Two interesting charts from emerging markets-focused bank Renaissance Capital. The first looks at the pace of change in Italy, to try and fathom out when we might exit the first stage of this emergency. Renaissance reports that Hubei’s “data didn’t start to improve until 12 days after the lockdown. So we’re around the time when we’d hope to see Italian numbers start to slow, given the lockdown of the north of the country on 8 March and the extension to the rest of the country on 9 March”.
The chart below suggests that today’s Italian new infection numbers (+5,560) might be showing “ step down in the daily rate of growth of new infections to 10.4%, well below the 14.2% average rate of the last week, and the actual number of new infections down day-on-day. Cases are still doubling every seven days at the 10.4% rate, but it’s potentially a welcome improvement.” Fingers crossed but next comes the US and the UK. We might not see their peak until the end of April?
The coming EM crisis
The second nugget refers to what I think is an increasingly awful truth – that unless drastic action is taken, the epicenter of this emergency might shift to the developing world. One hopes against hope that in places like Syria, Nigeria and India, the younger population and the existing knowledge base for dealing with public health emergencies might act to slow down the spread of the virus but I have a nasty feeling that come the summer, we might see multiple challenges in Asia, the Middle East (outside of Iran) and Africa. Again, I hope not but the risks are bloody obvious.
If that is the case we could see a terrible double whammy: massive stress on depleted local public health systems made worse by a flight to safety into the dollar sparking multiple EM crises. Again, I hope I am dead wrong but we need to think through which nations might be hit hardest economically. Cue an excellent chart below from renaissance which demonstrates that the capacity to issue debt is key. According to renaissance countries where bond yields are low (and or falling) are in a better position than those with high (and or rising) rates.
“In the good corner we have central Europe (though the EU will have to waive budget rules), particularly the countries in the eurozone (Baltics), as well as Czechia, Poland. Emerging Asia is here too: Taiwan, Thailand, Korea, Malaysia, Philippines, India, Vietnam – well placed to stimulate. Morocco also looking fine.In the bad corner we have South Africa, Nigeria, Egypt, Brazil, Mexico, Colombia and perhaps Romania. Hungary has seen yields rise by more than Poland, Czechia. Russia has high fiscal savings (SWF) which can be used for stimulus.”
Waiting for the penny to drop in UK Housing
I’ve long scorned those who reckoned that the UK was due a nasty price collapse. My main contention is that although UK house prices might be overinflated, we’re unlikely to see a precipitous decline because there are various structural supports that will simply push the housing market into a deep freeze – like Germany’s over the last few decades.
I might need to change my tune now though. I’m starting to see numbers bandied around privately which suggest that we could unemployment levels push past 10%, then 20% and finally 30%. Crucially we are seeing real stress in self-employed ‘middle class’ jobs where homeowners will face massive challenges. The government has offered a mortgage holiday but this is just sticking tape for many people. We could see forced sales by Q3 as homeowners downscale to control their liabilities. Another signal to watch out for is sales by buy to let landlords, especially as their tenants fail to make payments. Many BTL landlords are far from the stereotype of filthy rich types – this could be the crisis that pushes them over the edge into a decision to sell. At that point we could see a flood of sales on the market, pushing prices down aggressively.
That hasn’t shown up yet though in the latest data points though. For instance today we have numbers out from the Benham and Reeves House Price Index which looks at the state of the market based on the average house price across all of the main price indices, combining mortgage approval price (Nationwide and Halifax), asking price (Rightmove) and sold price (Land Registry)
This reports that the current overall average UK house price is sitting at £251,912 having dropped marginally by -0.2% on the previous quarter, although prices were up by 1.4% on an annual basis. In London, the average property value also dropped marginally to £511,166, down -0.4% on the previous quarter, down -0.7% on an annual basis.
Watch this space – my attention will be focusing on numbers coming out of the BTL lending sector for clues as to what happens next.
Jeremy Grime in his daily Grime reports observes that “Plus 500 directors tucked away another c.£14m of stock announced Friday”. The shares rose affair bit today and are up 3.25% over the week but currently, they are down 1.62% for the last month and down 2.91% for the last 3 months. But I presume that Plus500 is experiencing a massive increase in business during this market volatility and is probably trading on a low single-digit multiple to earnings. Something doesn’t quite compute.