Emerging Markets Selloff

VAN PRAAGH: Thank you so much. Welcome, everybody, and thank you for joining us for this CFR Corporate Program Conference Call on “Emerging Markets Selloff.”

I’m very pleased to have Steve Englander, who’s global head of G10 FX research at Standard Chartered Bank, and James Sweeney, chief economist and Americas CIO at Credit Suisse, with us today to discuss for an update on emerging markets and whether the current downturn is a short-term correction or indicates a more systemic change.

Before we get into the discussion, I’d like to remind everyone in the audience that this call is on the record. We’ll have a discussion for about twenty-five minutes and then we’ll open up the floor for questions.

So let me turn to you, Steve, if you could start us off here today. Thinking back to the start of 2018, how have emerging markets performed relative to expectations? What were the major surprises both to the upside and to the downside?

ENGLANDER: Well, you have to remember that 2017 was a—was a major positive year for emerging markets. So you came into the year with a lot of optimism, with a sense that the momentum of 2017 would continue.

And I’d say that most of the surprises on the EM side have been on the, you know, asset market side. You know, growth hasn’t been spectacular in most emerging markets, but the, you know, the degree to which, you know, growth is surprising, either on the downside or on the upside, is very small relative to the kinds of financial pressures that we’ve seen.

And it has caused major consternation in the sense that investors began the year along emerging markets, that they, you know, they had loaded up their portfolios with EM. And I’d say that many investors had loaded up on the risky end of EM. Yields were high. Their 2017 performance made it—made it very attractive. So unwinding these positions has been very painful over the, you know, over the year.

Now, where we are right now, I’d say, is that most investors that I’ve talked to—and I’ve been on the road for most of the last month—don’t really—they don’t want to sell emerging markets. They’ve grudgingly been forced to become underweight EMs and they’d say that the long-haul position in markets is probably the second-biggest position overall with long U.S. equities being the first—the largest position. So I’d say that investors have largely pulled back from buying and may have gone somewhat underweight.

So the buying capacity is there and there’s a willingness to buy back even the risky end of emerging markets, but right now the appetite for emerging markets is very cautious. And it’s far more likely that we’re going to see that things are flipped into sort of the more stable end, the less vulnerable end of EM than the high-yielding EM where currencies and equities and bond markets have all come off.

VAN PRAAGH: OK, great.

And, James, what about you? What were the biggest surprises for you?

SWEENEY: Yeah. I mean, I would—I would just—on the macro backdrop, I mean, as Steve said, you came in the year with strong momentum in risk assets generally, including emerging markets, and strong momentum in the global economy, so very, very strong global manufacturing, industrial production growth, all those sorts of things. And you did actually have a bit of a slowdown in global growth, particularly between February and the beginning of the summer, and that showed up in emerging markets. You saw weaker investment in some countries.

And you had bad European data for a few months. And I think that bad European data, which really changed the markets’ expectations about the euro, coincided with a very big period of dollar strength, which was not expected by everyone certainly and not expected by a lot of people. And that combination of dollar strength and even just incrementally weakening global growth in a period of otherwise strong global growth, plus a backdrop of expected steady Fed hikes is really quite poisonous for emerging markets.

And we saw real stress in some markets in that period. And as you might expect, the places that have big current account deficits were the most vulnerable. I mean, there’s always worrying, bottom-up, more micro stories in emerging markets, but it seems to be certain conditions in which the market really takes notice of those stories, and I think those conditions were in place earlier this year. And so some of the events in places like Argentina and Turkey, you know, assumed a larger aspect and, you know, meanwhile, the elections in Mexico, the elections in Brazil.

And then on top of all of that, you know, you have the trade situation between the U.S. and China, which really gave great concerns. And, I mean, we’re talking about EM big picture; the China story is really an equity market issue and we’ve seen very significant underperformance by emerging market equities broadly, relative to the U.S. this year, but emerging market equities have a heavy weight for Asia and, you know, basically China-centric. And that has been hit by the trade dispute, where a lot of these other issues, you know, play out more in debt markets and currency markets.

So the big surprises are really dollar strength, the trade dispute, maybe some of the specific country outcomes in elections and things like that, and the general degree of underperformance that you had, especially on the equity side, but then in a few specific current account deficit countries on the—on the fixed income side.

