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from Global Investing:
Rupiah decline – don’t worry
Indonesia has just given the go-ahead for another leg down in the rupiah. It has cut its forecasts for the exchange rate to 9,700 per dollar compared to the 9,200 level at which the central bank used to step in. The currency has duly weakened and nervous foreigners have rushed to hedge exposure -- 3-month NDFs price the rupiah at almost 10,000 to the dollar. The rupiah last week hit a three-year low, its weakness coming on top of a dismal 2012 which saw it fall 6 percent as the current account deficit worsened. Traders in Jakarta are reporting dollar hoarding by exporters.
All that is spooking foreigners who own more than 30 percent of the domestic bond market. The currency weakness hit them hard last year as Indonesian bonds returned just 6 percent, a third of the sector's 16 percent average (see graphic).
The central bank does not seem perturbed by the currency weakness. Luckily for it, inflation rates are still benign, which means a weak currency will probably remain in favour.
The big question is how will investors react?
A test will come on Tuesday, when the government will try to raise $724 million via an auction of domestic bonds and T-bills. There has been some flight by bond investors in recent days but most have stayed put - after all they are earning a 5-6 percent carry on bonds and currency exposure can be hedged. Above all, people are betting the central bank is capable of stemming any big falls in the currency. (They are probably right: Deputy Governor Hartadi Sarwono assured investors last week that if the rupiah weakened too much, the bank would "definitely respond to it via interest rate policy"). UBS strategist Manik Narain points out the central bank has $112 billion in its coffers while interest rates are at a record low 5.75 percent:
from Global Investing:
Chaco signals warning for Argentina debt
A raft of Argentine provinces and municipalities suffered credit rating downgrades this week after one of their number, Chaco, in the north of the country, ran out of hard currency on the eve of a bond payment. Instead it paid creditors $260,000 in pesos. Now Chaco wants creditors to swap $30 million in dollar debt for peso bonds because it still cannot get its hands on any hard currency.
The episode is a frightening reminder of Argentina's $100 billion debt default 10 years ago and unsurprisingly has triggered a surge in bond yields and credit default swaps (CDS). But broader questions also arise from it.
from Global Investing:
Rollover risks rising on high-yield bonds
Emerging market corporate debt is in high demand, as we pointed out in this article yesterday. But we noted headwinds too, not least the amount of debt that will fall due in coming years as a result of the current bond issuance bonanza.
David Spegel, head of emerging debt research at ING in New York is highlighting a new danger -- that of the exponential increase in speculative grade debt, especially from developed markets, that is up for rollover in coming years. A swathe of credit rating downgrades for European companies this year mean that many fund managers who bought high-grade assets, have now found themselves holding sub-investment grade paper. He calculates in a note this week that $47 billion of "junk" rated European paper will find itself up for refinancing in the first half of next year, more than double the levels that were rolled over in the first half of 2012.
from Global Investing:
Emerging Policy: Rate cuts proliferate
Emerging market central banks have clearly taken to heart the recent IMF warning that there is "an alarmingly high risk" of a deeper global growth slump.
Two central banks have cut interest rates in the past 24 hours: Brazil extended its year-long policy easing campaign with a quarter point cut to bring interest rates to a record low 7.25 percent and the Bank of Korea (BoK) also delivered a 25 basis point cut to 2.75 percent. All eyes now are on Singapore which is expected to ease monetary policy on Friday while Turkey could do so next week and a Polish rate cut is looking a foregone conclusion for November.
from Global Investing:
Carry currencies to tempt central banks
Central bankers as carry traders? Why not.
As we wrote here yesterday, FX reserves at global central banks may be starting to rise again. That's a consequence of a pick up in portfolio investment flows in recent weeks and is likely to continue after the U.S. Fed's announcement of its QE3 money-printing programme.
According to analysts at ING, the Fed’s decision to restart its printing presses will first of all increase liquidity (some of which will find its way into central bank coffers). Second, it also tends to depress volatility and lower volatility encourages the carry trade. Over the next 12 months these two themes will combine as global reserve managers twin their efforts to keep their money safe and still try to make a return, ING predicts, dubbing it a positive carry story.
from Financial Regulatory Forum:
Record-setting bank forfeiture at ING ignites debate over lack of banker prosecutions
By Brett Wolf
NEW YORK, June 20 (Thomson Reuters Accelus) - A lack of any criminal prosecutions associated with the U.S. government's deal last week in which Dutch bank ING agreed to forfeit a record $619 million for helping Iranians and Cubans pump billions of dollars through the U.S. financial system has drawn accusations that U.S. law enforcement agencies would rather collect fines than punish individual executives.Authorities dispute the criticisms and say proving wrongdoing by individuals in such cases is harder than it seems.
"It seems like the only people the government wants to prosecute are low-level drug dealers who structure cash deposits at banks. They go to jail,” said retired Drug Enforcement Administration agent Bob Mazur. "But institutions that commit massive crimes to move billions of dollars simply pay fines. Maybe this is considered by the government to be too lucrative a revenue stream to worry about putting people behind bars."
from Global Investing:
DDD to DIY… and CCC in 2012
It's just over a month until everyone winds down for a Christmas break -- this means the season for the 2012 outlook briefings by various managers is starting.
Among the first I went to was ING Investment Management, which held the briefing this morning. Eric Siegloff, global head of strategy and tactical allocation, reckons the next year's key theme affecting asset classes is summarised as CCC -- crisis, contagion and credibility.
from DealZone:
Deals wrap: Hynix may finally have new owner
Shareholders of Hynix Semiconductor will take final bids for a controlling stake in the South Korean memory chipmaker, said a leading shareholder. The $2.3 billion stake sale is the third attempt by creditors-turned-shareholders to find a new owner for the company.
Dutch bancassurer ING will sell most of its Latin American operation to Colombia's GrupoSura for $3.7 billion in a deal resulting from its state rescue in 2008. This sale now paves the way for the sale of ING's U.S., European and Asian businesses, which are worth about 18-19 billion euros.
from Reuters Money:
Will ING customers stay happy with CapOne accounts?
ING Direct customers seem to love their online-only bank, and reports that it may soon be taken over by Capital One Financial Corp. have a few of them worried.
The tenor of reaction comments posted on The Consumerist web site ranged from "I'm sad" and "Noooooooooo..." to unprintable epithets. ING has won a following with competitively high interest rates on savings and checking, and no-fee checking accounts. And CapOne drew complaints from some discontented customers of Bethesda, Maryland-based Chevy Chase Bank after it took over that Washington-area institution.
from DealZone:
Deals wrap: Bid for ING Direct USA
General Electric and Capital One have submitted bids for ING's U.S. online banking operations in a deal worth about $9 billion, Bloomberg reports.
The frothy market for Internet IPOs is raising the specter of a bubble, underscoring how little has changed despite lawsuits and investigations in the wake of the 1990s dot-com craze.
