Salient to Investors:

Jim O’Neill writes:

  • Too much of the world’s trade and finance is conducted in dollars. The exorbitant privilege has lasted too long. It is time one or two of the emerging-market governments did something about the US’s ability to borrow in its own currency – an advantage the rest of the world has to pay for, one way or another.
  • As QE ratcheted up, many investors chose to believe they’d devised a smart investment strategy when all they were doing was looking for yield pickup. However, escalator up, elevator down.
  • In general, emerging economies should avoid running too large a “basic balance” – the current-account deficit minus long-term capital inflow – which rarely ends well. Strong net inflows of foreign direct investment are relatively reliable, but portfolio inflows, sensitive to interest rates, are much less so. India and Turkey are exposed in this way, and Brazil is creeping in the same direction.
  • Fed hints at a change in the direction of a well-established monetary policy are disruptive because investors all over the world tend to be trend followers and have adopted the mantra “Never fight the Fed.”
  • China is too big an economy to give US monetary policy as much power as it has over its business cycle. Beijing should continue to free up trade and liberalize the capital account of its balance of payments and consider greater movement of its currency.
  • The recently announced oil deal between Rosneft and China National Petroleum will be transacted in rubles and renminbi – that’s how to deal with the mighty dollar and the Fed’s domestically directed monetary policy.

Read the full article at

Click here to receive free and immediate email alerts of the latest forecasts.