VAN PRAAGH: Right. So I want to get to the China story quickly. But before we do that, you know, just looking across the EMs, we’ve seen major adjustments to currencies, spreads, and rates in many countries, with Turkey—in Turkey, the lira has lost close to forty percent of its value year to date. In Argentina, the peso has lost about fifty percent of its value year to date. You know, this is not limited to these two countries. We’ve got—we’ve got some pretty significant weakening happening in Brazil, South Africa, Russia, and others. And we’ve got wider risk premiums in places like Zambia, Lebanon, Ecuador, and other frontier markets. So weaker currencies, higher spreads, how much more financial tightening should we expect and for which countries? Or have we already seen the worst of things?

James, do you want to take a stab at that?

SWEENEY: Yeah, sure, sure. So, I mean, I think with regard to Argentina and Turkey, you know, not only do you have larger current account deficits than the rest of EM coming into this, but you also have significant market concerns about not just the level of inflation, but also the central bank’s basically institutional quality in terms of its ability to independently deal with those kinds of issues. And you have fiscal trajectory issues. And so I think those are your—those are your special cases.

I mean, I think in a country like Russia you can actually point to reasonably good monetary policy and some improving economic institutions and decision-making in recent years. And so I think, more broadly, when you’re looking Mexico, Brazil and some of the higher-rated EMs across the board, you know, financial conditions are going to follow global growth and global risk appetite. And I think there, things like the direction of the dollar and really how well the global economy holds up will certainly be—and whether the trade war, the trade situation deepens and undermines global growth and really global risk asset markets, those will certainly be the determining factors of whether, in general, financial conditions in emerging markets outside of the few specific cases blow up.

And our view is that global growth is going to be pretty good in the—in the next couple of quarters and that so far the trade dispute and some of these specific shocks we’ve had are not sufficient to roll everything over. But, you know, clearly, there’s a range of views out there.

VAN PRAAGH: And what about you, Steve?

ENGLANDER: Yeah. You know, I would draw a very stark distinction, say a big red line between the headline countries that we’ve been reading about—you know, say, Turkey, Argentina, to some degree Brazil, you know, some of the weaker, and South Africa, some countries that depend on external financing and live and die by it—the majority of emerging markets, if you—if you take out the vulnerable currencies—and currencies have been historically vulnerable. If you—if you take a look at the rest of EM, what you find is that the performance has actually been pretty stable.

And the metric that I’ve been using is, say, taking out the original fragile five—so, you know, not cherry-picking, but sort of countries that have been, you know, labeled as vulnerable for years—and looking at the other major EM currencies that, you know, based on transactions volume as identified by the BIS, and what you find is that, you know the bulk of EM, if you sort of put them into an index, aggregate them up as a, you know, currency index, they’ve actually outperformed the smaller G10 countries. That’s to say that if you look at the Chinas, Malaysias, Philippines, Perus, Colombias, Chiles, Mexico, you know, the—you know, not super vulnerable, you compare them with the performance of everything from, you know, Canada or sterling even—Canada, sterling, Sweden, Swiss, SEK, NOK, you know, Aussie, Kiwi, they’ve done just as well as those smaller G10 countries. So I’d say that the issue in terms of, you know, vulnerability, I think it’s easy to exaggerate. If it—you know, all—you know, the small G10 countries have come under pressure, but we don’t discuss them in the same terms that we discuss the EM. And in fact, it’s probably unfair to the higher end of EM to discuss them in the same terms as more vulnerable countries.

You know, I think that in some cases, there are fundamental issues, there are political issues. And we saw that, you know, in some countries there was just a refusal to take measures that were absolutely needed and the currency was pummeled as a consequence.

Commodities exporters, nonoil commodities are down about ten percent over the year, so it’s—you know, with even a modest acceleration of growth and not much going on in commodities, they are vulnerable.

But I would say that, you know, the good news that I see is that, you know, what we considered to be the high end and middle class of EMs basically are doing just fine. And historically, the pattern has been that when stability is restored to markets, those guys recover all of the losses, certainly on the currency side, that they experienced. That’s not the case of the vulnerable countries if you, you know, take a look at the Fragile Five, the—you know, the headline countries that we’ve been talking about, typically when you get a shock, they might, you know, currency-wise, they might recover fifty percent of that when conditions stabilize, but there’s a lasting effect. Whereas at the high end, there’s no lasting effect. And I take that as a very positive sign.

