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Cameron Brandt, EPFR Director of Research, reflects on how he sees November unfolding:
After a month in the spotlight, Europe will cede center stage - temporarily - to the US and a number of emerging markets with Brazil at the top of the list.
Brazil’s recent election of right-of-center populist Jair Bolsonaro has been greeted with a flood of fresh money into Brazil Equity ETFs. While the willingness of investors to wait for results keeps shrinking, their appetite for the early stages of an emerging markets reform story remains strong and there is a good chance November will be a record setting month – in flow terms -- for Brazil Equity Funds.
India is the current poster child of the what-have-you-done-lately attitude to EM reform stories. Moves by the government to conduct a Venezuelan-style raid on the central bank’s “excess reserves” in order to dress up a fiscal balance under pressure from rising oil imports may be setting the stage for a very rough month for India’s financial markets.
The importance of US mid-term elections for markets is usually overstated. Look for a modest rebound in US markets if the one on Nov. 6 restores divided government, something investors view as insurance against the worst excesses of the two major parties.
While the focus in Europe will be largely on Italy, the political fortunes of German Chancellor Angela Merkel and the progress of the UK-EU Brexit negotiations, Spain may prove to be November’s wild card. Spain’s minority socialist government is also testing the EU budget limits, and rising pressure from Catalan separatists may encourage it to take a more confrontational stance with the EU so as to (a) boost its domestic standing and (b) free up resources to throw at the Catalan issue.
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