administration tried to justify invoking the security factor by saying steel and aluminium are needed to make weapons of war. But this was undercut by giving exemptions from the increased duties to Canada and Mexico due to their membership of Nafta, the North American Free Trade Agree­ment that includes the US. The exemptions for reasons unrelated to security exposes the security rationale as fake.

Other countries are angry and preparing to retaliate. The European Union has drawn up a list of American products on which its member countries will raise tariffs. China warned it would make an appropriate and necessary res­ponse.

At the WTO General Council on March 8, the US action was attacked. Many countries condemned the unilateral move and the use of the national security rationale. Canada said the security issue “may be opening a Pandora’s box we would not be able to close”.

Brazil expressed deep concern about an elastic or broad application of the national security exception. India said the national security exception under GATT should not be misused and unilateral measures have no place in the trade system. China argued that the over-protected domestic industry would never be able to solve its problems through protectionism.

Many WTO member states will most likely take the US to a dispute panel, and the outcome will have strong consequences. If the panel rules for the US, then other countries will view the decision as permission for all countries to take protectionist measures on the grounds of security.

If the decision goes against the US, it will strengthen the anti-liberal trade faction and tendency in the Trump administration to ignore or even leave the WTO.

Malaysia will be affected by the new tariffs as it exports 96,000 tonnes of steel to the US. But this is small compared to how much steel we import.

The bigger blow to us is the US measure in January to slap up to 30% tariffs on solar cells and panels. Malaysia is the largest photovoltaic cells exporter to the US, with a market share of 30%. The tariff increase will have a big impact on the solar industry, a solar company chief was quoted as saying last month.

The next big protectionist move from the US may come in a few weeks when Trump decides what action, if any, to take against China after considering a Commerce Department report on China’s trade and intellectual property practices.

If strong action against China is announced, China can be expected to take strong retaliatory action.

That may escalate the trade war that is already under way.

Global Trends MARTIN KHOR

Martin Khor is executive director of the South Centre. The views expressed here are entirely his own.

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Sway of the Chinese language as China rising, but English is still king

https://youtu.be/fbQxXibXOxE
https://youtu.be/-HSrnqHkuwM

Sway of the Chinese language on display  

AT a recent forum in Hong Kong, Jim Rogers, a Wall Street tycoon, played a video of his daughter reciting a classical Chinese poem.

This is not the first time Happy Rogers has exhibited her proficiency in the language.

At an event in Singapore in 2013, the then nine-year-old showed off her nearly perfect Putonghua pronunciation and tone when she recited a not-so-well-known poem by Li Qiao, a Chinese poet during the Tang Dynasty. She won a big round of applause from the audience, most of them Chinese descendants. Happy’s sister Baby Bee, then five years old, did equally well, singing nursery rhymes in Chinese.

While it is not uncommon for young Chinese language learners to recite ancient poems, Happy spoke in classical Chinese with a fluency that could make even some native Chinese speakers envious, according to a report in Guangzhou Daily.

And recently, during US President Donald Trump’s visit to China, his granddaughter Arabella’s recital of Chinese poems went viral online, making her a “popular figure” among Chinese audiences.

There is a long list of foreign celebrities and their children learning Chinese, including Amazon founder Jeff Bezos’ four children and Facebook founder Mark Zuckerberg and his daughter. Even Prince William, media reports say, studied Chinese in school.

The increasing popularity of the Chinese language has led to the introduction of various programmes and classes worldwide. It is estimated that more than 100 million people outside China, including overseas Chinese, are studying the language, as many believe it can be used as a tool to gain access to conveniences in not only China but also some other countries.

The growing enthusiasm of people in other countries to learn Chinese can be attributed to their love for Chinese culture.

It perhaps explains why traditional Chinese cultural elements, from kung fu films to ancient works such as The Analects of Confucius and Sun Tzu’s The Art of War, have won so many global diehard fans. Many foreigners even believe that Chinese characters are an expression of aesthetic appreciation – maybe that’s why many famous personalities including former soccer star David Beckham have got Chinese characters tattooed on their body.

China’s economic and social development is another important factor for the growing interest in the language and culture. As the world’s most populous country and the second-largest economy, China for years has accounted for the largest number of students studying in other countries, which might also have made people overseas interested in the language.

As Jim Rogers said, whether you like or not, the 21st century will belong to China. He always tells people that if they have children, they shall encourage them to learn Chinese, “because Chinese will be the most important language”. For foreign companies intending to do business in China, they can have a huge advantage over their competitors if they can master the language.

And with the Belt and Road Initiative progressing smoothly, a number of Chinese enterprises will venture into countries along the ancient trade routes for business, which means a higher demand for Chinese speakers.

Source: China Daily/Asia News Network

China rising, but English is still king

 

Asia News Network and The Star recently published an article “Sway of the Chinese language”, detailing the rising popularity of learning Chinese as posted above.

Facebook CEO Mark Zuckerberg, US President Donald Trump’s granddaughter and billionaire investor Jim Rogers’ daughter are among some of the famous people or their family members brushing up on their Chinese language skills.

Tourists from China are splashing their cash all over the world (in some countries such as Thailand and Malaysia, the Chinese can also go cashless by making their purchases through Alipay).

Meanwhile, economists predict that the GDP of China, currently the world’s second largest, would surpass the United States’ within 10 years. As the economic value of the Chinese language grows, it will unseat English to become the world’s leading language. Or so we are told....

But if history is a clue, this may not happen so soon.

In the heyday of the Roman Empire, as the great Julius Caesar and his successors conquered the Mediterranean, Latin became the dominant language of the European continent. The Roman Empire began to disintegrate in the fifth century. Latin, however, remained relevant for many centuries to come. (The Eastern Roman Empire, also known as Byzantine Empire, survived into 15th century, but its capital was in Constantinople, and its official language was Greek.)

In year 1215, the unpopular King John of England, pressured by rebel barons, issued Magna Carta. The document established for the first time the principle that everybody, including the king, was subject to the law. It is considered one of the first steps taken in England towards establishing parliamentary democracy. The Magna Carta was initially written in Latin.

In year 1687, Sir Isaac Newton published three papers which were collectively known as Principia Mathematica. These works form the foundation of classical mechanics. Principia Mathematica, like the Magna Carta, was written in Latin. That was more than 12 centuries after the demise of the Roman Empire.

In ancient times, Malay language was the lingua franca of the Malay Archipelago. Then the Western powers came, created the modern states of Malaysia, Singapore, Brunei and Indonesia. Post-independence, Javanese, who make up 40% of Indonesia’s population, dominate the republic’s politics and economy. Somehow, Bahasa Indonesia is based on Malay rather than Javanese.

By 2050, China will become the world’s largest economy. The US will drop to second place. In the third spot, as economists believe, will be India. Like Malaysia, India was a British territory. And like our country, English, the language of the former colonial master, is still widely spoken.

By mid-century, the combined GDP of English-speaking and English-as-second-language nations, which include US, India, Britain, Canada, Australia, New Zealand, Ireland, the Philippines, Singapore and Malaysia, will likely be larger than that of China.

I do not doubt that Chinese language will get more important every year, and I encourage everyone to learn it if conditions allow. However, it would be foolish if we, in the advent of “China’s Century”, neglect English.

By CHEW KHENG SIONG Kuala Lumpur

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China needs strong core leadership: media survey

‘Transitional period demands strong administration’

Chinese people believe that a strong central leadership is indispensable for the rise of the country, and highly anticipate further confirmation of the role of the core leadership by President Xi Jinping during this period of historic significance, according to a poll recently released by a magazine affiliated with the People's Daily.

The survey, conducted by the People's Tribune, a magazine affiliated with the newspaper, through questionnaires, face-to-face and telephone interviews, as well as online polls between April 15 and September 8, interviewed 15,596 people living in cities and rural areas. The survey results were released earlier this month.

The main findings were that a strong central leadership as well as a pioneering figure is especially critical for a rising world power, and that as president and general secretary of the Communist Party of China (CPC) Central Committee, Xi, with full leadership qualities, is supported whole-heartedly by a wide range of officials and people.

