EM by EM #23 Playing the least dirty laundry vs the dirtiest
Lately, we’ve been quite outspoken regarding the imminent threat posed by the USD/Oil dynamics, which has the potential to unleash turmoil within the emerging markets sphere.
While we typically don’t shy away from challenging prevailing opinions, it appears that, in this specific context, our perspective is slowly becoming the consensus view (which, I might add, is more lucrative than the opposite order).
But perhaps it is worthwhile to question and assess the fundamental drivers behind the current predicament- and ask what does it take to turn things around?
Oil & USD
We think that sudden supply shocks are here to stay and one shouldn’t underestimate the importance of the production cuts in the West going forward. OPEC & friends are loving this pattern:
Chart 1: United States, Inventory vs Production