Reuters blog archive
from Global Investing:
After almost a year of selling emerging markets, investors seem to be returning in force. The latest to turn positive on the asset class is asset and wealth manager Pictet Group (AUM: 265 billion pounds) which said on Tuesday its asset management division (clarifies division of Pictet) was starting to build positions on emerging equities and local currency debt. It has an overweight position on the latter for the first time since it went underweight last July.
Local emerging debt has been out of favour with investors because of how volatile currencies have been since last May, For an investor who is funding an emerging market investments from dollars or euros, a fast-falling rand can wipe out any gains he makes on a South African bond. But the rand and its peers such as the Turkish lira, Indian rupee, Indonesian rupiah and Brazilan real -- at the forefront of last year's selloff -- have stabilised from the lows hit in recent months. According to Pictet Asset Management:
Valuations of emerging market currencies have fallen to a point where they are now starkly at odds with such economies’ fundamentals. Emerging currencies are, on average, trading at almost two standard deviations below their equilibrium level (which takes into account a country’s net foreign asset holdings, inflation rate and its relative productivity).
What's more, interest rates in all these countries have risen since the selloff kicked off last May, in some cases by hundreds of basis points. That makes running short positions on emerging currencies and local debt too costly, analysts say. What's also helping is the sharp volatility decline across broader currency markets, with Reuters data showing one-month euro/dollar implied volatility near its lowest since the third quarter of 2007. That has helped revive carry trades -- the practice of selling low-yield currencies in favour of higher-yield assets Low volatility and high carry - that's a great backdrop for emerging markets. No wonder that last week saw cash return to emerging debt funds after first quarter outflows of over $17 billion. Pictet again:
Unemployment is sky high, national debt is not far short of double the size of an economy which is still shrinking and its ruling coalition has a wafer-thin majority, yet there are glimmers of hope in Greece.
Having finally struck a deal with the EU and IMF to keep bailout loans flowing, Athens is preparing to dip its toe back into the bond market with a five-year bond for up to 2 billion euros.
Investors have spent months looking askance at Turkey’s corruption scandal and Prime Minister Tayyip Erdogan’s response to it – purging the police and judiciary of people he believes are acolytes of his enemy, U.S.-based cleric Fethullah Gulen. But it appears to have made little difference to his electorate.
Erdogan declared victory after Sunday’s local elections and told his enemies they would now pay the price. His AK Party was well ahead overall but the opposition Republican People's Party (CHP) appeared close to seizing the capital Ankara.
Surprise is the least forgivable sin of statecraft. Yet nothing has so characterized the Ukraine crisis as the West's continuing surprise at Russia's behavior.
The past 30 days have provided almost daily reminders of the deep disconnect between Western expectations of what statecraft would -- and ought to -- look like in the 21st century, and the reality of how the Kremlin seeks to assert its interests in the world.
from The Great Debate:
Is Turkish leader crazy, or crazy like a fox?
Confronted by a series of revelations involving corruption, Turkey’s Prime Minister Tayyip Erdogan countered by banning Twitter by court order last Friday. He has now moved onto other social media networks -- blocking YouTube on Thursday.
Though another court ordered Erdogan’s Twitter ban to be lifted this week, his repressive regime looks intent on lashing out at social media as part of a broad policy aimed at controlling the important municipal elections on Sunday.
For European markets, Germany’s March inflation figure is likely to dominate today. It is forecast to hold at just 1.0 percent. The European Central Bank insists there is no threat of deflation in the currency area although the euro zone number has been in its “danger zone” below 1 percent for five months now.
Having appeared to set a rather high bar to policy action at its last meeting, this week the tone changed. Most notable was Bundesbank chief Jens Weidmann, normally a hardliner, who said printing money was not out of the question although he would prefer negative deposit rates as the means to tackle an overly strong euro.
Vladimir Putin has told Russia’s Duma that he has approved a draft treaty to bring Ukraine’s Crimea region into Russia and in doing so continues to turn a deaf ear to the West’s sanctions-backed plea to come to the negotiating table.
Overnight, Japan added its weight to the sanctions drive, suspending talks with Moscow on an investment pact and relaxation of visa requirements. EU and U.S. measures have targeted a relatively small number of Russians and Ukrainians but presumably there is scope to go considerably further, particularly if Putin decided to move into eastern Ukraine too.
Russia’s next move remains the great unanswered question for Ukraine but there are glimmers that things might be starting to move elsewhere.
IMF chief Christine Lagarde said last night she would send a technical support team to Ukraine soon if Kiev makes a request. It can’t do so until an interim government is formed, probably tomorrow. That would be step one, but only step one, down the road to an international aid package.
from Photographers' Blog:
By Umit Bektas
Sunday mass has just begun in Mort Shmuni Syriac Orthodox Church. It is seven o’clock in the morning and the streets of Midyat, where the majority of the population is Muslim Kurdish, are empty.
But despite the calm outside, the historical church is overcrowded with a community of three hundred people, mostly children. Candles are lit, hymns are sung and prayers are made.
from Anatole Kaletsky:
What has caused the sudden anxiety attack that overwhelmed financial markets after the New Year? We may find out the answer at 8.30 on Friday morning, Eastern Standard Time.
Almost all agree that the market turmoil has been linked to alarming events in several emerging economies -- including Turkey, Thailand, Argentina and Ukraine -- that has spilled over into concerns about more important economies, such as China, Russia, South Africa, Indonesia and Brazil.