PAINTBRUSH

The Daily Update - PAINTBRUSH - Why Australia Raises Concerns

The Daily Update - PAINTBRUSH - Why Australia Raises Concerns

Over the past few weeks we have been focussing on the “PAINTBRUSH” countries that we highlighted back in February 2014 as being particularly vulnerable. Recently we have highlighted the Polish Zloty as being particularly exposed, given the country’s high level of indebtedness.

The second letter in our acronym is ‘A’ for Australia. Unlike Poland, which is indisputably an emerging country with a GDP per capita of under USD 14,000, Australia is often considered to be a wealthy, advanced economy.

The Daily Update - PAINTBRUSH

The Daily Update - PAINTBRUSH

Earlier this week, Jean-Claude Trichet, the former President of the ECB between 2003 and 2011 and Governor of the Bank of France from 1993 to 2003, made some interesting comments in an interview with AFP.  He said "There is now agreement that the excessive debt level in advanced economies was a key factor in the triggering of the global financial crisis in 2007 and 2008," and that "The growth in debt, especially private debt, in advanced countries has slowed, but this slowdown has been offset by an acceleration of emerging country debt."  In Trichet’s opinion: "This makes the entire global financial system at least as vulnerable as it was in 2008, if not more so."

The Daily Update - Asset Buffers & PAINTBRUSH

The Daily Update - Asset Buffers & PAINTBRUSH

Earlier this week S&P published a report highlighting the importance of a large stock of liquid government assets in supporting a sovereign rating: ‘when government assets exceed 100% of GDP, the positive effects are visible throughout our analysis, and this is currently the case for only seven sovereigns we rate. Topping that group is Kuwait, followed by Norway and Abu Dhabi.’  The report goes on to note: ‘Our ratings on Kuwait and Abu Dhabi remained stable at 'AA' throughout the recent slump in oil prices, underlining the rating stability provided by having large liquid assets.‘

Wealthy Nations Daily Update - Poland and PAINTBRUSH

Some have described S and P’s recent move to downgrade Poland’s long-term foreign currency rating by 1 notch to BBB+ with a negative outlook (and its local currency rating to A- from A) as a ‘shock’ or a ‘surprise’. We would beg to differ: Poland fails our ‘wealthy nation’ test having a concerning level of net foreign liabilities (“NFL”) to GDP (82.2% in 2012 using Stratton Street’s estimates). We avoid investing in countries with NFL / GDP greater than 50%; IMF research indicates levels above this threshold are associated with increasing risk of external crises.

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