Global Investing

Despite concerns about contagion from the euro zone, investors injected fresh funds into U.S. mutual funds, including money market funds, latest weekly flow data from Lipper shows.

The week ended Nov 16 saw a net $10 billion inflow into mutual funds, including ETFs, while investors were net buyers of equity funds with flows at $2.8 billion. Equity funds, including ETFs, witnessed their fifth consecutive week of net inflows.

Reflecting jitters over the debt crisis however, investors injected $2.8 billion into taxable fixed income funds and for the second week in a row bought into money market funds to the tune of $2.9 billion.

Despite tensions in the funding market (LIBOR dollar rates were up again and 3-month euro/dollar cross-currency basis swaps hit their widest since December 2008 at 134bps yesterday), money market funds especially in the United States are attracting safe-haven flows. According to flow data from the Investment Company Institute, total U.S. money market mutual funds increased by $6.41 billion to $2.645 trillion for the week ended Wednesday.

So it seems no “breaking the buck” fears are resurfacing just yet.

Holding your breath for instant and comprehensive European Union policies solutions has never been terribly wise.  And, as the past three months of summit-ology around the euro sovereign debt crisis attests, you’d be just a little blue in the face waiting for the ‘big bazooka’. And, no doubt, there will still be elements of this latest plan knocking around a year or more from now. Yet, the history of euro decision making also shows that Europe tends to deliver some sort of solution eventually and it typically has the firepower if not the automatic will to prevent systemic collapse.
And here’s where most global investors stand following the “framework” euro stabilisation agreement reached late on Wednesday. It had the basic ingredients, even if the precise recipe still needs to be nailed down. The headline, box-ticking numbers — a 50% Greek debt writedown, agreement to leverage the euro rescue fund to more than a trillion euros and provisions for bank recapitalisation of more than 100 billion euros — were broadly what was called for, if not the “shock and awe” some demanded.  Financial markets, who had fretted about the “tail risk” of a dysfunctional euro zone meltdown by yearend, have breathed a sigh of relief and equity and risk markets rose on Thursday. European bank stocks gained almost 6%, world equity indices and euro climbed to their highest in almost two months in an audible “Phew!”.

Credit Suisse economists gave a qualified but positive spin to the deal in a note to clients this morning:

It would be clearly premature to declare the euro crisis as fully resolved. Nevertheless, it is our impression that EU leaders have made significant progress on all fronts. This suggests that the rebound in risk assets that has been underway in recent days may well continue for some time.

Depending on how you look at it, August may not have been as bad a month for stocks as advertised. For the month as a whole, the MSCI all-country world stock index  lost more than 7.5 percent.  This was the worst performance since May last year, and the worst August since 1998.

But if you had bought in at the low on August 9, you would have gained  healthy 8.5 percent or so.

In a similar vein, much is made of the fact that the S&P 500 index  ended 2009 below the level it started 2000, in other words, took a loss in the decade.

The opinion on Turkey’s unorthodox monetary policy mix is turning as rapidly as global growth forecasts are being revised down.

Earlier this month, its central bank was the object of much finger-wagging after it defied market fears over an overheating economy by cutting its policy rate. It defended the move, arguing that weaker global demand posed a greater risk than inflationary pressures.

Investors were not persuaded. When I told one analyst about the Turkish rate move, he practically sputtered down the phone: "You're not kidding?!"

So it’s not just investors who are guilty of moving in a herd-like fashion.

Financial journalists use the same verbs and nouns with greater frequency as stock markets overheat but display more variety in their phraseology after the bubble bursts, a study by Irish computer scientists has shown.

Trawling through nearly 18,000 on-line news articles that mention the Dow Jones, FTSE and Nikkei stock indices between 2006 and 2010, Aaron Gerow of Trinity College Dublin and Mark Keane of University College Dublin found that the language used by the writers had become more similar in the run-up to the global financial crisis.

Come back Mr Fukuyama, all is forgiven.

In his 1992 book "The End of History and the Last Man", American political scientist Francis Fukuyama famously argued that all states were moving inexorably towards liberal democracy. His thesis that democracy is the pinnacle of political evolution has since been challenged by the violent eruption of radical Islam as well as the economic success of authoritarian countries such as China and Russia.

Now a study by Russian investment bank Renaissance Capital into the link between economic wealth and democracy seems to back Fukuyama.

Looking at 150 countries and over 60 years of history, RenCap found that countries are likely to become more democratic as they enjoyed rising levels of income with democracy virtually 'immortal' in countries with a GDP per capita above $10,000.

The headline news from our Reuters asset allocation polls this month was that not much has changed from December in terms of overall investment positioning, but that there was a decided shift from emerging markets and European stocks to North America.

But buried in the numbers were a couple of other things:

– Bonds are decidedly unpopular among fund managers. The overall global allocation was the lowest since February.

– Bond underweights have also been getting heavier and heavier since summer and now reflect significant bearishness.

Ever since Goldman Sach's Jim O'Neill came up with the idea of BRICs as an investment universe, competitors have been indulging in a global game of acronyms. Why not add Korea to Brazil, Russia, India and China and get a proper BRICK? Or include South Africa, as it wants, to properly upper case the "s" - BRICS or BRICKS?

Completely new lists have also been compiled -- HSBC chief Michael Geoghegan has championed CIVETS to describe Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa (ignoring the fact, as Reuters' Sebastian Tong points out here, that a civet is a skunk-like animal blamed for the spread of the deadly SARS outbreak in Asia).

Fun though some of this is -- and no one can argue that BRICs has not had an impact -- there is a danger that the acronym could become more relevant  than the actual countries involved. For example, imagine Mexico, Uruguay, Panama, Philippines, Egypt, Turkey and Sierre Leone being lumped together because they spell MUPPETS.

Proof  that a little surprise can be quite big.

Ahead of the Federal Reserve’s decision on more quantitative easing there were three possible outcomes that  could have threatened what is becoming a strong global equity rally. In short:

– Meeting expectations could have been seen as boring, leading to a sell off

– Not meeting expectations could have been seen as widely disappointing, leading to a sell off

No question that investors are in the throes of passion over emerging markets. The latest Reuters asset allocation polls show investors pouring money into Asian and Latin American stocks in October to the detriment of U.S. and euro zone equities. Exposure to equities in emerging Europe, Asia ex-Japan, Latin America and Africa/Middle East rose to 15.6 percent of a typical stock portfolio from 14.3 percent a month earlier.