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Investor Insights Global

19 Jun 2019   Global, Sustainable Finance

How to Price In Human Risk and Other Intangibles

ESG – shorthand for environmental, social and governance – considerations are increasingly being prioritised by organisations, investors and lenders alike. But quantifying its influence on credit risk and funding is proving to be quite elusive. A group of former finance professionals and academics is trying to change that by putting “intangibles” like human risk, corporate culture and values at the centre of that relationship.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX has gotten some traction lately, but we do not think it will last. While the US-Mexico trade tensions appear to have been addressed, the US-China situation seems likely to drag on into Q3. EM seems to be benefitting from the weak dollar, but the global backdrop remains concerning.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

We think the global backdrop remains very negative for EM. Rising tariffs pose significant risks to global growth and trade. We expect both China and Mexico to retaliate further in the coming days. At this point, a potentially more dovish Fed and ECB (amongst many others) is simply not enough to help EM get any traction.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

The global backdrop for EM remains challenging. Trade tensions remain high and show no sign of letting up. China PMIs will offer the first snapshot of the economy for May and it won’t be pretty. Lastly, press reports suggest the US will consider allowing tariffs on countries that have undervalued currencies. No good will come of this for EM.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX ended last week on a firm note on optimism that a trade deal will be reached. We think that optimism is misplaced and so look for EM weakness to resume this week. Indeed, rhetoric from both sides over the weekend suggest things will get worse before they get better.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX was whipsawed last week by conflicting Fed views and softer than expected US weekly earnings. We continue to believe that the bar is set very high for a rate cut this year, and that markets have not adjusted accordingly yet. The divergence theme that favors the dollar should come back to the forefront as RBA, RBNZ, and Norges Bank are all likely to deliver dovish holds. Indeed, there are significant risks of rate cuts by the Antipodeans.

Ashmore Group: Beware of Big Fiscal

Having exhausted most monetary policy levers, fiscal stimulus appears to be the ultimate go-to solution for lack of growth in the developed world – but it is often very costly, and tends to stand in the way of deeper, much-needed structural reform. Ashmore's Jan Dehn looks at how this dilemma may be resolved.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX had an awful week, with virtually every currency down against the dollar. The lone exception was MYR, which managed to end flat on the week. The divergence theme remains supportive for the dollar, and that should keep downward pressure on EM. We may see some corrective bounces from time to time but we remain negative on EM. FOMC meeting and China PMI readings should help set the tone for markets.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

The dollar rally is back on track as the divergence theme re-emerges. DXY traded last week at its highest level since April 2 and is on track to test that day’s cycle high near 97.71. For EM, that has translated into broad-based losses this past week. ARS, RUB, and a handful of other were able to notch small gains last week, but most EM currencies were down against the greenback. COP, BRL, ZAR, and TRY were the worst performers and we see further EM losses ahead.

Fifty Shades of Green: How are Banks and Investors Approaching ESG?

The world isn’t the only thing heating up. As issues of governance and climate change continue to dominate headlines, financial institutions are facing growing pressure from governments and public opinion alike to integrate Environmental, Social and Governance (ESG) considerations into day-to-day operations – in everything from how they lend or invest to how they run their operational facilities.

 

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