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from Global Investing:

Braving emerging stocks again

It's a brave investor who will venture into emerging markets these days, let alone start a new fund. Data from Thomson Reuters company Lipper shows declining appetite for new emerging market funds - while almost 200 emerging debt and equity funds were launched in Europe back in 2011, the tally so far  this year is just 10.

But Shaw Wagener, a portfolio manager at U.S. investor American Funds has gone against the trend, launching an emerging growth and income fund earlier this month.

It's a great time to launch a fund if you have a long-term focus in mind. Emerging markets trailed DM in terms of performance for a while, peaking at end of 2010 so we are 3-plus years into a down market and period of significant underperformance.

He may be onto something. Some analysts have tentatively started advising clients to start dipping their toes back into water, given how cheap emerging market valuations are. Societe Generale for instance which has been negative on emerging equities for 3 years, said in a note that the sector had gone from being "priced for perfection to deep value".

from Global Investing:

CORRECTED-Toothless or not, Western sanctions bite Russian bonds

(corrects last paragraph to show that Timchenko was Gunvor's co-founder, not a former CEO)

Western sanctions against Russia lack bite, that's the consensus. Yet the bonds of some Russian companies have taken a hit, especially the ones whose bosses have been targeted for visa- and asset freezes.

from Breakingviews:

A credible strategy for Barclays’ investment bank

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By Dominic Elliott
The author is a Reuters Breakingviews columnist. The opinion expressed is his own.

Barclays’ Transform plan needs urgent transformation. Chief Executive Antony Jenkins’ year-old strategy to revamp the UK lender is already struggling. First, the Bank of England jacked up gross equity-to-assets requirements last summer, necessitating a scrambled 5.8 billion pound rights issue and a one-year delay to the bank’s 12 percent return-on-equity target. Then Jenkins reneged on an assumed policy of reining in pay – and justified it with a decidedly pre-crunch declaration of needing to pay up to retain talent.

from Breakingviews:

Rudloff’s retirement is bad timing for Barclays

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By Dominic Elliott
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Hans-Joerg Rudloff’s retirement at 73 comes at an unhelpful time for Barclays. The UK lender’s chairman of investment banking is stepping down after a distinguished career that spanned five decades – long enough for any banker. Rudloff’s achievements are myriad. A doyen of the eurobond market, which he helped create in the 1960s, 70s and 80s, Rudloff also saw the potential in Russia and central Europe in the 1990s, long before emerging markets became fashionable.

from Global Investing:

Ukraine aid may pay off for Kremlin

Ukraine said today it was issuing a $3 billion in two-year Eurobonds at a yield of 5 percent in what seems to the start of a bailout deal with Russia. That sounds like a good deal for Kiev -- its Eurobond maturing next year is trading at at a yield of 8 percent and it could not reasonably expect to tap bond markets for less than that. In addition,  Ukraine is also  getting a gas price discount from Russia that will provide an annual saving of $2.6 billion or so.

But what about Russia? Whether the bailout was motivated by "brotherly love" as Putin claims or by geo-politics, it sounds like a rotten deal for Moscow. The credit will earn it 5 percent on what is at best a risky investment. What's more the money will come out of its rainy day fund which had been earmarked to cover future pension deficits. State gas company Gazprom will have to stomach a 30 percent price cut, which according to Barclays analysts is "a reminder of the risks of Gazprom's quasi-sovereign status."

from Global Investing:

Barclays sees 20 pct rise in EM bond supply in 2014

Sales of dollar bonds by emerging governments may surge 20 percent over 2013 levels, analysts at Barclays calculate.  They predict $94 billion in bond issuance in 2014 compared to $77 billion that seems likely this year. In net terms --excluding amortisations and redemptions -- that will come to $29 billion, almost double this year's $16 billion.

According to them, the increase in issuance stems from bigger financing needs in big markets such as Russia and Indonesia along with more supply from the frontiers of Africa. Another reason is that local currency emerging bond markets, where governments have been meeting a lot of their funding needs, are also now struggling to absorb new supply.

from Global Investing:

Turkish savers hang onto dollars

As in many countries with memories of hyperinflation and currency collapse, Turkey's middle class have tended to hold at least part of their savings in hard currency. But unlike in Russia and Argentina, Turkish savers' propensity to save in dollars has on occasion proved helpful to companies and the central bank. That's because many Turks, rather than just accumulating dollars, have evolved into savvy players of exchange rate swings and often use sharp falls in the lira to sell their dollars and buy back the local currency. Hence Turks' hard currency bank deposits, estimated at between $70-$100 billion --  on a par with central bank reserves -- have acted as a buffer of sorts, stabilising the lira when it falls past a certain level.

But back in 2011, when the lira was in the eye of another emerging markets storm, we noticed how some Turks had become strangely reluctant to sell dollars. And during this year's bout of lira weakness too, Turkish savers have not stepped up to help out the central bank, research by Barclays finds. Instead they are accumulating dollars -- "rather than being contrarian, their behaviour now seems aligned with global capital flows," Barclays  analysts write. While the lira has weakened to record lows this year, data from UBS shows that the dollarisation ratio, the percentage of bank deposits in foreign currency, has actually crept up to 37.6 percent from 34.5 percent at the start of the year. Here's a Barclays graphic that illustrates the shift.

from Global Investing:

Bond market liberalisation — good or bad for India?

Many investors have greeted with enthusiasm India's plans to get its debt included in international indices such as those run by JPMorgan and Barclays. JPM's local debt indices, known as the GBI-EM,  were tracked by almost $200 billion at the end of 2012.  So even very small weightings in such indices will give India a welcome slice of investment from funds tracking them.

At present India has a $30 billion cap on the volume of rupee bonds that foreign institutional investors can buy, a tiny proportion of the market. Barclays analysts calculate that Indian rupee bonds could comprise up to a tenth of various market capitalisation-based local-currency bond indices. That implies potential flows of $20 billion in the first six months after inclusion, they say -- equivalent to India's latest quarterly current account deficit. After that, a $10 billion annual inflow is realistic, according to Barclays. Another bank, Standard Chartered, estimates $20-$40 billion could flow in as a result of index inclusion.

from Global Investing:

Frontier markets: past the high water-mark

By Julia Fioretti

Ethiopia's plans to hit the Eurobond trail once it gets a credit rating are highlighting how fast frontier debt markets are growing.

IFR data shows that sub-Saharan Africa alone issued $4.2 billion of sovereign debt in the year to September, compared to $3.6 billion in the same 2012 period. And returns on frontier market bonds have outgunned their high-yield emerging sovereign peers this year.

from Breakingviews:

Lloyds’ shares look a better bet than Barclays’

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By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Investors looking for a cheap way into the UK banking sector are spoilt for choice. The government is preparing to sell down its 39 percent stake in Lloyds Banking Group, probably through a discounted share placing. Rival Barclays is about to launch a 5.8 billion pound rights issue. Barclays’ shares are cheaper, but Lloyds is the safer investment. On balance, Lloyds looks better value.

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