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from Global Investing:

Mrs Watanabe in Istanbul

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Japanese mom-and-pop investors' penchant for seeking high-yield investments overseas is well known. Mrs Watanabe (as the canny player of currency and exchange rate arbitrage has come to be known) invests billions of yen overseas every year via  so-called uridashi bonds, debt denominated in currencies with high yields.  Data shows the lira has suddenly become the red-hot favourite with uridashi investors this year.

In a note entitled Welcome Mrs Watanabe, Barclays analysts estimate $2 billion in lira-based uridashi issuance this year, ahead of old favourite, the  Australian dollar.

So far, Japan's exposure to Turkey is negligible at just 1.2 percent of their emerging market portfolio investments (Brazil is 4 percent, Korea 3 percent and Mexico 2 percent).  But Turkey's high yields (almost 8 percent on one-year bonds) and the lira's resilience mean the figure could rise to $5-$6 billion a year. That is almost half of total portfolio flows to Turkey in 2011, Barclays says.

Its analysts note that Brazil has fallen from favour with Mrs Watanabe as the central bank there has cut rates sharply, taxed foreign inflows and pushed the real down almost 10 percent to the dollar. In contrast,  the Turkish lira is up 5 percent this year.  The central bank has signalled it will not countenance a weaker lira and kept monetary policy tight.  It has also not stood in the way of flows to local bond markets which have received almost $8 billion this year from foreigners. Barclays write:

from Global Investing:

10%-plus returns: only on emerging market debt

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It's turning out to be a great year for emerging debt. Returns on sovereign dollar bonds have topped 10 percent already this year on the benchmark EMBI Global index, compiled by JP Morgan.  That's better than any other fixed income or equity category, whether in emerging or developed markets. Total 2012 returns could be as much as 12 percent, JPM reckons.

Debt denominated in emerging currencies has done less well . Still, the main index for local debt, JPM's GBI-EM index, has  racked up a very respectable 7.6 percent return year-to-date in dollar terms, rebounding from a fall to near zero at the start of June.  Take a look at the following graphic which shows EMBIG returns on top:

from Global Investing:

More EM central banks join the easing crew

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Taiwan and Philippines have joined the easing crew. Taiwan cut interbank lending rates for the first time in 33 months on Friday while Philippines lowered the rate it pays banks on short-term special deposits. Hardly surprising. Given South Koreas's shock rate cut on Thursday, its first in over three years, and China's two rate cuts in quick succession, the spread of monetary easing across Asia looks inevitable. Markets are now betting the Reserve Bank of India will also cut rates in July.

And not just in Asia. Brazil last week cut rates for the eighth straight time  and Russia's central bank, while holding rates steady,  amended its language to signal it was amenable to changing its policy stance if required.

from Global Investing:

Korea shocks with rate cut but will it work?

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Emerging market investors may have got used to policy surprises from Turkey's central bank but they don't expect them from South Korea. Such are the times, however, that the normally staid Bank of Korea shocked investors this morning with an interest rate cut,  the first in three years.  Most analysts had expected it to stay on hold. But with the global economic outlook showing no sign of lightening, the BoK probably felt the need to try and stimulate sluggish domestic demand. (To read coverage of today's rate cut see here).

So how much impact is the cut going to have?  I wrote yesterday about Brazil, where eight successive rate cuts have borne little fruit in terms of stimulating economic recovery. Korea's outcome could be similar but the reasons are different. The rate cut should help Korea's indebted household sector. But for an economy heavily reliant on exports,  lower interest rates are no panacea,  more a reassurance that, as other central banks from China to the ECB to Brazil  ease policy, the BoK is not sitting on its hands.

from Global Investing:

In Brazil, rate cuts but no economic recovery

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Brazil's central bank meets today and almost certainly will announce another half point cut in interest rates, the eighth consecutive reduction since last August. But so far there is little sign that its rate-cutting spree -- the longest and most aggressive  in the developing world -- is having much success in resuscitating the economy.

HSBC's closely watched emerging markets index (EMI), released this week, shows Brazil as one of the weak links in the EM growth picture,  with sharp declines in manufacturing and export orders in the second quarter.

from Photographers' Blog:

A star that shined for me

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By Ueslei Marcelino

It's always a challenge to photograph nature, and the moon is certainly a part of that. Everyone at some time has looked at that giant orb shining in the sky.

In recent months I felt the urge to try my hand at photographing it. The simplest way is to record the moon up there alone, suspended in the dark. The hardest is to capture it with something in the foreground that can cause more visual impact.

from Breakingviews:

Brazil’s richest man overpromises, underdelivers

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By Raul Gallegos

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

Brazilian billionaire Eike Batista is swiftly falling from favor. His flagship oil company OGX lost 25 percent of its value Wednesday after massively cutting the output expectations of some key oil wells. Batista is a savvy salesman and wheeler-dealer but his failed promises are building up rapidly. Investors smartly no longer take him at face value.

from Breakingviews:

World’s new air giant taking off at turbulent time

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

Get ready for the world’s largest airline to take off this week. But don’t look north or east - the globe’s most valuable carrier is set to be South American. Chile’s LAN Airlines is on track to finally consummate its marriage to Brazilian rival TAM this Friday, almost two years after announcing the tie-up. But the promise of greater regional integration has fueled big expectations that economic headwinds will make difficult to meet.

from MacroScope:

Channels of contagion: How the European crisis is hurting Latin America

If anything positive can be said to have come out of the global financial crisis of 2008-2009, it may be that the theory arguing major economies could “decouple” from one another in times of stress was roundly disproved. Now that Europe is the world’s troublesome epicenter, economists are already on the lookout for how ructions there will reverberate elsewhere.

Luis Oganes and his team of Latin America economists at JP Morgan say Europe’s slowdown is already affecting the region – and may continue to do so for some time. The bank this week downgraded its forecasts for Brazilian economic growth this year to 2.1 percent from 2.9 percent, and it sees Colombia’s expansion softening as well. More broadly, it outlined some key ways in which Latin American economies stand to lose from a prolonged crisis in Europe.

from Photographers' Blog:

An extreme year

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2012 is the year of extremes in northern Brazil. Two regions of the country's vast north suffered their worst natural disasters in recorded history, but they were opposite disasters, with floods in the Amazon and drought in the northeast. Reuters photographers Ricardo Moraes and Bruno Kelly covered both stories. Their contrasting accounts follow:

Ricardo Moraes writes from northeastern Bahia State:

People suffering without water but full of hope, was what I found in the state of Bahia, facing its worst drought in half a century.

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