Another terrific note from Nomura today sticking its thumb in the eye of the Goldman, BofA and Jeremy Grantham EM bulls. 100% right:
We disagree with those who believe that EM is in a more resilient position now than it was on the eve of the 2013 taper tantrum. EM has developed new sources of vulnerability, with a combination of chronically weak growth, rising inflation and a marked deterioration in fiscal finances, and yet real policy rates remain deeply negative in many EM countries.
•The prospect of the Fed normalizing monetary policy amid China’s slowing economy(see Asia Special Report: China – Beijing’s Volcker Moment, 24 August 2021) is adreadful combination for EM, only to be made worse by the three EM vulnerabilities that we have found lurking in the shadows:•A growing EM bank-sovereign debt nexus that raises the risk of a so-called bank-sovereign doom feedback loop, the type of loop that was at the heart of the 2009-10 European debt crisis. In addition to several low-income, frontier economies, Brazil and India appear most at risk of a doom loop.