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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. 

Foreigners meanwhile have been moving down the market cap scale, with their ownership of the top 100-500 ranked companies rising from 13% to 15% over the quarter. That's behind the broader BSE500 index's outperformance compared to the Nifty index, Citi said.

Citi earlier this month predicted another 3 percent gains for Indian stocks by year-end. Equity derivatives indicate that is feasible - stock exchange data shows foreign investors are loading up on call contracts on the Nifty index at the 8,000 point and 8,100 point levels -a call option gives its holder the right to buy the underlying cash shares.   The index is currently trading at 7,800 points.

from Breakingviews:

UK banks have much to fear from latest probe

By Chris Hughes

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

The latest competition review of UK banking should aim to be the last. An antitrust probe in 2000 led to limited price controls after concluding that British lenders made excess profit. There were two more big investigations after the financial crisis. Yet concerns about market inefficiencies persist. That suggests the Competition and Markets Authority should do something radical this time.

from The Great Debate:

Are banks too big to indict?

The great 19th century English jurist, Sir James Fitzjames Stephens, once wrote that murderers were hung not for reasons of revenge or deterrence -- but to underscore what a serious breach of the social compact had been committed.

Federal District Judge Jed S. Rakoff was making a similar point when he recently called attention to the lack of criminal prosecutions in the wake of the 2008 financial crisis. Consider the 1980s Savings and Loan crisis. The losses were minuscule compared to this recent paroxysm, but they still led to hundreds of criminal convictions.

from Financial Regulatory Forum:

Federal judge approves HSBC deferred prosecution agreement

By Brett Wolf, Compliance Complete

NEW YORK, July 3 (Thomson Reuters Accelus) - A U.S. federal judge has approved the Deferred Prosecution Agreement in which British banking giant HSBC will pay $1.9 billion to regulators and the Justice Department for operating with anti-money laundering weaknesses that among other things allowed drug cartels to launder hundreds of millions of dollars.

But when making the deal final, U.S. District Judge John Gleeson asserted that federal judges have the authority to review such agreements – a view both HSBC and the Justice Department had questioned – and mandated that both parties file quarterly reports with the court "to keep it apprised of all significant developments."

from Financial Regulatory Forum:

U.S. Justice Department chooses former prosecutor to be HSBC compliance monitor

By Brett Wolf, Compliance Complete

NEW YORK, June 6 (Thomson Reuters Accelus) - The U.S. Justice Department on Wednesday said it has chosen a former New York County prosecutor who is known for his innovative pursuit of criminals to police HSBC's efforts to clean up its anti-money laundering program.

The Department's decision to announce its choice at a time when a federal judge's hesitation to sign-off on its settlement with HSBC has raised questions over the settlement's prospects suggests the move is an attempt to win the judge's approval, compliance experts said.

from Financial Regulatory Forum:

Exclusive: Consultancies on second tier as Justice Department seeks HSBC compliance monitor

By Brett Wolf, Compliance Complete

May 14, (Thomson Reuters Accelus) - Although a federal judge in Brooklyn has not yet signed-off on a deal between HSBC and the Justice Department that would settle allegations that anti-money laundering failures at the bank allowed drug cartels to launder hundreds of millions of dollars, candidates for a lucrative job policing the bank's compliance with the pact are scrambling to win the work.

Consulting firms are not being considered to lead the work, but may be hired to carry it out once a well-recognized anti-money laundering expert is hired as monitor, a source said.

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:

from Global Investing:

Cheaper oil and gold: a game changer for India?

Someone's loss is someone's gain and as Russian and South African markets reel from the recent oil and gold price rout, investors are getting ready to move more cash into commodity importer India.

Stubbornly high inflation and a big current account deficit are India's twin headaches. Lower oil and gold prices will help with both. India’s headline inflation index is likely to head lower, potentially opening room for more interest rate cuts.  That in turn could reduce gold demand from Indians who have stepped up purchases of the yellow metal in recent years as a hedge against inflation.

from Unstructured Finance:

Hedge fund scorecard 2012: Mortgage masters win, Paulson on bottom again

Mortgage funds roared home with returns of almost 19 percent last year, trouncing all other hedge fund strategies and beating the S&P 500 stock index, which rose 13 percent.

BTG Pactual's $245.5 million Distressed Mortgage Fund, which invests primarily in distressed non-agency Residential Mortgage-Backed Securities (RMBS), returned about 46 percent for the year, putting it at the top of HSBC Private Bank's list of the Top 20 performing hedge funds and making it one of 2012's best performing funds.  Bear in mind the the average hedge fund gained only 6 percent last year.

from Global Investing:

Emerging debt vs equity: to rotate or not

Emerging bonds have got off to a flying start in 2013, with debt funds taking in over $2 billion this past week, the second highest weekly inflow ever, according to fund tracker EPFR Global. Issuance is strong -  Turkey for instance this week borrowed cash repayable in 10 years for just 3.47 percent, its lowest yield ever in the dollar market.

Yet not everyone is optimistic and most analysts see last year's returns of 16-18 percent EM debt returns as out of reach. The consensus instead seems to be for 5-8 percent as  tight spreads and low yields leave little room for further rallies -- average yields on the EMBI Global sovereign debt index is just 4.4 percent.    Domestic bonds meanwhile could suffer if inflation turns problematic. (see here for our story on emerging bond sales and returns).

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