The Chinese authorities have been trying to bring down credit growth and reduce the overall debt burden in the economy.
Emerging market local currency debt: Recovering trade balances
However, in the short term a sharp pickup in lending at the start of the year should translate into stronger activity. Chinese growth, especially via construction and manufacturing, is a big driver of commodities. For copper, nickel, iron, coal and cement, China is by far the biggest consumer in the world. This is important for South America, as well as countries such as Malaysia and Indonesia. This brings us to the outlook for EM fixed income.
The balance of payments is a key driver of EM FX, while local currency bonds are closely positively correlated with FX. A big driver of inflation is the exchange rate. When a currency depreciates, inflation picks up, interest rates spike and bond returns are poor.
We are encouraged by the EM trade balance, as shown in Chart 1 below. We have excluded China from this analysis as presently it is not an investable market from a fixed income point of view and its trade balance is so huge that developments in China tend to dominate. After deteriorating for much of last year, during which EM currencies underperformed, the EM trade balance has seen a sharp correction back into positive territory. Historically, this has been a good indicator of performance. Through the first decade of the century, when EMs were running trade surpluses, asset class returns were healthy.
Going into EM were overheating, importing a lot more than they exported, and the result was a terrible year for the asset class. The asset class experienced very good years in and and, after a deterioration in the balance in , now we are back into surplus territory.
The recent recovery has been driven by non-Asian economies, which are less vulnerable to the stronger oil price. Now the oil price has fallen we may begin to see Asian trade balances recover, too, especially if China picks up. Encouragingly, there are not any markets which look fragile in terms of external balance.
Argentina also delivered poor returns — again, a country with a large external deficit which resulted in a big currency devaluation. While we are unenthusiastic about Romania and we see vulnerabilities in India, we do not see any country being as vulnerable as those two were in As growth accelerates, imports invariably pick up, too: there is only a short-lived window when we have a combination of decent growth and robust external balances, and we think we are currently in the sweet spot.
So what are the risks to EM debt at present? Number one is the stronger dollar. For investors who are able to, we have found investing in EM FX out of euros, or — better still — out of Canadian dollars or Australian dollars can be an excellent way of managing that risk. Risk number two is related: the US rate hiking cycle.
If the US continues to grow strongly, inflation concerns could flare up and lead to higher interest rates. Alternatively, the Fed could decide its neutral position is somewhat higher than where it is at the moment. Either way, if the rate differential between the US and the rest of the developed world continues to widen it could result in a stronger dollar.
At the moment we believe those risks look contained. We are much more worried about growth weakness in Europe than inflation in the US, but it is something we need to keep monitoring. Turning to the trade war, the focus of the Trump administration has been on the manufacturing sector as jobs have gone to countries such as Mexico and China.
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So it is important to consider the vulnerability of a country in terms of the degree of its exposure to the US. Countries such as the Czech Republic and Hungary are very manufacturing dependent but do little trade with the US and therefore look fairly invulnerable; you also have commodity exporters which are much more dependent on China. The country which has the most exposure to the US is Mexico, but we think its outlook is reasonable from here. In conclusion, we believe there will be a rebalancing of global growth away from the US and towards China and Europe in This is likely to put the brakes on US dollar strength and underpin a positive environment for EM assets for the remainder of the year in our view.
For example, rarely do troubled projects have a complete network diagram with full precedence relationships identified. If the project manager and his or her team do prepare a network diagram, rarely is it updated. What is particularly disturbing is the practice of simply creating a Gantt chart from a WBS and usually an incomplete one at that and using that for project control.
By carefully analyzing the project documentation, a picture will emerge of the oversights and lack of sound project management practices. From this analysis, the RT will identify the threats, problems and opportunities facing the project and be in a position to rapidly develop and execute the project recovery plan. Once the data has been analyzed, the RT will prepare its findings. The objective is to produce a well-defined list of threats, opportunities and problems ranked by order of severity. In many cases, the findings can be quite voluminous. Certain findings might overlap or be redundant.
Therefore, the RT needs to consolidate and aggregate the findings to make them very clear and manageable in number. The use of affinity diagramming to reduce a large number of findings to key categories for recovery execution purposes is recommended.get link
Managing in Recovering Markets | S. Chatterjee | Springer
Other options include tools such as the Nominal Group Technique, Delphi Technique, Crawford Slip and Comparative Risk Ranking, which are elicitation techniques aimed at quickly gathering information from experts on various project issues or concerns. Once the findings have been documented and approved, they are presented to the key project stakeholders.
It is at this juncture that the organization has to ask two important questions: Should we attempt to recover this project? Is it even worth saving? Answering this question can be a difficult task, but the process is made easier if well-defined criteria are used to evaluate the prospects of moving forward.
Such criteria are specific to each organization. That said, the following are general scenarios that might lead to the decision to not recover a project:. If it is determined that the project is worth saving and the decision is made to move forward, the RT and the project team can do so knowing that the organization is committed to their collective success.
At this stage we are ready to begin the recovery process. The deliverable produced as a result of this step is the Ranked Findings Report. Recovery is defined as saving a project from loss and restoring it to usefulness. The recovery approach outlined in this paper will focus on meeting the business case objectives as either established at the outset of the project or revised as a result of the assessment phase—the most likely scenario. The RT's main goals in recovery are:. The focus of this step is on developing a recovery project plan and assembling an extended team to accomplish the work.
In many ways, assembling a team and getting the job done is a project in itself. However, the RT is now faced with a situation where, because of poor performance, they might have a difficult time obtaining buy-in and support or having motivated team members on board. Recall the characteristics of a troubled project—confidence has been lost, people are out of patience.
In such a situation, once the RT has re-baselined the project, the schedule cannot slip again. This makes developing an achievable plan of paramount importance. The RT needs committed and dedicated team members to make this happen. Given the dynamics of the situation, the plan developed for a troubled project is not similar to a plan for a new project. There are many key differences, many of which are listed below. Simply put, a project plan for a troubled project:. To clarify, the RPM must:. Finally, in regards to the product of the project, forward progress will made only if the RT and key stakeholders—.
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- Download the report;
- Five Critical First Steps in Recovering Troubled Projects?
As can be inferred by the suggestions above, the practice of micromanagement plays a very important role in troubled project recovery. Avoided by most project managers as a discredited form of management, the practice of micromanagement in this environment is the cornerstone upon which success will be built. This micromanagement approach results in great detail and attention being paid to every aspect of work, an important ingredient in restoring the project to a steady state.
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Take the concept of inchstones as an example. In a smooth running project, you might do a progress check every week. Using the inchstone method, you would check the progress every day.
If normally you would check every day, we will establish hourly inchstones. By employing this method, the RT will know sooner, rather than later, if problems are preventing the achievement of forward progress. It can easily be seen that using the inchstone approach requires more frequent collecting and reporting of data to all stakeholders.