VAN PRAAGH: Right, that’s a good reminder. We can’t paint this with one brush, right? There’s lots of different dynamics going on. And I was wondering if you could—you’ve talked a little bit about the ones that really do well, setting aside the Fragile Five, those that have held onto their value, that recover their losses, that have performed well.

You know, looking at the other extreme of the spectrum and thinking about the EM markets that are—that are under the most stress, we do have reports of some debt markets being closed. We’ve got other EM bond markets still functioning, but with tighter conditions to varying degrees. Where are you seeing some of the most—I mean, setting aside Argentina and Turkey, where are bonds not getting funded, or where are there real liquidity challenges? Or, because we have maybe thinner swap markets or thinner liquidity in markets, you know, where are there some problems emerging?

SWEENEY: Well, I think—go ahead.

ENGLANDER: “After you, Alphonse.” OK. (Laughter.)

Look, you know, I think what you’re seeing here is that there’s some—again, there’s some structural issues in certain EM debt markets that make it harder for investors to stay in—stay in the game, so to speak, with their—with their currencies. I mean, if you think—if you think of the typical developed market, you know, bond market, you have swaps markets, you have repos. There are a variety of means by which you can hedge positions in the bond market. Many EM countries, that just isn’t the case. So, when you get a negative shock, everyone has to sell the same underlying instruments. You got to sell bonds. Or you sell the currency, but you know, the two are very tightly related.

So I’d say, you know, again, the—you know, there’s a general issue. I think the markets have become more efficient. And one of—and that’s DM as well as EM. And one sign of efficiency is—you know, paradoxically is that they become more one way. Everybody gets the information quickly. Everybody’s on the same side. The issue is how quickly can this be digested, and is there a variety of instruments out there by which some of the shock can be—can be dissipated? And I’d say that the—you know, some of the major benchmark currencies and markets, you know, don’t really have this sort of development yet. And as a consequence, when you do get these shocks, you find that the move is probably disproportionate relative to the shock because it’s a small door. And, you know—you know, what I’m saying is that the—in developed markets, you know, you might have a door, but you could have a few windows, there’s a chimney by which you can get out; whereas in, you know, many of these emerging markets, at the stage of development that the asset markets are in, basically the only option is to sell the underlying. And if everybody’s doing the same thing, prices move very quickly and disproportionately relative to the shock.

So it is an issue. And again, I’d say that it’s less of an issue in sort of, quote, the “high end.” And, you know, the question is whether the countries that have—you know, have current account deficits, the countries that have funding issues, whether they can convince markets that their situation is sustainable. And that—you know, I don’t think that has happened yet. It could happen, but I don’t think we’re there yet.

VAN PRAAGH: How about you, James?

SWEENEY: Yeah, I mean, I would just—yeah, I mean—I mean, the extreme case of a market which is closed is obviously Venezuela where, I mean, the debt market is basically trading on recovery on some—on some government debt, and it’s a complete disaster with hyperinflation and everything. I think, you know, the next thing we have is countries like Argentina and Turkey have responded to recent currency weakness and market stress, and especially in Turkey’s case expected higher inflation, with essentially austerity measures and tightening of policy by the—by the government, which will bring growth expectations sharply lower, which will, you know, make it harder for domestic borrowers to borrow and really even less likely that domestic borrowers come to market.

So I wouldn’t necessarily put it that, outside an extreme case like Argentina, many debt markets are shut. But I think you’re at the stage in some countries where people—you know, firms that would have borrowed under good conditions, gone to market, and taken advantage of tight spreads and low rates, are now sufficiently dissuaded by—you know, by the markets’ expected macroeconomic fundamentals that they’re going to—they’re going to take a break. And it’s interesting that that’s happening at a time where, you know, the high-yield market and the leveraged-loan market are remarkably open, actually, in developed markets. But, you know, as we’ve heard, in some of the higher-quality emerging markets, you know, credit is flowing just fine.

So I think it’s really this bigger backdrop if we return to weaker growth as the trade dispute escalates, if we get into a period of very strong dollar strength again, or maybe if we have a sharp decline in commodity prices globally, then this idea of kind of falling liquidity and fixed-income debt markets and, you know, markets looking semi-closed will come back to the fore again. But right now I think it’s more isolated in a few places.

