Turkey’s ceasefire last month with the Kurdish militant group PKK could boost its trade partnerships multilaterally, as increasing prospects for stability in the region bring economic opportunities in the Middle East and Africa.
The halt in the decades-long armed campaign came on March 21 after the leader of the Kurdistan Workers’ Party, Abdullah Ocalan, sent a letter with the announcement from the island prison cell where he has been held since 1999 when he was arrested for treason.
Although the main pro-Kurdish party has recently poured doubt on the veracity of Ocalan’s statement, the prospect of greater stability in the troubled border region with Iraq could pave the way for greater trade security and pay dividends for investors.
Sberbank’s hypothetical Russian middle-class family metric – the ‘Ivanovs’- shows the average Russian family is concerned about high inflation, though that is still barely denting some peoples’ aspirations of getting behind the steering wheel of a new car.
April’s Ivanov index, a survey of more than 2,300 adults across 164 cities in Russia with a population of more than 100,000, notes people are still concerned about persistently high inflation, which in Russia is at around 7 percent.
Household budgets are most concerned by this factor (70 percent), up 1 percent from two months ago, as the average family spends around 40 percent on food. To put that in context, consumers in western Europe spend on average between 15 and 20 percent of income on food, according to the research. But more than 40 percent of respondents still plan to spend on one big-ticket item – to replace their car within the next two years. That is slightly down from 42 percent in the previous survey in February. Car markers have invested heavily in Russia, with sales growing more than 10 percent in 2012 according to AEB, the Association of European Business, as a relatively low level of car ownership and large numbers of older vehicles need replacing.
The rising yuan, which hit its highest last week since China’s FX market was set up in 1994, should boost demand for China’s offshore “dim sum” bond market, and Africa may join in the action.
Trade between China and Africa totaled $200 billion last year, and Standard Chartered expects that to hit $325 billion by 2015, so it makes sense for African governments and companies to hold assets denominated in the renminbi, or yuan as the currency is also known.
Nigeria for instance said in 2011 it would start to hold yuan in its central bank reserves, and Standard Chartered analysts said in a note that Nigeria and Tanzania’s central banks each bought 500 million yuan of a 3.5 billion yuan dim sum bond launched by China Development Bank last July. Standard Chartered says:
There’s cash in that trash.
Analysts at Bank of America/Merrill Lynch are expounding opportunities to profit from the burgeoning waste disposal industry, which it estimates at $1 trillion at present but says could double within the next decade. They have compiled a list of more than 80 companies which may benefit most from the push for recycling waste, generating energy from biomass and building facilities to process or reduce waste. It’s an industry that is likely to grow exponentially as incomes rise, especially in emerging economies, BofA/ML says in a note:
We believe that the global dynamics of waste volumes mean that waste management offers numerous opportunities for those with exposure to the value chain. We see opportunities across waste management, industrial treatment, waste-to-energy, wastewater & sewage,…recycling, and sustainable packaging among other areas.
There is no denying there is a problem. Around 11.2 billion tonnes of solid waste are produced by the world’s six billion people every day and 70 percent of this goes to landfill. In some emerging economies, over 90 percent is landfilled. And the waste mountain is growing. By 2050, the earth’s population will reach 9 billion, while global per capita GDP is projected to quadruple. So waste production will double by 2025 and again from 2025 to 2050, United Nations agencies estimate.
Investors are reaching for a glass of Burgundy as fine wines have enjoyed a more robust start to 2013 after the weaker performances seen in 2011 and 2012.
Wine investors will rejoice that the Liv-ex 100 index, the industry’s main benchmark, has posted four consecutive monthly gains and is now 8.7 percent up from its last November low. Cellar Watch, the market data provider, says that the wider fine wine market has begun to recover over the last four months, with the Liv-ex 100 having risen 7.3% year to date. That’s not too far behind the 10 percent gain on the S&P500 and 8 percent on the FTSE100 share indices. And after a lacklustre couple of years, turnover in Liv-ex fine wine indices is also on the rise, hitting a one-year high in March, up 21 percent on February. (For the non-connoisseurs among us, the Liv-ex Fine Wine 100 represents the price movement of 100 of the most sought-after fine wines for which there is a strong secondary market).
Cellar Watch attributes the gains to the surge in interest in Burgundy, which increased its share of trade to 9% for the second time this year—well above its 2012 average of 5.5%. Top sellers were Pape Clement (2010), Pichon Baron (2004) and Talbot (2000) , with gains of 45.9 percent, 18.9 percent and 13.3 percent respectively.
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.
How does this work? Using 43 years of U.S. equity data, researchers programmed a computer to randomly pick and weight each of the 1,000 stocks in the sample, effectively simulating the stock-picking abilities of a monkey.The process was repeated 10 million times over each of the 32 years of the study. Nearly all 10 million indices weighted by chance delivered vastly superior returns to the market cap approach. Andrew Clare, co-author of the paper, says:
There’s been plenty of bad news for heavily indebted Greece in the past three years – the banking crisis in neighbouring Cyprus being the latest of the country’s woes – but not all the news is gloomy.
MSCI’s Greece index was one of the developed world’s best performers this year, according to the index compiler’s quarterly survey, giving returns of 14.02 percent.
Morgan Stanley is one bank to have grown more enthusiastic about the troubled euro zone peripheral economy.
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.
Fund managers searching for yield are increasing exposure to frontier markets (FM) as a diversification from emerging markets (EM), as the latter have been offering negative relative returns since January, according to MSCI data.
Barings Asset Management said on Monday it plans to launch a frontier markets fund in coming weeks, with a projected 70 percent exposure to frontier markets such as Nigeria, Saudi Arabia, the UAE, Sri Lanka and Ukraine.
Emerging markets indices posted relative negative returns compared to developed and frontier markets in the first quarter, index compiler MSCI’s 2013 quarterly survey showed. The main emerging benchmark returned a negative 2.14 percent for the quarter, with the BRIC index also posting a loss, though a better performance of Latin American markets offered some promising signs with a 0.48 percent increase.