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A Chinese fig leaf for US weakness
Weekly investor research
11 January 2016
Selling China has become a favourite way for the market to express negative sentiment about the global outlook, but the bodies are buried in the developed markets, not in China. The tensions between Iran and Saudi Arabia are unlikely to result in outright war, but both sides are likely to welcome some distractions on the foreign policy front while they adjust to lower oil prices. We also discuss Indonesian and Chinese FX reserves, inflation in Brazil, politics in Venezuela and talks between the government and holdout investors in Argentina. In the global section, we suggest that short-duration strategies could do well this year given likely volatility in the US Treasury market and high levels of risk aversion, which have pushed EM spreads wider than justified by fundamentals.