VAN PRAAGH: Right. And you hit on a number of the major factors behind these market moves, so things like the G3 gradual tightening, and rising trade tensions, and then some of the domestic factors at play in places like Turkey and Argentina, and even Venezuela. But, you know, thinking about the—just picking up on that trade topic for a minute, we’ve had this latest announced U.S. tariff on imports from China. China, you know, may be sort of running out of room for retaliating with tariffs of its own, and attention seems to be turning to nontariff measures by China. What should we be thinking about in terms of the impact of a potential RMB depreciation, and who would be most exposed there? Do you see that as a big risk?

I don’t know; James, do you want to start?

SWEENEY: Yeah, sure. I mean, yes, we do see a further RMB depreciation as one of the risks involved in the trade dispute, but that’s not really the central risk here. I mean, we start by looking at the tariffs that have been put in and the kind of growth and inflation impact from those tariffs. I mean, with what’s been announced so far, including the ten percent tariffs on two hundred billion (dollars) in goods that were announced last week, you know, this is not a major macroeconomic shock to things like trade, inflation, and GDP. So this is on the order of basis points and magnitudes, which other kinds of discretionary policy can offset. And, you know, that’s why China got in front of this with a—with a devaluation ahead of time, which I think was quite shrewd, and they’ve also announced some—you know, some easing via lending targets and even some lending specifically directed at infrastructure.

As we go forward, if this deepens I think you could expect more of some of those policies from China. But the—but the exchange rate in particular is a little bit of a—of a tricky one because, ultimately, what China doesn’t want is get to a situation like a few years ago where they’re experiencing significant private capital outflows and they’re having to defend, essentially, downward pressure on their—on their currency. So, you know, if the expectation is that you’re going to have dollar strength and more depreciation in China, then they need to stop it. And that’s why I think it was shrewd to devalue a little bit ahead of these developments, as they’ve done, and why any further moves are likely to be modest.

Bigger picture, you know, the administration in the U.S. is now saying these tariffs are going to jump to twenty-five percent in January. You know, when you get there, some of these modeled estimates on macroeconomic aggregates become much more nonlinear and harder to estimate and much scarier. The risky asset impacts will get bigger. I think there’s a presumption by the U.S. administration that additional pressure will lead to concessions by the Chinese. But a great worry for me is that, essentially, perceived bullying from the U.S. will turn the Chinese recalcitrant and unable to deal as a result of, essentially, domestic political forces. And so, you know, this can go someplace bad, but it hasn’t gone someplace so bad yet. And the most recent news is simply that the tariffs are smaller than expected and China is going to ease a little bit. And so risk markets, including most in emerging markets, have actually had a pretty good week this week following the announcements from China.

VAN PRAAGH: OK. Steve, further moves likely to be modest?

ENGLANDER: On the tariff side? Look, you know, I think it’s hard to tell. But I agree with James that the—you know, it’s not a—just because you can impose small tariffs and get away with it, did not affect your markets, doesn’t mean that you can impose big tariffs and that would have the same impact. So I think—you know, I’m a little bit more concerned that, were this to extend, we would begin to see, you know, more fallback into the U.S. and to U.S. asset markets, particularly if China was using nontariff measures to interrupt the supply chain to U.S. companies. I mean, so far they’ve kind of taken the high road and they’ve actually expressed some interest in cutting their tariffs, because their tariffs are much higher than the rest of the world’s, or the developed world.

And, you know, so I think that there’s room for discussion here. I think that there’s—you know, both sides have an incentive to cut a deal. Right now, politically, it works for the U.S. But I think that the—there’s a broad recognition that high tariffs don’t work for anyone, and my guess is that we end up with a deal in which the U.S. is somewhat better off than, say, we were in October of 2016, and China’s modestly worse off than where they were, but nothing that really changes the dial either way.

With respect to the CNY, the point I’d like to make is that the—even with the depreciation, that comes after a pretty sharp appreciation. So the value of China relative to, say, the overall value of the ACIR (ph) currency basket is—it’s actually stronger than it was in the middle of 2017, and it’s roughly where it was at the end of last year. So, you know, unless there’s something that’s dramatic that happens to CNY, the global competitive balance hasn’t really been affected by these trade issues so far.

