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from Global Investing:
Emerging European bonds: The music plays on
There seems to be no end to the rip-roaring bond rally across emerging Europe. Yields on Turkish lira bonds fell to fresh record lows today after an interest rate cut and stand now more than a whole percentage point below where they started the year.
True, bonds from all classes of emerging market have benefited from the flood of money flowing from central banks in the United States, Europe and Japan, with over$20 billion flowing into EM debt funds since the start of 2013, according to EPFR Global. Flows for the first three months of 2013 equated to 12 percent of the funds' assets under management.
But the effect has been most marked in emerging European local currency bonds -- unsurprising, given economic growth here is weakest of all emerging markets and central banks have been the most pro-active in slashing interest rates. Emerging European yields have fallen around 50 basis points since the start of the year, compared to a 20 bps average yield fall on the broader JPMorgan index of emerging local bonds, Thomson Reuters data shows.
The IMF today advised Poland to continue cutting rates "without delay" to boost the economy. That should give another leg-up to zloty bonds, where short-dated yields are already at record lows.
from MacroScope:
Best days over for emerging market local currency bonds?
Local currency bonds in emerging markets, like most financial assets, have enjoyed a solid rally on the back of ample global central bank liquidity. But the good times may be coming to an end, according to a report from Capital Economics. That's because there's only so much boost the securities can get out of the monetary easing efforts of the Federal Reserve and other major central banks, the firm says.
Emerging market (EM) local currency government bond yields have fallen sharply in the past few years. Our GDP-weighted overall 10-year yield of a sample of 18 EM sovereign borrowers has dropped by 125 basis points since the start of 2011, to around 4.4% at the end of April.
from Global Investing:
Emerging markets to fuel airline spending trajectory
Emerging markets may not have all the technological know-how in civil aerospace, but from China across the world to Brazil, they do have the cash.
The civil aerospace sector performed well in 2013, according to Societe Generale data, trading at a 4 percent premium over the MSCI world index, while the defence sector has steadied, and in the medium to long term civil aerospace should be supported by strong orderbooks from emerging economies.
from Global Investing:
Weekly Radar: Watch the thought bubbles…
Far from the rules of the dusty old investment almanac, it’s up, up and away in May after all. And judging by the latest batch of economic data, markets may well have had good reason to look beyond the global economic ‘soft patch’ – with US employment, Chinese trade and even German and British industry data all coming in with positive surprises since last Friday. Is QE gaining traction at last?
Well, it's still hard to tell yet in the real economy that continues to disappont overall. But what's certain is that monetary easing is contagious and not about to stop in the foreseeable future - whether there's signs of a growth stabilisation or not. With the Fed, BoJ and BoE still on full throttle and the ECB cutting interest rates again last week, monetary easing is fanning out across the emerging markets too. South Korea was the latest to surprise with a rate cut on Thursday, in part to keep a lid on its won currency after Japan's effective maxi devaluation over the past six months. But Poland too cut rates on Wednesday. And emerging markets, which slipped into the red for the year in February, have at last moved back into the black - even if still far behind year-to-date gains in developed market equities of about 16%!
from Global Investing:
It’s all adding up – emerging markets to drive global spending
The world's leading ad agencies are positioning themselves in Brazil, Russia and China -- countries that are expected to provide almost a third of the growth in global advertising over the next three years. That's according to a report by S&P Capital IQ Equity Research, a unit of publishing giant McGraw Hill.
Most major advertisers already have a foothold in these BRIC economies, where the advertising market is projected to grow by an average 10.7 percent a year over the next three years -- more than three times the growth rate in the developed world. Over the next 15 years, big emerging markets will add $200 billion to the global ad spend, S&P Capital IQ reckons.
from Global Investing:
Weekly Radar: May days or Pay days?
So, it's May and time for the annual if temporary equity market selloff, right? Well, maybe - but only maybe. A fresh weakening of the global economic pulse would certainly suggest so, but central banks have shown again they are not going to throw in the towel in the battle to reflate. The ECB's interest rate cut today and last night's insistence from the Fed that it's as likely to step up money printing this year as wind it down are two cases in point. And we're still awaiting the private investment flows from Japan following the BOJ's latest aggressive easing there.
So where does that all leave us? A third of the way through 2013 and it’s been a good year so far for nearly all bulls – both western equity bulls and increasingly bond bulls too! Not only have developed world equities clocked up some 13 percent year-to-date (the S&P500 set yet another record high this week while Europe's bluechips recorded a staggering 12th consecutive monthly gain in April) , but virtually all bond markets from junk bonds to Treasuries, euro peripherals to emerging markets are now back in the black for the year as a whole. For the most eyebrow-raising evidence, look no further than last week’s debut sovereign bond from Rwanda at less than 7 percent for 10 years or even newly-junked Slovenia’s ability this week to plough ahead with a syndicated bond sale reported to already be in the region of four times oversubscribed. For many people, that parallel rise in equity and bonds smells of a bubble somewhere. But before you cry “QEEEEE!” , take a look at commodities -- the bulls there have been taken a bath all year as data on final global demand hits yet another ‘soft patch’ over the past couple of months.
from Global Investing:
Japan’s big-money investors still sitting tight
More on the subject of Japanese overseas investment.
As we said here and here, Japanese cash outflows to world markets have so far been limited to a trickle, almost all from retail mom-and-pop investors who like higher yields and are estimated to have 1500 trillion yen ($15.40 trillion) in savings. As for Japan's huge institutional investors -- the $730 billion mutual fund industry and $3.4 trillion life insurance sectors -- they are sitting tight.
If some are to be believed, the hype over outflows is misguided. Morgan Stanley for one reckons Japanese insurers' foreign bond buying may rise by just 2-3 percent in the next two years, amounting to $60-100 billion. Pension funds are even less likely to re-balance their portfolios given large cash flow needs, the bank said.
from Global Investing:
Deutsche’s emerging markets bear sticking to his guns
Emerging markets bear John-Paul Smith first made his call to underweight emerging equities at the end of 2010. In a note released late on Monday he points out that such a position would have paid off handsomely -- since end-2010 emerging equities have underperformed MSCI's World index by 27.5 percent and U.S. MSCI by 37.6 percent.
Smith, who is head of emerging equity strategy at Deutsche Bank, sees no reason to change his call. Reckoning that the cyclical heyday of emerging markets is past, he is advising clients to hold on to developed and U.S. equities at the expense of emerging markets. The reason? China, pivotal for the rest of the EM world for commodities, trade.
from Global Investing:
Show us the (Japanese) money
Where is the Japanese money? Mostly it has been heading back to home shores as we wrote here yesterday.
The assumption was that the Bank of Japan's huge money-printing campaign would push Japanese retail and institutional investors out in search of yield. Emerging markets were expected to capture at least part of a potentially huge outflow from Japan and also benefit from rising allocations from other international funds as a result. But almost a month after the BOJ announced its plans, the cash has not yet arrived.
from Global Investing:
BRIC banks reap ratings reward from government support
The ability of Brazil, Russia, India and China to support their leading banks is tightly correlated to the credit rating on the banks, according to ratings agency Moody's. The agency compares the ratings of four of the biggest BRIC banks which it says are likely to enjoy sovereign support if they run into trouble.
China's Industrial & Commercial Bank of China (ICBC) tops the list of BRIC lenders with a rating of (A1 stable) thanks to the central bank's $3 trillion plus reserve stash.
