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from Global Investing:
Emerging markets’ export problem
Taiwan's forecast-beating export data today came as a pleasant surprise amid the general emerging markets economic gloom. In a raft of developing countries, from South Korea to Brazil, from Malaysia to the Czech Republic, export data has disappointed. HSBC's monthly PMI index showed this month that recovery remains subdued.
With Europe still in the doldrums, this is not totally unsurprising. But economists are growing increasingly concerned because the lack of export growth coindides with a nascent U.S. recovery. Clearly EM is failing to ride the US coattails.
Does all this confirm the gloomy prediction made last month by Morgan Stanley's chief emerging markets economist, Manoj Pradhan. Pradhan reckons that a U.S. economy in recovery would be a competitor rather than a client for emerging markets, as the world's biggest economy tries to reinvent itself as a manufacturing power and shifts away from consumption-led growth. It is the latter that helped underwrite the export-led emerging market boom of the past decade.
It's early days yet. Yet the impact of the U.S. rebound this time does appear different from the past.
from Global Investing:
Less yen for carry this time
The Bank of Japan unleashed its full firepower this week, pushing the yen to 3-1/2 year lows of 97 per dollar. Year-to-date, the currency is down 11 percent to the dollar. But those hoping for a return to the carry trade boom of yesteryear may wait in vain.
The weaker yen of pre-crisis years was a strong plus for emerging assets, especially for high-yield currencies. Japanese savers chased rising overseas currencies by buying high-yield foreign bonds and as foreigners sold used cheap yen funding for interest rate carry trades. But there's been little sign of a repeat of that behaviour as the yen has fallen sharply again recently .
from Global Investing:
Using sterling to buy emerging markets
Sterling looks likely to be one of this year's big G10 currency casualties (the other being yen). Having lost 7 percent against the dollar and 5.5 percent to the euro so far this year on fear of a British triple-dip recession, sterling probably has further to fall. (see here for my colleague Anirban Nag's take on sterling's outlook).
Many see an opportunity here -- as a convenient funding currency to invest in emerging markets. A funding currency requires low interest rates that can bankroll purchases of higher-yielding assets including stocks, other currencies, bonds and commodities. Sterling ticks those boxes. A funding currency must also not be subject to any appreciation risk for the duration of the trade. And here too, sterling appears to win, as the Bank of England's remit widens to give it more leeway on monetary easing.
from Breakingviews:
Orcel bonanza shows how far banks must go on pay
By Dominic Elliott
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Andrea Orcel’s signing-on package shows the scale of the pay pickle facing banks. UBS stumped up $26 million to prise its investment-bank head from Bank of America Merrill Lynch last year, making a mockery of so-called retention packages designed to stop employees jumping ship. True, Orcel received no new cash or shares for joining his Swiss rival: the award simply replaces three years’ worth of pay he forfeited for leaving BAML. And the award can still be clawed back. But it shows how aggressive behaviour by just one bank can reinforce the industry’s pay problem.
from Breakingviews:
Drip-drip Libor shame beats an industry settlement
By Dominic Elliott
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Settlements by three firms - Barclays, UBS and Royal Bank of Scotland - have each contained disclosures of the culture of the trading floor, via recorded Bloomberg messages. One RBS trader referred to his readiness to raise and lower his requests for the Libor rate as being akin to a “whores drawers”. Another offered to “come over there and make love to you” in return for helpful rate submissions. Yet another quipped: “[It’s] just amazing how libor fixing can make you that much money.”
from Global Investing:
Indian markets and the promise of reform
What a difference a few months have made for Indian markets.
The rupee is 8 percent up from last summer's record lows. Foreigners have ploughed $17 billion into Indian stocks and bonds since Sept 2012 and foreign ownership of Indian shares is at a record high 22.7 percent, Morgan Stanley reckons. And all it has taken to change the mood has been the announcement of a few reforms (allowing foreign direct investment into retail, some fuel and rail price hikes and raising FDI limits in some sectors). A controversial double taxation law has been pushed back. The government has sold some stakes in state-run companies (it offloaded 10 percent of Oil India last week, netting $585 million). If the measures continue, the central bank may cut interest rates further.
Above all, there have been promises-a-plenty on fiscal consolidation.
The promises are not new. Only this time, investors appear to believe Finance Minister P. Chidambaram.
from Lucy P. Marcus:
An insulated boardroom is an ineffective boardroom
"The level of ignorance seems staggering to the point of incredulity. Not only were you ignorant of what was going on, but you were out of your depth."
‑ Andrew Tyrie, MP, chairman of the Parliamentary Commission on Banking Standards (PCBS)
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).
from Financial Regulatory Forum:
UBS felony plea in Libor deal ushers in tougher enforcement era
By Nick Paraskeva, Compliance Complete contributor
NEW YORK, Dec. 21 (Thomson Reuters Accelus) - The UBS felony fraud plea for manipulating reporting of the Libor interbank lending rate marks a regulatory turning point towards tougher enforcement. After the U.S. election confirmed Dodd-Frank is here to stay, and with most Group of 20 reforms mapped out, rulemaking will proceed at a slower pace. The shift will impact the financial-industry, both in the U.S. and globally, which will face a greater supervisory willingness to impose high penalties, and a focus on ethical compliance.
“Today’s announcement – and $1.5 billion global resolution – underscores the Justice Department’s firm commitment to investigating and prosecuting such conduct, and to holding perpetrators of these crimes accountable for their actions,” said U.S. Attorney General Eric Holder in announcing the deal this week. His involvement in the enforcement was notable, as previous announcements have been made by Assistant Attorney General Lanny Breuer.
from MuniLand:
Time to ban UBS from doing business in the U.S.
Times have changed since 1989. That year, bond king Mike Milken was indicted on 98 counts of racketeering and securities fraud. He served two years in prison after he pled guilty to six securities violations. Milken paid $1.1 billion in fines and disgorgement to investors. His firm, Drexel Burnham Lambert, settled civil and criminal charges, but it went bankrupt the following year.
Now, because of the fragility of the financial system, UBS, the latest firm to be involved in systemic financial crimes after it was found to be manipulating Libor, will only face a criminal charge against its Japanese subsidiary. It is the equivalent of a legal slap on the wrist. The bank should instead be banned from conducting business in the U.S. The WSJ reports:
