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.
No one will really know how Lithuania will impact European Central Bank monetary policy until the country gets a seat at the table. That is expected to happen in 2015, provided the last of the three Baltic nations meets the criteria to become the euro zone’s 19th member. We’ll all find out in early June.
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.
To err once is unfortunate. To err twice looks like carelessness.
One of the great mysteries of 2013 will surely be how economists, investors and market participants of all stripes so spectacularly misread two of the biggest central bank policy set-pieces of the year.
The first was the Federal Reserve’s decision in September not to begin withdrawing its $85 billion-a-month bond-buying stimulus, the second was the European Central Bank’s decision in November to cut interest rates to a fresh low of just 0.25 percent.
The Fed’s decision on Sept. 18 not to “taper” stunned markets. The 10-year Treasury yield recorded its biggest one-day fall in almost two years, and the prospect of continued stimulus has since propelled Wall Street to fresh record highs. (See graphic, click to enlarge)
What will save the Indian rupee? There’s an election next year so forget about the stuff that’s really needed — structural reforms to labour and tax laws, easing business regulations and scrapping inefficient subsidies. The quickest and most effective short-term option may be a dollar bond issued to the Indian diaspora overseas which could boost central bank coffers about $20 billion.
So, it’s May and time for the annual if temporary equity market selloff, right? Well, maybe – but only maybe. A fresh weakening of the global economic pulse would certainly suggest so, but central banks have shown again they are not going to throw in the towel in the battle to reflate. The ECB’s interest rate cut today and last night’s insistence from the Fed that it’s as likely to step up money printing this year as wind it down are two cases in point. And we’re still awaiting the private investment flows from Japan following the BOJ’s latest aggressive easing there.
Will the yen continue to weaken?
Most people think so — analysts polled by Reuters this month predict that the Japanese currency will fall 18 percent against the dollar this year. That will bring the currency to around 102 per dollar from current levels of 98. And all sorts of trades, from emerging debt to euro zone periphery stocks, are banking on a world of weak yen.
US MARCH JOBS REPORT/THREE OF G4 CENTRAL BANKS THURS/NEW QUARTER BEGINS/FINAL MARCH PMIS/KENYA SUPREME COURT RULING/SPAIN-FRANCE BOND AUCTIONS
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).