It wasn’t a good year for emerging market bonds, with all three main debt benchmarks posting negative returns for the first time since 2008. But the benchmark indices run by JPMorgan nevertheless saw a modest increase in market capitalisation, and assets of the funds that benchmark to these indices also rose.
The fall in Turkey’s lira to record lows is raising jitters among foreign investors who will have lost a good deal of money on the currency side of their stock and bond investments. They are also worrying about the response of the central bank, which has effectively ruled out large rate hikes to stabilise the currency. But can the 20 percent lira depreciation seen since May 2013 help correct the country’s balance of payments gap?
Last year was one that most emerging market investors would probably like to forget. MSCI’s main equity index fell 5 percent, bond returns were 6-8 percent in the red and some currencies lost up to 20 percent against the dollar. Here are some flow numbers from EPFR Global, the Boston-based agency that released some provisional annual data to its clients late last week.
Last year was not the best for mergers in emerging markets, according to Thomson Reuters data, which shows mergers & acquisition activity down 4.6 percent from 2012 to $675.2 billion. The number of deals fell even more – by 11.3 percent to 12,748.
Ukraine said today it was issuing a $3 billion in two-year Eurobonds at a yield of 5 percent in what seems to the start of a bailout deal with Russia. That sounds like a good deal for Kiev — its Eurobond maturing next year is trading at at a yield of 8 percent and it could not reasonably expect to tap bond markets for less than that. In addition, Ukraine is also getting a gas price discount from Russia that will provide an annual saving of $2.6 billion or so.
Are Mr and Mrs Watanabe preparing to return to emerging markets in a big way?
Mom and pop Japanese investors, collectively been dubbed the Watanabes, last month snapped up a large volume of uridashi bonds (bonds in foreign currencies marketed to small-time Japanese investors), and sales of Brazilian real uridashi rose last month to the highest since July 2010, Barclays analysts say, citing official data.
President Vladimir Putin is generally fond of blaming the West for the ills besetting Russia. This week though, he admitted in his State of the Nation speech that the roots of Russia’s sluggish economy may lie at home rather than abroad. The government expects the economy to expand a measly 1.4 percent this year (less than half of the growth the US is likely to see) and long-term growth estimates have been trimmed to 2.5 percent a year.
European shares will be the best performers next year, according to the latest Reuters poll of more than 350 strategists, analysts and fund managers. Frankfurt’s DAX is already up nearly 20 percent this year and is forecast to rally another 10 percent in 2014.
The latest data from Ukraine shows its hard currency reserves fell $2 billion over November to $18.9 billion. That’s perilously low by any measure. (Check out this graphic showing how poorly Ukraine’s reserve adequacy ratios compare with other emerging markets: http://link.reuters.com/quq25v)