To the question of why a country in a transitional period needs a strong central leadership, most respondents strongly agreed that it is vital to safeguard a country's sovereignty and national security, putting the approval rate at 4.50, on a 5-point scale from disagree to complete approval, the survey found. This is followed by the number of respondents who think that core leadership is as important to "guide the nation toward a lofty goal" or that it was "particularly important for a populous and multi-ethnic country."

This year, the necessity for strong leadership has been a theme expounded by many media organizations.

The Guangming Daily on October 9 published a commentary by Fan Dezhi, a senior official at the Party History Research Center of the CPC Central Committee, which asserted that "A strong core leadership is needed more than ever before to achieve the great dream of the renewal of the Chinese nation."

To promote the core leadership of the Party, the priority is to "conform with the CPC Central Committee, with General Secretary Xi Jinping as well as with the Party's theories, guidelines, principles and policies," read a commentary in the Qiushi Journal in March, the flagship magazine of the CPC Central Committee.

Social and political stability, which can be realized by a potent government backed by public support, is the prerequisite for a smooth transition and reform of any country, said Zhi Zhenfeng, a legal expert at the Chinese Academy of Social Sciences.

"Both the rise of great Western powers and the rapid development of developing countries needed a strong core leadership and powerful government," Zhuang Deshui, deputy director of the Research Center for Government Integrity-Building at Peking University, told the Global Times.

Zhuang cited the examples of Otto von Bismarck who unified Germany in the 19th century and the strong Japanese government that carried out Meiji Restoration to bring about its modernization and Westernization.

China should unwaveringly uphold the CPC's leadership if it hopes to realize a stable and sustainable development, Zhang Dejiang, chairman of the National People's Congress Standing Committee, said in March, adding that everyone should conform to the ideology and actions of the CPC Central Committee with Xi as general secretary.

"Since China faces complicated situations in different areas, coupled with a huge population, only a strong core leadership is able to coordinate the interests of different groups while taking full account of the majority of its nationals," Zhuang noted.

Zhi said a lack of consciousness of "the core" has made a few local officials and Party members fail to follow or strictly implement the policies issued by the CPC Central Committee.

Charismatic leadership

The People's Tribune poll found that the Chinese people are drawn to the charisma of Xi. The survey found that most respondents believe that Xi has leadership qualities, namely "strategic willpower with full confidence," "bravery to tackle problems head-on" and "intelligence to cure both the symptoms and root causes of problems." The list is rounded out by "top-level design with wisdom and philosophy" and "personal charisma to set an example for others."

When asked which trait is essential for a core leadership to give full play in reality, 79.13 percent of those surveyed said a "leader of integrity and ability."

In addition, the poll results showed that people from all walks of life highly anticipate the further confirmation of Xi's role as the core of the leadership.

Without releasing the specific data, the survey found that most respondents believe that officials that lacked "the consciousness of the core" would go astray and lose their sense of responsibility or discipline.

"Only by establishing authority in the CPC Central Committee can the Party and the nation be forceful. In this sense, firmly espousing Xi as the core is a matter of direction, principle and realistic needs," the magazine quoted anonymous officials who participated in the poll.

Therefore, we should further strengthen the consciousness of the core in the Party and across the country, improve intra-Party political life and the leadership system of the Party and the State, and further confirm Xi's core role in the critical rise of China, said the survey report. - Global Times.

Xi as core long affirmed by public opinion

All Chinese know clearly that the Xi’s leadership has played a critical role in the changes in China in the past four years and the significance of the word “core” being written into the Party document. The sixth plenum is themed on strict Party governance

 

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The Chinese want advancement just as much as others do. It’s just that they would rather do it quietly.

Patriotic spirit: A paramilitary soldier guarding a giant flower bouquet at Tiananmen Square in Beijing to commemorate Chinese National Day. — AFP

TO understand why and how China has emerged as a great power, we have to look beyond what experts usually point to. The Chinese have opened up the economy, they have invested heavily in R&D, goods made in China flood stores in the United States, Europe and elsewhere, they are a patriotic bunch. They are industrious.

