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The Canaries in the Coal Mine

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The Canaries in the Coal Mine

The severe decline in the commodities complex associated with slower economic growth, particularly from China, has seen Emerging Markets selling their holdings of US Treasuries in order to stop their currencies declining too rapidly.

As China exports excess capacity and the price of globally traded goods are under pressure, deflation becomes a distinct possibility. In a recent blog I referred to China exporting 124 million tonnes of steel in 2015, up from 80 million tonnes in 2014. And this compares with the world’s number two steel producer, Japan, at 105 million tonnes.

In another blog entitled “Eastern Europe – The Epicentre Of Our Next Crisis” I noted academics Carmen Reinhart and Kenneth Rogoff claim that if a country’s external debt to GDP ratio exceeds 30 per cent, there is a material risk of a credit default.

At the time of writing, Hungary, Georgia, Croatia, Bulgaria, Belarus, the Czech Republic, Chile, Brazil and Columbia all had a gross external indebtedness to GDP ratios exceeding 40 per cent, and the average figure for these nine countries is a nose-bleeding 80 per cent.

Meanwhile, two canaries in the coal mine – the Athens Stock Exchange General Index, has just hit its lowest level since 1990 (451 points) – while the Deutsche Bank share price (€13.23) is now 20 per cent below its Global Financial Crisis trough recorded in early 2009. Both have declined around 90 per cent from their 2007 peak.

To learn more about our funds, please click here, or contact me, David Buckland, on 02 8046 5000 or at dbuckland@montinvest.com.

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Chief Executive Officer of Montgomery Investment Management, David has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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3 Comments

  1. What about the Australian canary? We seem to be worse at 95% external debt to GDP. I would love an explanation as to why no one seems to worry about debt in Australia. Not to mention the household debt numbers. There must be something I’m missing because it would seem to me we are at the edge of a cliff.

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