But I’d say the question, and to me the key to success, will be whether they’re able to separate issues that are manageable in the short term such as, you know, China’s tariff and nontariff barriers on conventional goods and trade, you know, that are widely acknowledged, that are issues with the EU as well as other countries. The list can be addressed, and that can be addressed in the conventional framework. And I think China’s willing to address that. The question is what the linkage is with intellectual property, which is a much harder and much less—much more abstract type of issue. And I think if, you know—I think and I’m hopeful that we can—will see that they’ll first deal with the manageable issues, slow-track the more difficult issues, even while, you know, probably holding hostage the—you know, the possibility that they can go back to tariffs if the intellectual property side isn’t satisfied. But overall, I’d say I’m probably more optimistic than most that this isn’t going to lead to a global tariff war, something that really has a meaningful impact on global activity.

VAN PRAAGH: OK, great. Thanks for—thanks for sharing your views there.

So we’re going to open it up to questions. As a reminder, the call is on the record. And I’d like to ask the operator to give instructions for asking a question.

OPERATOR: Thank you. At this time we will open the floor for questions.

(Gives queuing instructions.)

VAN PRAAGH: OK, great. So while participants are queuing up, I’ll lob in another question here. I was curious just to get, you know, your high-level takeaway, James and Steve, on the risk of a broader spillover of worries about emerging markets—Argentina, Turkey, and maybe a few others; Indonesia, South Africa, Brazil—to a much broader problem, a much broader systemic issue. What would be the main channels for that? What could be a trigger for that? What are the prospects for that over the next couple of—couple of months, in your view?

SWEENEY: Yeah, I—I mean, one version of asking that question that I’ve actually gotten a few times recently is, is this like 1997-98, where tightening U.S. policy led to some sudden stops of capital flows to some emerging market countries, you know, and that’s effectively the channel? Essentially, with U.S. rates rising and rates in the rest of the world generally low by historical standards, if the market starts to expect dollar strength on top of that, it’s very hard for a given emerging market bond to compete with a, you know, three percent U.S. Treasury. So I think that’s the financial mechanism.

I think—I actually think euro-dollar and just how the dollar does broadly, even within developed markets, is important for how it trades with emerging markets. And the way I look at it basically is that, you know, I’m pretty confident that the U.S. is going to have good growth in the quarters just ahead, just from our analysis of the internal U.S. dynamics. And I’m confident, but less confident that we’re going to have good growth outside the U.S.

And I think if we have very disappointing growth outside the U.S.—and we’ve had somewhat disappointing growth outside the U.S. over the last six months—if you have disappointing growth outside the U.S. with the Fed hiking and with the ECB committed not to hike, effectively, for a year, you’re going to have that dollar strength. And, again, what that means is you have a very attractive asset, you know, basically U.S. debt at higher yields with dollar appreciation behind it and those sudden stops are going to be more severe. And, you know, that can exacerbate any growth weakness that you already had in emerging markets and you’re basically getting a chain reaction. Now, whether that spills over into developed market growth is an interesting question. But to me, that’s the—that’s the channel.

VAN PRAAGH: OK. And, Steve, I’m going to—I’m going to get to you in one second, but I want to ask quickly if, Operator, if there’s anybody in the queue that we want to get to.

OPERATOR: No, ma’am, I’m not showing any questions in the queue at this time.

VAN PRAAGH: OK, thanks.

So, Steve, please go ahead.

ENGLANDER: Yeah. Look, I would say that the major risk—and it isn’t high, I’d say—is that some financial institution runs into trouble as a consequence of, you know, some unexpected exposure to an emerging market’s economy that just, you know, it’s more than expected and, you know, beyond what would have been prudent.

The issues are probably bigger in Europe because the banks themselves are under pressure. You know, bank equity is down about twenty percent on the year and it’s a couple of years that they—you know, they don’t need another shock. But again, every central bank has been stress testing its financial institutions, so, you know, I wouldn’t—I wouldn’t exaggerate the risks that that happens.

Broadly speaking, I think that part of the reason we’re seeing emerging markets rebound over the last week is that the spillover did appear to be contained in the sense that, you know, we—you know, there was no bottom for where Turkey was going when it looked as if they weren’t going to respond to the pressures that they were facing. But we did see—you know, we’ve seen Thailand raise rates, we saw Russia raise rates, we’ve seen a couple of other countries raise rates. The fact that they’re confident enough to raise rates, I think, has sent a positive signal to the market. And as a consequence, I think that we don’t have the kind of, you know, 1999 spillover.

In addition, the real fundamental that’s there is that most of, you know, most of the countries that I described at, you know, the high end or middle end of EM, they have external balance, whereas in 1999, everyone just about, you know, had a current account deficit that made them vulnerable to any kind of withdrawal of liquidity. So, you know, I wouldn’t—it’s possible.