These are good reasons. But what are the real ones? Why can't other nations do the same? The United States used to be a major manufacturing country. Now it’s a consumption economy with an astounding number of obese people. Why?

What drives the way the Chinese do things and conduct themselves at the personal as well as national level? I have seen Chinese graduate students in the United States who kept quiet in the classroom when the professor asked a question but at the end of the semester, managed to score all As. They have no intention of showing off. They are advancing slowly but surely without making a lot of noise.

Despite all its strength and ambition, China is not bent on global domination. Although its influence is undeniably rising, its engagement is transactional, not imperial. Its interest beyond Asia is mainly in countries that can provide it with raw materials and markets.

Talk of China’s big footprints in Africa, for example, is overstated. Its stock of direct investment in the continent still lags far behind that of Great Britain and France, and amounts to only a third of the United States’. In Africa and Latin America, it is concentrating more on taking stakes in local companies, not just buying up land and resources.

China likes to mind its own business. It wants to have as little involvement abroad as it can get away with. Instead of acting for the greater good of humanity, it responds pragmatically when its own interests are at stake. Its navy has begun to participate in anti-piracy operations off the Horn of Africa and in United Nations peacekeeping in Africa. In 2011, it sent a ship to co-ordinate the evacuation of 36,000 Chinese workers from Libya.

The world may anticipate more such actions as its companies get more deeply involved around the globe. It is also making inroads into the use of soft power through Confucius Institutes all over the world that try to demonstrate that China and its culture are benign.

What China is against is easier to comprehend than what it is for. It opposed Bush’s incursion into Iraq in 2003, vetoed the interventions Western powers sought in Syria and Darfur and took no position on the Russian annexation of Crimea. Chinese leaders are not great fans of the existing system of alliances but offer no alternative system of collective security. They talk about sharing resources in the South and East China Seas, but have offered no definite proposals to this end.

Disappointed by what it sees as its lack of influence in international organisations, China led the establishment of the Shanghaibased New Development Bank in 2014, of which all the Brics countries are members and which looks like a tenderfoot to the World Bank. It has also set up an Asian Infrastructure Investment Bank to rival the ADB.

A late appearance is not unusual for a great power. It took a world war to draw the United States irreversibly onto the world stage. Over 200 years, through much pain and suffering, China has transformed the very centre of its identity, changing itself from an inwardand backward-looking society to an outward- and forward-looking power. Since 1978, it has shown both flexibility and firm resolve in its continued pursuit of wealth and power.

Many countries around the world respect, and would like to imitate, the undemocratic but efficient way that China has managed its decades of growth. But how exactly to go about it? What do they know that the rest of the world doesn’t? Well, for one thing, they don’t believe that they are superior to others or destined by the Divine to be great. They know they have to work for it.

They are honest with themselves. More importantly, they know how. While the Western culture teaches people to be “themselves”, there could be no advice more hollow than this.

Confucius, Mencius, Zhuangzi and other Chinese thinkers, more than 2,000 years ago taught that we shouldn’t be looking for our essential self, let alone seeking to embrace it, because there is no true, absolute self to begin with.

As they understood, human beings are messy, multi-dimensional beings, a tangle of conflicting emotions and capabilities in a messy, ever-changing world. We are who we are by reacting to one another. It’s no wonder that the Chinese leadership is turning to ancient philosophy for support. That’s something to learn from China.

 From Asia News Network THE DAILY STAR

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US will benefit by accepting China's rise

Trade volume between China and the US hit $441.6 billion in the first three quarters of the year, surpassing the $438.1 billion in trade between Canada and the US. [Photo/IC]

In the past year, the growing pressure on US President Barack Obama's foreign policy due to the unfolding US presidential race cast a shadow on US-China ties despite some achievements.

The international situation and diplomatic practices in the passing year, to a large extent, confirm this contention. Some impartial American scholars agree to it because of the global issues the US faces, and wonder why the US has gone all out looking for "adversaries" in every corner of the world. Also, a number of such scholars believe that whether China and the US can avoid a confrontation largely depends on whether the US can rethink its "dominant power" status.

