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from Global Investing:

Emerging markets; turning a corner

Emerging markets have been attracting healthy investment flows into their stock and bond markets for much of this year and now data compiled by consultancy CrossBorder Capital shows the sector may be on the cusp of decisively turning the corner.

CrossBorder and its managing director Michael Howell say their Global Liquidity Index (GLI) -- a measure of money flows through world markets -- showed the sharpest improvement in almost three years in June across emerging markets. That was down to substantially looser policy by central banks in India, China and others that Howell says has moved these economies "into a rebound phase".

This is important because the GLI, which has been around since the 1980s, has been a fairly accurate leading indicator, leading asset prices by 6-9 months and future economic activity by 12-15 months, Howell says:

Weak liquidity has been the key reason why EM shares have underperformed for so long. More liquidity may now allow EM markets to catch up.

from Global Investing:

No more “emerging markets” please

The crisis currently roiling the developing world has revived a debate in some circles about the very validity of the "emerging markets" concept. Used since the early 1980s as a convenient moniker grouping countries that were thought to be less developed -- financially or infrastructure-wise or due to the size or liquidity of their financial markets -- the widely varying performances of different countries during the turmoil has served to underscore the differences rather than similarities between them.  An analyst who traveled recently between several Latin American countries summed it up by writing that he had passed through three international airports during his trip but had not had a stamp in his passport that said "emerging market".

Like this analyst, many reckon the day has come when fund managers, index providers and investors must stop and consider  if it makes sense to bucket wildly disparate countries together.  After all what does Venezuela, with its anti-market policies and 50 percent annual inflation, have in common with Chile, a free market economy with a high degree of transparency  and investor-friendliness?

from Global Investing:

Bond market liberalisation — good or bad for India?

Many investors have greeted with enthusiasm India's plans to get its debt included in international indices such as those run by JPMorgan and Barclays. JPM's local debt indices, known as the GBI-EM,  were tracked by almost $200 billion at the end of 2012.  So even very small weightings in such indices will give India a welcome slice of investment from funds tracking them.

At present India has a $30 billion cap on the volume of rupee bonds that foreign institutional investors can buy, a tiny proportion of the market. Barclays analysts calculate that Indian rupee bonds could comprise up to a tenth of various market capitalisation-based local-currency bond indices. That implies potential flows of $20 billion in the first six months after inclusion, they say -- equivalent to India's latest quarterly current account deficit. After that, a $10 billion annual inflow is realistic, according to Barclays. Another bank, Standard Chartered, estimates $20-$40 billion could flow in as a result of index inclusion.

from Global Investing:

Frontier markets: past the high water-mark

By Julia Fioretti

Ethiopia's plans to hit the Eurobond trail once it gets a credit rating are highlighting how fast frontier debt markets are growing.

IFR data shows that sub-Saharan Africa alone issued $4.2 billion of sovereign debt in the year to September, compared to $3.6 billion in the same 2012 period. And returns on frontier market bonds have outgunned their high-yield emerging sovereign peers this year.

from Global Investing:

September’s bond bonanza

What a half-month it has been for bond issuance! As we wrote here, many borrowers  -- corporate and sovereign;  from emerging markets and developed  -- have seen  this period as a last-chance saloon of sorts to raise money on global capital markets before the Fed starts to cut off the supply of free cash.

But the month so far has been different not only in the sheer volume of supply but also for the fact that issuance by governments of developing countries has surpassed emerging corporate bond sales. That's something that hasn't happened for a long time.

from Global Investing:

With pension reform, Poland joins the sell-off. More to come

If the backdrop for global emerging markets (GEM) were not already challenging enough, there are, these days, some authorities that step in and try to make things even worse, writes Societe Generale strategist Benoit Anne. He speaks of course of Poland, where the government this week announced plans to transfer 121 billion zlotys ($36.99 billion) in bonds held by private pension funds to the state and subsequently cancel them. The move, aimed at cutting public debt by 8 percentage points,  led to a 5 percent crash yesterday on the Warsaw stock exchange, while 10-year bond yields have spiralled almost 50 basis points since the start of the week. So Poland, which had escaped the worst of the emerging markets sell-off so far, has now joined in.

But worse is probably to come. Liquidity on Polish stock and bond markets will certainly take a hit -- the reform removes a fifth of  the outstanding government debt. That drop will decrease the weights of Polish bonds in popular global indices, in turn reducing demand for the debt from foreign investors benchmarked to those indices. Citi's World Government Bond Index, for instance, has around $2 trillion benchmarked to it and contains only five emerging economies. That includes Poland whose weight of 0.55 percent assumes roughly $11 billion is invested it in by funds hugging the benchmark.

from Breakingviews:

Japan index: markets put speed bump in Abe’s path

By Andy  Mukherjee

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

For the first time in six months, Japanese Prime Minister Shinzo Abe’s economic experiment stumbled in May amidst skittish stock and bond markets. But the drop in the Breakingviews Abenomics Index to 93.8, from 94.4 in April, may be temporary as deflation continues to ease.

from Breakingviews:

China index: Weaker growth on weaker foundations

By Katrina Hamlin

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)

China’s economy remains gloomier than this time last year as lower export growth and rail freight volumes make a grim follow-up to poor PMI readings. Sales of property, luxury liquor and posh cars prevent a steeper fall, but these are not the bright spots China needs or wants.

from Global Investing:

Active vs passive debate: the case of “monkeys”

As CalPERS considers switching all of its portfolios to passive investing,  questioning the effectiveness of active equity investment, there have been some interesting findings that would stir up the active vs passive debate.

Researchers at Cass Business School find that equity indexes constructed randomly by "monkeys" would have produced higher risk-adjusted returns (ie return adjusted by measuring how much risk is involved in producing that return) than an equivalent market capitalisation-weighted index over the last 40 years.

from Global Investing:

Emerging corporate bond boom stretches into 2013

The boom in emerging corporate debt is an ongoing theme that we have discussed often in the past, here on Global Investing as well as on the Reuters news wire. Many of us will therefore recall that outstanding debt volumes from emerging market companies crossed the $1 trillion milestone last October. This year could be shaping up to be another good one.

January was a month of record issuance for corporates, yielding $51 billion or more than double last January's levels and after sales of $329 billion in the whole of 2012. (Some of this buoyancy is down to Asian firms rushing to get their fundraising done before the Chinese New Year starts this weekend). What's more, despite all the new issuance, spreads on JPMorgan's CEMBI corporate bond index tightened 21 basis points over Treasuries.

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