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from Breakingviews:

Harvard could get smarter about its endowment

By Richard Beales

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

Harvard University could get smarter about its $33 billion endowment. Jane Mendillo, who has managed the Ivy League university’s portfolio for six years, is leaving at the end of 2014. Her predecessor is partly to blame for crisis losses, but Harvard nevertheless seems to have overpaid for mediocre returns.

Mendillo arrived amid a whopping 27.3 percent investment loss in the year to June 2009, depleting Harvard’s coffers by $10 billion. Had the Crimson kept pace with the average U.S. university endowment, which slumped by 18.7 percent according to NACUBO-Commonfund data, the decline would have been $3 billion less severe. Mohamed El-Erian, who ran Harvard Management Co between stints at bond fund giant Pimco, shares the burden for Mendillo’s poor start.

Since then, however, returns have only been so-so. In the year to June 2013, Mendillo’s team generated 11.3 percent against a peer average of 11.7 percent. Over five years, which includes the start of the downturn, Harvard’s annualized return was just 1.7 percent, according to executive search firm Charles Skorina, the worst of 12 big schools analyzed and well under the 4 percent U.S. endowment average. Mendillo conspicuously omitted five-year performance figures from her last two annual reports, showing three-year data instead.

from Global Investing:

Indian shares: disappointment may lurk

Should Indian shares really be at record highs?

The index is up 3.6 percent this year. Foreign funds have been pouring money into Mumbai shares, betting that the opposition BJP, seen as more reform-friendly than the incumbent Congress, will form the next government. They purchased $420 million worth of Indian stocks last Friday, having bought $1.4 billion over the past 15 trading sessions.

There is also the fact that the rolling crisis in emerging markets, having smacked India during its first round last May, has now moved on and is ravaging places such as Russia and Nigeria instead. The rupee has firmed almost 2 percent this year to the dollar, as last year's 6.5 percent/GDP current account deficit has contracted to just 0.9 percent of GDP.  Many international funds such as Blackrock and JPMorgan Asset Management have Indian stocks on overweight and Bank of America/Merrill Lynch's monthly survey showed investors'  underweight on India was one of the smallest for emerging markets.

from Global Investing:

Waiting for current account improvement in Turkey

The fall in Turkey's lira to record lows is raising jitters among foreign investors who will have lost a good deal of money on the currency side of their stock and bond investments.  They are also worrying about the response of the central bank, which has effectively ruled out large rate hikes to stabilise the currency. But can the 20 percent lira depreciation seen since May 2013 help correct the country's balance of payments gap?

Turkey's current account deficit is its Achilles heel . Without a large domestic savings pool, that deficit tends to blow out whenever growth quickens and the lira strengthens . That leaves the country highly vulnerable to a withdrawal of foreign capital. Take a look at the following graphic (click on it to enlarge) :

from Unstructured Finance:

Berkowitz, Ackman bets on Fannie and Freddie puzzle investors and policy buffs

On Thursday, the United States threw cold water on Bruce Berkowitz's daring proposal to recapitalize mortgage finance behemoths Fannie Mae and Freddie Mac, saying the only way to revamp the home loan market is through proper housing finance reform.

Berkowitz's Fairholme Capital Management said it wants to buy the mortgage-backed securities insurance businesses of Fannie and Freddie by bringing in $52 billion in new capital, in a bid to resolve the uncertain future of the mortgage financiers by freeing them from U.S. government control. For its part, the government said the way forward would be to create a new housing finance system in which private capital would play a pivotal role.

from Global Investing:

Value or growth? The dichotomy of emerging market shares

Investors in emerging markets are facing a tough choice. Should one buy cheap shares in the hope that poor corporate governance and profitability will improve some day? Or is it better to close one's eyes and buy into expensively valued companies that sell mobile telephones, holidays and handbags -- all the things high-spending emerging market consumers hanker after?

At the moment, investors are plumping for the latter, growth-at-any price investment strategy. Result: a lopsided emerging equity index in which consumer discretionary shares are up more than 5 percent this year, energy shares have lost 7 percent while MSCI's benchmark emerging equity index is down 3 percent.

from Global Investing:

Pakistan, Nigeria, Bulgaria… the cash keeps coming

The frontier markets juggernaut continues. Here's a great graphic from Bank of America/Merrill Lynch showing the diverging fund flow dynamic into frontier and emerging equity markets.

What it shows, according to BofA/ML  is:

Frontier market funds with year-to-date inflows of $1.5 billion have decoupled from emerging markets ($2.1 billion outflows year-to-date)

from Global Investing:

No more currency war. Mantega dumps the IOF

Brazil's finance minister Guido Mantega, one of the most shrill critics of Western money-printing, has decided to repeal the so-called IOF tax, he imposed almost three years ago as a measure to fend off  hot money flows.

Well, circumstances alter cases, Mantega might say. And the world is a very different place today compared to 2010. Back then, the Fed was cranking up its printing presses and the currency war (in Mantega's words) was raging; today the U.S. central bank is indicating it may start tapering off the stimulus it has been delivering. Nor is investors enthusiasm for emerging markets what it used to be.  Brazil's currency, the real, is plumbing four-year lows against the dollar and local bond yields have risen 30 basis points since the start of May. Brazil's balance of payments situation meanwhile, is deteriorating, which means it needs all the foreign capital  it can get, hot money or otherwise. And currency weakness spells inflation -- bad news for Brazil's government which faces voters next year.

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.

from Global Investing:

Will gold’s glitter dim in India?

Indians have reacted to the latest gold prices falls by --- buying more gold. And why not? Aside from Indians' well known passion for the yellow metal (yours truly not excluded) gold has by and large served well as an investment: annual returns over the past five years have been around 17 percent, Morgan Stanley notes.

Now, gold's near 20 percent plunge this year has wiped some $300 billion off Indians' gold holdings, Morgan Stanley estimates in a note (households are believed to own about 15,000 metric tonnes of gold). So is the gold rush in India over?

from Global Investing:

No one-way bet on yen, HSBC says

Will the yen continue to weaken?

Most people think so -- analysts polled by Reuters this month predict that the Japanese currency will fall 18 percent against the dollar this year. That will bring the currency to around 102 per dollar from current levels of 98. And all sorts of trades, from emerging debt to euro zone periphery stocks, are banking on a world of weak yen.

Now here is a contrary view. David Bloom, HSBC's head of global FX strategy, thinks one-way bets on the yen could prove dangerous. Here are some of the points he makes in his note today:

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