The world is undergoing profound changes, and that includes China's rise. The changes, however, have made some people in the US nervous, according to some American scholars. The US has got accustomed to being the world's most powerful country. But the fact is, the US' power has been declining. And these people attribute the development to the weakening US leadership and argue that a strong leadership will help restore Washington's unchallenged position in the world.

Needless to say the presumption is unrealistic. A sagacious analysis of the situation, however, can help the US rethink its real position in the world. Regrettably, US decision-makers have failed to read the vicissitudes of the times and still want to maintain world peace under Washington's leadership and change other countries by forcing them to adopt the US model of "democracy".

The world today is different from what the US imagines it to be. Countries, including the powerful ones, will prosper if they follow the general world trend and falter if they go against the tide. The trend suggests the developing world as a whole will continue to rise because emerging countries now contribute more than 50 percent to world economic growth. Even some Westerners admit that no major world issue can be resolved without the participation of big countries such as China, India and Brazil.

Despite all this, there is hardly a country that doesn't want to maintain and develop good ties with the US. The BRICS countries expect smooth cooperation with the US. Russia may be determined to rid Syria of terrorists, but it has still made it clear that it wants cooperation with the US. China's willingness to cooperate with the US is also beyond doubt. But the problem is, the US has not made appropriate changes in its stance and often takes actions without paying attention to other countries' interests.

Because of China's consistent efforts, Beijing and Washington have made notable achievements in economic, military and cultural fields, and these hard-won achievements should be cherished by both sides. But by being unnecessarily worried that China will challenge its hegemonic status, the US has been making moves to contain China on various fronts. Apt examples are the US' tough and even provocative stance and actions on the South China Sea issue.

The ever-increasing interdependence of China and the US should have led to better bilateral ties. And with many US allies, including Britain, Canada and Australia, showing greater interest in cooperating with China, one wonders why the US cannot do the same when it comes to its relationship with China.

By Wang Yusheng (China Daily)

The author is executive director of the Strategy Study Center, China Foundation for International Studies.

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To fellow US interest rate hike or to cut rates?

Emerging economies in a dilemma on whether to follow suit or cut rates

“Specifically, we expect rate cuts in India, Indonesia, South Korea, Taiwan and Thailand in 2016. We also project a further 75bps of rate cuts and a 200bps reduction in RRR in China'. - Credit Suisse

THE big question is what happens next?

The much anticipated hike in US interest rates on Thursday meant that for the first time in almost a decade, US interest rates are on the way up. The 25 basis point (bps) rise in US interest rates by The Federal Open Market Committee (FOMC) to between 0.25% and 0.5% was made as the US economy showed tangible signs of improvement.

Such gains in the US economy through lower unemployment and higher forecast inflation has meant that the target for interest rates by the end of 2016 has been pegged at 1.5%, meaning that rates are expected to rise by 25 basis points every quarter until the end of next year.

The implications of what the US FOMC does reverberates throughout the world. Conventional thinking of the past is that higher rates in the US does put pressure on central banks elsewhere to follow suit.

But times have changed. Countries today have their own domestic economies and issues to manage and that has taken precedence over what the US does with its monetary policy.

It is clear that the de-coupling has taken place a long time ago. The European Union and Japan are still engaged in quantitative easing and are keeping rates near zero or in the case of the EU, in negative territory.

For Malaysia, the thinking is that with the difference between domestic and US interest rates still having a nice cushion, the focus of Bank Negara will be on the Malaysian economy.

Rate pressure: Should the path of the US rate cycle starts to steepen, economists say it will put pressure on Bank Negara as the ringgit may be pressured by inaction. – Reuters Countries such as China cut its interest rates in October to 4.35% as it grapples with a slowing economy. Different priorities call for different action.

But analysts feel the move by the US does create a bit of a dilemma for policy makers. Raising rates does cool an economy, which is already shifting to a lower gear given the tangible cooling of major economic indicators.

Trimming interest rates further, while will help the economy, will put more pressure on the flow of capital. Analysts feel that might not be what the central bank will want to do at the moment considering the weakness of the ringgit not only against the US dollar this year but also against the currencies of its major trading partners.

