Global Investing

No one-way bet on yen, HSBC says

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.

Now here is a contrary view. David Bloom, HSBC’s head of global FX strategy, thinks one-way bets on the yen could prove dangerous. Here are some of the points he makes in his note today:

–  Bloom says the link between currencies and QE (quantitative easing) is not straightforward. Note that after three rounds of QE the dollar is flexing its muscles. The ECB’s LTRO too ultimately benefited the euro.

–  The BOJ surprised investors with the scale of its bond buying plan relative to the size of its economy. But Bloom says the Fed has actually tripled its monetary base since 2008 while the Bank of England has expanded it fivefold. The BOJ on the other hand plans to double it over the next two years.

– Bloom calculates that the BOJ plan relative to Japan’s monetary base justifies a yen/dollar depreciation of 15 percent. Instead the currency has fallen almost 30 percent since October.  The yen would have merely moved to 88 per dollar from a November level of around 80, had the market known the BoJ planned to double its monetary base, he says, adding:

More than a nice-to-have, buy-side considers its actions

More than a “nice to have,” investor sentiment is running heavily on the side of environment, social and governance (ESG) factors, according to the latest Thomson Reuters Perception Snapshot.

Feedback from 25 global buy-side investors found that 84 percent evaluate ESG criteria to some degree when making an investment decision.

The remaining 16 percent say ESG issues are not considered until a company’s ability to generate high returns is hindered by these factors.

Investing in Iraq

Ministers from Iraq, from prime minister Nuri al-Maliki down, are in London on Thursday to attract investment into the country. Could Iraq be one of the few investment regions decoupled from the global economic cycle?

It was having a war while the rest of the world was enjoying economic boom. As well as signs of lessening violence now and the promised withdrawal of U.S. combat troops by August 2010, it does have oil.

The country has a $2.7 billion bond maturing in 2028, has written off much of its debt with the Paris Club and others, and is planning government bonds totalling $5 billion.

Bah Humbug

Value managers and contrarian analysts long derided as permanent bears have been poking their heads out of the woods to bring some early Christmas cheer to delegates assembled at the CFA Institute’s European Conference in Amstedam.

James Montier, global strategist at SocGen, who likes to swim with sharks in his spare time, opened the conference on Tuesday by saying that he was more optimistic about equities than he had been for a long time, with the UK and European markets approaching bargain basement prices.

But on day two, Matt King, managing director, credit products strategy at Citigroup, rained all over this parade. “I have a message for equity investors,” he said. “It’s worse than you think!”