Fiscal worries reach the index through the currency first

When investors start worrying about a government's finances, the currency usually weakens before the equity market does. For a dollar-based investor, that currency move is most of the loss, and it can happen while local share prices barely change.

The channel is the exchange rate

Fiscal concerns push up local bond yields and push down the currency as foreign money leaves. Local companies may be doing well, and their shares in local terms may hold up. Converted into dollars, the index falls anyway.

Higher local rates then weigh on the domestic economy, which eventually reaches earnings too.

What I'm watching

• Fiscal targets and whether they are being met
• The currency against the dollar
• Local long-term bond yields, which price the fiscal risk

Where I stand

Short, on fiscal concerns that I think the currency has not finished pricing. The companies are fine; the exchange rate is the problem.

What would change my mind

A credible fiscal plan that the bond market believes. That would stabilise the currency, and a stable currency would let the equity story come through.