And the one area I think I diverge from James is that I’m more worried about a world—or more worried about EM in a world in which, you know, the Fed raises rates and, you know, we as a house expect them to raise rates four times next year. The ECB is beginning to pull back liquidity and the BOJ, you know, achieves its dream of being able to raise Japanese rates and pull back even further from bond buying. And in that kind of world, it’s unclear where euro-dollar goes or where dollar-yen goes because all of the G3 are, you know, moving in the same direction in terms of monetary policy.

But what is clear is that if G3 rates are going up, there will be liquidity pressures globally. And if that—if those liquidity pressures become significant, we, you know—the risk is that we see a resumption of what we experienced in August. And in that case, it wouldn’t be as idiosyncratic as some of the August issues seemed to be. It would be more systemic basically when the G3 pull back in terms of, you know, monetary policy stimulus and pull back significantly and look like their, you know, cycles are shifting. I think that the, you know, the risk is that we, you know, we see further rounds of, you know, pressures on the EM.

VAN PRAAGH: OK, thanks for that.

Operator, anybody else in the queue with a question at this point.

OPERATOR: I’m not showing any questions in the queue at this time.

VAN PRAAGH: OK, great. Well, we’ll close the call in a moment here, but I’ll just take the opportunity to ask one last question for each of you, Steve and James. What are the—what are the top worries on your mind at this point, one or two things you want to leave the audience with to wrap up the call?

ENGLANDER: Well, leaving them worrying. You know, for myself, I’d say that the—you know, given that the positions are so stretched in terms of long U.S. equities that there’s also an exposure if the market is disappointed in its optimism on U.S. growth. And that disappointment could come either because the Fed is wrong, you know, in terms of the pace of its hiking, it could come because the impact of fiscal runs off more quickly and sharply than we expect. But that, I think the—you know, I think it’s not properly understood just how much the apparent risk appetite exists right now is dependent on the U.S. and that, you know, given the positioning in markets, were that to unwind, you know, the spillovers would be—would be global.

And I would say that the liquidity withdrawal risks that I’m talking about, if it turns out that the next president of the ECB wants to normalize and they may want to normalize simply because they really don’t have many bullets were Europe to go into a downturn now, were they to be more explicit in terms of saying that, look, you know, we can’t keep providing this liquidity and stimulus forever—I think that the combo, even if two of the G3 being pretty explicit and, you know, basically their hawkishness or, you know, hawkishness relative to the PGCers (ph), I think that would be—it would be a challenge for, you know, certainly the low end of the end to handle and maybe even, you know, going up the food chain.

VAN PRAAGH: James?

SWEENEY: Yeah. And, I mean, from my end, I mean, we have seen decent weakness is Asian investment broadly in the second quarter and some hints of it into the third quarter. So we’ve seen some weak manufacturing growth in Asia, we’ve seen some weakness in China recently. We think it’s going to reaccelerate. We think the stimulus is healthy and they’re getting it and that it offsets the trade issues. But it’s—but it’s China, which means, I mean, really, the data are not high-quality data.

And I think, you know, I think you can worry about growth in Asia. And I think you have to admit that whatever your forecast, the outlook for growth, particularly in Asia, is a little bit more uncertain and that the trade policy issue does worsen that, although it doesn’t necessarily, like I said, mean there’s a slowdown. So we’re watching that, we’re tracking that very closely.

I think the Brazilian election, which we didn’t—we didn’t talk about, but that’s something that the market is very focused on. And I think there are certainly outcomes to the Brazilian election that could be a catalyst to kind of get markets focused on kind of really broader emerging market narratives about, you know, really, fiscal policy seems to be getting worse across a number of countries at once. I mean, with the Mexico, you know, AMLO transition, which, you know, the market still doesn’t have a great sense on exactly what his fiscal policy will look like, so there’s room for more news that fiscal policy fundamentals across a lot of emerging market countries are deteriorating. So those things—so I would say Asian growth and the uncertainty around it and this, basically, spreading bad fiscal policy and how some of these Latin American elections in particular could add to that are causes for concern over the next few months.

VAN PRAAGH: OK, wonderful. Well, we will leave it there. Thank you, gentlemen, for your insights and your interesting commentary. I think it’s been a fascinating discussion.

And, Operator, that does conclude our call. Thank you so much.

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