Archive

Reuters blog archive

from Breakingviews:

Credit Suisse’s future is mid-table drabness

By Dominic Elliott

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

Credit Suisse’s future is more workmanlike than its racy third quarter might suggest. The Swiss group revealed on Oct. 23 that its investment bank had trumped Wall Street: fixed income trading revenue leapt by a half year-on-year, against U.S. peers’ average mid-teens increase. But questions linger over Credit Suisse’s ability to maintain that performance if rates rise.

Credit Suisse’s quarter was a mixed bag. Its traditionally strong securitisation arm and emerging markets drove the third quarter rise in the investment bank’s top line. A 13 percent group return on equity is better than most peers. But wealth management revenue was flat year-on-year, with net margins falling once again to just 25 basis points.

A global shift from offshore to onshore private banking is hurting. A single client pulled 1.1 billion Swiss francs from its Swiss-based business during the quarter. Cross-town rival UBS has gained far more in overall assets since the pair hit crisis lows.

from Global Markets Forum Dashboard:

China economic reforms may result in $14.4 trillion GDP, growth at 6 percent – Asia Society report

Sweeping economic reform initiated by China President Xi Jinping in November 2013 marked a turning point for the world's second biggest economy. If implemented fully, China's potential GDP growth can be sustained at 6 percent through 2020. One risk: Falling short of that growth rate could result in growth at half that projection, or worse, leading to a new economic crisis, according to a new study.

Dan Rosen, founding partner, Rhodium Group

Dan Rosen, founding partner, Rhodium Group

Dan Rosen, author of a report for the Asia Society Policy Institute, argues that China's growth model is no longer working. The drivers that contributed to China's post-1978 growth are weakening, with existing investments showing diminished returns and overall total-factor productivity, or TFP, falling. TFP is an economic term that broadly measures efficiency using input factors such as labor and capital. "Demographic dividends propelled China through the 1980s, 1990s, and 2000s, but the labor force is now at its largest and is poised to shrink," he writes.

from Global Investing:

Strong dollar, weak oil and emerging markets growth

Many emerging economies have been banking on weaker currencies to revitalise economic growth.  Oil's 25 percent fall in dollar terms this year should also help. The problem however is the dollar's strength which is leading to a general tightening of monetary conditions worldwide, more so in countries where central banks are intervening to prevent their currencies from falling too much.

Michael Howell, managing director of the CrossBorder Capital consultancy estimates the negative effect of the stronger dollar on global liquidity (in simple terms, the amount of capital available for investment and spending) outweighs the positives from falling oil prices by a ratio of 10 to 1. Not only does it raise funding costs for non-U.S. banks and companies, it also usually forces other central banks to keep monetary policy tight, especially in countries with high inflation or external debt levels. Howell says:

from Global Investing:

Measuring political risk in emerging markets

(Corrects to say EI Sturdza is UK investment firm, not Swiss)

Commerzbank analyst Simon Quijano-Evans recently analysed credit ratings for emerging market countries and concluded that there is a strong tendency to "under-rate" emerging economies - that is they are generally rated lower than developed market "equals" that have similar profiles of debt, investment or reform. The reason, according to Quijano-Evans, is that ratings assessments tend to be "blurred by political risk which is difficult to quantify and is usually higher in the developing world compared with richer peers.

However there are some efforts to measure political risks, and unfortunately for emerging economies, some of those metrics seem to indicate that such risk is on the rise. Risk consultancy Maplecroft which compiles a civil unrest index (CUI), says street protests, ethnic violence and labour unrest are factors that have increased chances of business disruption in emerging markets by 20 percent over the past three months. Such unrest as in Hong Kong recently, can be sudden, causing headaches for business and denting economic growth, Maplecroft says. Hong Kong where mass pro-democracy protests in the city-state's central business district which shuttered big banks and triggered a 7 percent stock market plunge last month.

from Global Investing:

Russia: There’s cheap and then there is “near-death” cheap

Russia's equity market has always been cheap, argues USAA's Wasif Latif, but at present levels it is just too cheap to ignore. Russia's economic decline, driven by not only falling oil prices, its main source of income, but also Western sanctions over its intervention in Ukraine has caused a major sell-off that Latif and other asset managers believe is an overshoot. This has brought Russia's benchmark dollar-denominated RTS stock index to its lowest level since March and before that, a level not seen since Sept. 2009.

"We're not looking for it to go way up, but looking for it to go up from its near-death cheap to its normal-cheap condition," said Latif, head of global multi-assets at USAA Investments.

from MacroScope:

Brazil set to release long-overdue jobless rate just as election race heats up

Workers at a General Motors vehicle factory listen during a meeting to discuss their reactions to an announcement of plans to put some 1,000 workers on paid leave, in Sao Jose dos CamposBrazil's unemployment rate has been a mystery for months: a strike in the country's statistics agency, ironically enough, disrupted its main job market survey. The numbers will finally come out in a few hours, less than two weeks before a tight presidential election, and will help voters understand just how bad the recently-confirmed recession has been.

IBGE’s August unemployment report is important not only because it can tilt Brazil's election balance in favor of current President Dilma Rousseff or her opponent Marina Silva, but also because it will determine the starting point of the labor market for a much-anticipated adjustment in Brazil’s economic policy. Some kind of shift is expected after the October election regardless of who wins, to keep debt under control and avoid losing the investment grade in coming years.

from Global Investing:

Bleak investment outlook sours mood at Russia forum

By Alexander Winning

What are the chances that Western investors will rush back to Russia if a shaky ceasefire in Ukraine leads to a more lasting peace? Pretty slim, judging by a keynote speech at a recent Russia-focused investment conference in London.

Dmitri Trenin, director of the Carnegie Moscow Centre, told the conference organised by Sberbank CIB, the investment-banking arm of Russia's top state-controlled lender, there was little prospect of significant Western investment in Russia over the next 5 years:

from Breakingviews:

Global poverty needs a post-industrial definition

By Andy Mukherjee

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

Global poverty needs a new, post-industrial definition.

The $1-a-day threshold, the most-often cited marker of penury, is an anachronistic legacy from the time when being able to fill a human stomach could be reasonably equated with putting raw manpower to productive use in farms, factories and on construction sites.

from Global Investing:

Betting on (expensive and over-owned) Indian equities

How much juice is left in the Indian equity story? Mumbai's share index has raced to successive record highs and has gained 24 percent so far this year in dollar terms as investors have bought into Prime Minister Narendra Modi's reform promises.

Foreign investors have led the charge through this year, pouring billions of dollars into the market. Now locals are also joining the party - Indian retail investors who steered clear of the bourse for three years are trickling back in - they have been net investors for 3 months running and last month they purchased Rs 108 billion worth of shares, Citi analysts note. 

from Global Investing:

Sanctions bite Russia but some investors are fishing

By Andrew Winterbottom

Russian stocks are up today, for the fifth day in a row and at the highest level in two weeks. What's going on? As we wrote  here earlier in the week, foreign investors have been fleeing this market.  However it could be that some of them are starting to put aside concerns about the potential for further sanctions on Moscow and are scouring Russia's stock markets for contrarian buying opportunities.

Russian stocks, chronically undervalued, are trading now at a discount of more than 60 percent to broader emerging markets, and to China which by all accounts is the standout beneficiary of the Russian woes. Just how cheap Russian shares are can be gauged from the fact they trade at a discount event to turbulent Pakistan. Here is a link that compares Russian equity valuations with other emerging and developed markets:  http://link.reuters.com/guv77v

  •