Does renewed acronym anxiety spell crisis?

Acronym anxiety is here. It is a clear sign of worry when brokers start to produce acronyms to encapsulate negativity. The emergence of "PIIGS" (Portugal, Ireland, Italy Greece and Spain) was one of the first symptoms of the budding crisis on the periphery of the eurozone.

In the last week, my email inbox has brought me the Fragile Five BIITS (Brazil, Indonesia, India, Turkey and South Africa) from Deutsche Bank, and CRASH (Conflict, Rates, Asia, Speculation and Housing) from BofA Merrill Lynch. So we hvae a state of high acronym anxiety.

At least three factors have combined to bring on the condition. First, several emerging market currencies have fallen badly. Second, the situation in Syria, bringing with it what appears to be a likely military strike by the US, raises uncertainty and fear. And third, the summer truce - when trading volumes are low - will soon end. We are about to enter September and October, the months when history says that market accidents are most likely to happen.

So what are the chances of such an accident? The CRASH acronym, from BofA's Michael Hartnett, summarises them. Conflict scares markets, critically through its impact on oil prices. Developed markets are not as dependent on oil as they were in the 1970s, but in recent years, once Brent crude exceeded $125 per barrel, in 2008, 2011 and 2012, it triggered corrections in equities.

And some countries are more dependent on oil than others. India must import virtually all its oil. Combining the rise in oil prices with the recent fall in the rupee leads to an oil price, in rupee terms, that far exceeds its peak during the price spike of 2008. This could inflict severe economic damage.

It also involves the issue of R for rates. With long-term US interest rates rising, money tends to flow out of emerging markets and back to the US. This is most problematic for countries with current account deficits, led by Deutsche's Fragile Five. The Federal Reserve's next rate-setting meeting, at which it will either start tapering off its bond purchases or make its plans far clearer, is still three weeks away. The Fed has no interest in causing an emerging markets crash, but a further sharp uptick in rates would be excruicating for the BIITS.

A for Asia, however, is an odd inclusion in the acronym. This emerging market turmoil differs from predecessors by being more differentiated. Since emerging markets began falling in earnest, in May, MSCI indices show that Latin America, down 20.2 per cent, has suffered more than Asia (off 11 per cent). Looking at countries, Korea, with strong exports, is unscathed (down 2.3 per cent) as is much of Eastern Europe (down 7.6 per cent as a whole). But India (25.8 per cent), Indonesia (30.7 per cent) and Turkey (35.8 per cent) have suffered severe falls.

Nicholas Spiro, of Spiro Sovereign Strategy, points out that "even vulnerable markets such as Hungary, with high non-resident shares of local currency debt and which remain heavily indebted, have fared relatively well thanks to their external surpluses".

There has also been differentiation in the BIITS' responses. In the last week, Brazil has raised interest rates (and helped to relieve some of the pressure on its currency), while Indonesia has done the same with little effect, and Turkey has ruled out intervention, with its prime minister even attacking the "interest rate lobby". India's response, awaiting the arrival of new central bank governor Raghuram Rajan has been, to quote Mr Spiro, "all over the place".

Mmagnifying the risk is S: Speculation. There is a lot of it about. Margin debt on the New York Stock Exchange - money borrowed to fund short-term speculation - hit a record in April, while indicators of leverage such as covenant-lite loans, which have poor protection for the lender, have also spiked higher. This juices up the chance of a generalised crisis.

But could the BIITS really trigger a generalised crisis? Alan Ruskin of Deutsche points out that they account for about 7 per cent of global GDP; Thailand triggered a global crisis in 1997 when it accounted for 0.5 per cent of the global economy. But a look at who exactly would suffer from a severe slowdown in the Fragile Five shows a varied picture; other Latin American countries are critically exposed to Brazil, and the countries of the Gulf are exposed to India and Turkey, but unless speculatiors really lose their cool there is no need for widespread contagion.

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And one fact for emerging markets remains unchanged. They are at the mercy of events in the US. The H is for housing. Otpimism about US growth, and rising rates, had been predicated on a US housing recovery. The most recent data suggests that has stalled. That might mean no tapering from the Fed, which would help the BIITS - but it adds fresh uncertainty.

World stocks are still up 7 per cent for the year. There is no crash, and no crisis yet. But there is a reason why acronym anxiety is back.

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