201504 CM April

MONTHLY ROUND-UP OF THE LATEST STORIES
IN GLOBAL TRADE BY ANDREA KIRKBY.
NEWS IN BRIEF
EMERGING MARKETS –
BACK TO 1998?
EMERGING markets, for a long time
the main motor of global growth, have
recently showed signs of stalling. But
Coface says although several countries
– Russia, Venezuela, Argentina – are now
in crisis, there's little likelihood of a rerun
of the 1998 emerging markets crash.
Countries learned from that
experience, and now have more robust
public finances, and banks with better
balance sheets - plus in many cases
significantly higher reserves of foreign
currency.
As always, you need to do your
research on whatever country you’re
exporting to. But the chances of an allout
crash in the emerging markets seem
more limited this time round – as long as
China doesn't fall out of bed.
NEGATIVE YIELDS
NESTLE’S Euro denominated 2016 bond
recently traded at a zero yield. In fact,
better than that; it traded at a negative
yield of 0.002 percent. If you want to
lend money to Nestle, you now have to
pay for the privilege.
That seems crazy. And I do wonder
if the financial markets are storing up
some real pain if interest rates rise. (The
Swiss franc has already bankrupted the
US’s largest forex trader – and that’s a
far smaller market than the eurobond
market.)
But it does mean unless you’re
running very large risks, you should be
getting a good deal on your bank loans.
Banks love customer inertia – they make
half their money out of it. So remember
to run your eye over your financing
options and make sure you're getting the
best rate you can.
OIL COMPANIES ARE THE NEW LEHMANNS
AFTER the credit crunch, it took a while
until we started seeing the pain coming
through from property companies. With
their properties revalued downwards, many
of them were in breach of their banking
covenants; some rescheduled successfully,
others went to the wall.
We’re now seeing the results of the
fall in the oil price on oil exploration and
production companies. Many of them
have asset-backed finance based on the
value of their oil in the ground – Reserve
Based Lines. As the oil price sinks, the
value of those reserves falls, too - and
so does the company’s borrowing
ability.
So far, the banks are looking supportive.
EXCO has seen a 20 percent fall in its
resource value, but the banks have
worked around it. But if you export into
the oil sector – whether you're supplying
machinery and survey services, or catering
and security – you need to keep on top of
the news, because the risk is beginning
to mount. What looked like a conservative
balance sheet this time last year could be
dangerously stretched by now - even for
profitable, producing companies.
TWO DIFFERENT INDICES, TWO DIFFERENT STORIES
I'VE just taken a look at two very different
charts. One is the FTSE-100 index. The
other is the Baltic Dry Index.
The FTSE is trading at an all time high.
The Baltic, on the other hand, is at a 29
year low having lost more than 60 percent
in the last year.
The thing that makes me worry is that
the Baltic has always been a pretty good
lead indicator of global trade. Maybe less
CHANGING TIMES IN VIETNAM
VIETNAM is changing. It’s been moving
up for a while now from a low cost labour
economy into higher value areas. It’s
also highly export driven, with textiles,
footwear, and now increasingly electronics
and technology, performing strongly, and
that makes it a large market for capital
goods. Not bad for a country still run by a
Communist government.
Foreign direct investment has been
fuelling the economy, with South Korea one
of the biggest investors. Coface has a C
assessment on the country, but that's now
so these days, as higher value freight no
longer goes by ship; but it still makes me feel
cautious about the frothy assumption that
recovery is going to continue.
It's also worrying because it means
shipping and port companies are seeing less
and less income from their activities, and
that's sure to put strain on their finances
despite a bit of help from lower fuel prices.
Watch out for credit quality in those sectors.
on positive watch, and the credit agencies
upgraded their ratings in November last
year. GDP growth is five percent plus,
inflation has been tamed, and the only fly
in the ointment is a rather tattered looking
banking sector.
As well as capital goods, infrastructure,
energy, and education are all potential
targets for British exporters.
Watch out, though: the Vietnamese dong
is pegged against the dollar, but as we’ve
seen with Switzerland, pegs can come
unstuck.
40 April 2015 www.cicm.com The recognised standard in credit management