“Our rate is accommodative for economic growth and Bank Negara can raise rates when the economy is slowing down,” says an economist with a local brokerage.

To each its own

The United States has been the traditional locomotive of growth for the world for much of recent history. But the emergence of China has changed that equation. Trade of the emerging world increases with China as the second largest economy of the world grows, its influence on Malaysia and the rest of Asia has become more affixed.

It is for that reason that some are speculating that emerging economies, such as Malaysia, will keep its eyes focused on what the People’s Bank of China does while having the US action in its periphery vision.

“We argue that Asian central banks’ monetary policy stance next year will be more influenced by economic and monetary policy cycles in China than in the past, and will diverge from the US. Unlike the previous US Fed hiking cycle when virtually all Asian central banks tightened their policies, we think this time Asian policy rates will stay lower for longer,” says Credit Suisse in a report.

“Specifically, we expect rate cuts in India, Indonesia, South Korea, Taiwan and Thailand in 2016. We also project a further 75bps of rate cuts and a 200bps reduction in RRR in China.

“Given the challenging environment for exports, we expect growth in trade-dependent economies including Hong Kong, Malaysia, Singapore, and Thailand to surprise the consensus on the downside. Meanwhile, more domestic-oriented economies with policy catalysts, including Indonesia and the Philippines, could outperform expectations considerably,” it says.

For Malaysia, the FOMC decision was keenly watched. Any time US interest rates move, Bank Negara pays close attention to it.

Is it the key determinant for the direction of domestic interest rates?

No, say economists. “Local conditions override what the US does,” says an economist.

For Malaysia, economists believe that the current overnight policy rate of 3.25% is appropriate to support growth. But they do too acknowledge that Malaysia is in a dicey situation depending on what happens next.

The general view is that the US will continue to push rates upwards. Just how rapidly will be important and as US rates goes up, the differential with Malaysia will narrow.

“If the local economy does as it is predicted, then there is a possibility of a small hike next year but there is no urgency to do that,” says an economist.

The question is what happens after next year should the path of the US rate cycle starts to steepen?

Economists say that will put pressure on Bank Negara as the ringgit might be pressured by inaction. As it is, the drop in crude oil prices is the most pressing issue affecting the value of the ringgit.

The effect on emerging currencies

Emerging markets have had a series of bad press over the past year. With sentiment souring and the outlook in the US getting brighter, it was no coincidence that the US dollar surged, gaining about 40% on average against emerging market currencies since May 2013.

But is it time for things to change?

Schroders thinks that might happen.

“It is difficult to argue that the Fed has been the sole factor in emerging market debt weakness. China hard landing fears, plummeting commodity prices, Brazilian political disarray, Russian policy concerns and general weakening of growth across all regions created a near perfect-storm for emerging market debt investors.

“However, a more predictable and less fraught path going forward for the Fed should help steady investor nerves and risk appetite. If developed market bond yields remain very low – as seems likely with a very slow hiking path, set out with some confidence – emerging market dollar yields may remain one of the few places to look for meaningful income generation for years to come,” it says.

Schroders says the move by the US Federal Reserve comes at a time when emerging market dollar debt seems particularly attractive.

“Yields in the primary sovereign dollar index are at highs not seen since 2010, when Treasury yields were much higher than today. Yield spreads over Treasuries for investment grade sovereign debt are just under 300 basis points, and remain at elevated levels that were last seen consistently during the European crisis of 2011. High yield sovereign debt currently has a yield to maturity of 8.5%.

“The divergence between developed market monetary policies has driven the dollar nearly 20% higher on a trade-weighted basis since July 2014. Emerging market currencies have fallen in lock step.

“With the European Central Bank now charting a path towards a steady dose of quantitative easing as growth in Europe stabilises, Fed predictability should help curb that dollar appreciation. Emerging market currencies should then likely steady at attractive levels, boosting sentiment towards the asset class. Even a modest virtuous cycle led by these factors could make emerging markets one of the strongest global fixed income performers next year, given today’s generous yield levels.”

By Jagdev Singh Sidhu The Star/Asia News Network

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