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from Global Investing:
Rich investors betting on emerging equities
By Philip Baillie
Emerging equities may have significantly underperformed their richer peers so far this year (they are about 4 percent in the red compared with gains of more than 6 percent for their MSCI's index of developed stocks) , but almost a third of high net-worth individuals are betting on a rebound in coming months.
A survey of more than 1,000 high net-worth investors by J.P. Morgan Private Bank reveals that 28 percent of respondents expect emerging market equities to perform best in the next 12 months, outstripping the 24 per cent that bet their money on U.S. stocks.
That gels with the findings of recent Reuters polls where a majority of the 450 analysts surveyed said they expect emerging equities to end 2013 with double-digit returns.
(Note a caveat on the survey - the responses were collated before recent unsettling events in Cyprus - which could have some knock-on effects on emerging markets, especially given the banking exposure to countries such as Slovenia, Luxembourg, Malta and Russia).
from MacroScope:
Priceless: The unfathomable cost of too big to fail
Just how big is the benefit that too-big-to-fail banks receive from their implicit taxpayer backing? Federal Reserve Chairman Ben Bernanke debated just that question with Massachusetts senator Elizabeth Warren during a recent hearing of the Senate Banking Committee. Warren cited a Bloomberg study based on estimates from the International Monetary Fund that found the subsidy, in the form of lower borrowing costs, amounts to some $83 billion a year.
Bernanke, who has argued Dodd-Frank financial reforms have made it easier for regulators to shut down troubled institutions, questioned the study’s validity.
from Global Investing:
Mexico manufacturing its way to investors’ hearts
By Stephen Eisenhammer
Mexico appears to be the new Latin American darling for investors. With Brazil stalling, Latin America’s second largest economy is back in, after nearly two decades out in the cold.
Rising transport costs and higher wages in China are tipping manufacturing competitiveness back in favour of Mexico for the first time since the Asian giant joined the World Trade Organisation in 2001.
from MuniLand:
The end of muniland interest-rate swaps for Pennsylvania?
Pennsylvania may have suffered more damage from municipalities using interest rate swaps than any other state in America. Many cities and school districts were sold these “hedging” instruments after former governor Ed Rendell pushed legislation allowing their use in 2003. The fallout for the state has been devastating.
Small communities, large cities and school districts have suffered substantial losses from their use. Bloomberg reported in March 2008 how a school district suffered deep losses:
from Global Investing:
Record year for global bond markets in 2012
How good was 2012 for bond markets? Very good, by the look of the many records broken.
2012 was the strongest year for global high yield and investment grade debt on record, new issuance of corporate debt from emerging markets issuers was also the strongest since records began in 1980 and activity on global debt capital markets were overall up 10 percent from 2011, Thomson Reuters data shows.
from Unstructured Finance:
While you were sleeping (the China ISM number came out)
By Katya Wachtel
For Omega Advisors' Steve Einhorn, the window of sleep-able hours is narrowing.
"One needs to know whats going on around the world. I turn in around midnight so I can monitor what's going on in China and Japan," Einhorn, vice chairman at Leon Cooperman's $7billion fund, said at the Reuters Global Investment Summit last week. "A decade ago, did I and most others focus on what's going on in China? No. Now we wait for the November manufacturing index for China to come out. The day is longer because of that. I am up around 6 in the morning; I review what has gone on overnight in Asia and in Europe. I spend an hour in front of the machine at home, going through data and news releases" before he's out the door.
This was undoubtedly the most common refrain when we asked some of Wall Street's savviest money managers and investors how they begin their day, and with what must-read literature, during the week-long summit.
from Global Investing:
Tide turning for emerging currencies, local debt
Emerging market currencies have been a source of frustration for investors this year. With central banks overwhelmingly in rate-cutting mode and export growth slowing, most currencies have performed poorly. That has been a bit of a dampener for local currency debt -- while returns in dollar terms have been robust at 13 percent, currency appreciation has contributed just 1.5 percent of that, according to JP Morgan.
The picture could be changing though. Fund managers at the Reuters 2013 investment outlook summit this week have been unanimously bullish on emerging debt, with many stating a preference for domestic debt. So far this year, dollar debt has taken in three-quarters of all inflows to emerging fixed income.
from Global Investing:
And the winner is — frontier market bonds
Global Investing has commented before on how strongly the world's riskiest bonds -- from the so-called frontier markets such as Mongolia, Nigeria and Guatemala -- have performed. NEXGEM, the frontier component of the bond index family run by JP Morgan, is on track to outperform all other fixed income classes this year with returns of over 20 percent., the bank tells clients in a note today. Just to compare, broader emerging dollar bonds on the EMBI Global index have returned some 16 percent year-to-date while local currency emerging debt is up 13 percent.
That appetite for the sector is strong was proven by a September Eurobond from Zambia that was 15 times subscribed. Demand shows no sign of flagging despite a default in frontier peer Belize and shenanigans over the payment of Ivory Coast's missed coupons from last year. Reasons are easy to find. First, the yield. The average yield on the NEXGEM is roughly 6.5 percent compared with just under 5 percent on the EMBIG.
from Global Investing:
Record year for emerging corporate bonds
The past 24 hours have brought news of more fund launches targeting emerging corporate debt; Barings and HSBC have started a fund each while ING Investment Management said its fund launched late last year had crossed $100 million. We have written about the seemingly insatiable demand for corporate emerging bonds in recent months, with the asset class last month surpassing the $1 trillion mark. Data from Thomson Reuters shows today that a record $263 billion worth of EM corporate debt has already been underwritten this year by banks, more than a fifth higher than was issued in the same 2011 period (see graphic):
The biggest surge has come from Latin America, the data shows, with Brazilian companies accounting for one-fifth of the issuance. A $7 billion bond from Brazil's state oil firm Petrobras was the second biggest global emerging market bond ever.
from Global Investing:
Emerging EU and the end of “naked” CDS
JP Morgan has an interesting take on the stupendous recent rally in the credit default swaps (CDS) of countries such as Poland and Hungary which are considered emerging markets, yet are members of the European Union. Analysts at the bank link the moves to the EU's upcoming ban on "naked" sovereign CDS trades -- trade in CDS by investors who don't have ownership of the underlying government debt. The ban which comes into effect on Nov. 1, was brought in during 2010 after EU politicians alleged that hedge funds short-selling Greek CDS had exacerbated the crisis.
JP Morgan notes that the sovereign CDS of a group of emerging EU members (Bulgaria, Croatia, Hungary, Lithuania, Poland and Romania) have tightened 100 basis points since the start of September, while a basket of emerging peers including Brazil, Indonesia and Turkey saw CDS tighten just 39 bps. See the graphic below:
