Asian bonds may suffer most if QE on ice
Bonds issued in emerging market currencies have been red-hot favourites with investors this year, garnering returns of 8.3 percent so far in 2012. But for some the happy days are drawing to a close — U.S. Treasury yields are nudging higher as the U.S. recovery gains a foothold and the Fed holds back from more money printing for now at least. That could spell trouble for emerging markets across the board (here’s something I wrote on this subject recently) but, according to JP Morgan, it is Asian bond markets that may bear the brunt.
Their graphic details weekly flows to local bond funds as measured by EPFR Global (in million US$). As on cue, these flows have tended to spike whenever central banks have pumped in cash. (Click the graphic to enlarge.)
Over the past several years, inflows have driven local curves to very flat levels, but current levels of flatness are not sustainable if/when inflows begin to slow, let alone reverse.As there is a clear correlation between the Fed’s “QE periods” and large inflows into Asian markets, we think the next few months will be difficult for Asian bonds markets (JPM writes)
JP Morgan says risks are greatest for Malaysia, Indonesia and Thailand because that’s where foreign ownership ratios are largest – in Indonesia for instance foreigners hold a third of local debt. Deficits in these three countries are also rising meaning debt issuance is rising faster than elsewhere, the bank warned. It advises clients to be underweight Asian local debt (countered by overweights in Latin America and emerging Europe)
Asian currencies face risks too –from China. The yuan is up 30 percent since mid-2005 but ended March with its first quarterly loss since 2009 and many reckon China, fearful of an exports slowdown will not permit any more big rises for now. Asian governments will have to fall into step if they want their own exports to compete. And that, JPM says, is robbing the region’s currencies of a major support anchor.
from MacroScope:
The thin line between love and hate
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?!"
The lira sold off, dropping to 2-1/2 year lows against the dollar.
But the central bank could yet be vindicated. With fears intensifying over weakening global demand, its decision to cut rates looks increasingly prescient. As my colleague Sujata Rao has pointed out, other emerging-market central banks have followed the Turks.
Witness Societe Generale’s head of emerging markets strategy Benoit Anne's mea cupla in a note issued just two weeks after Turkey's controversial rate decision:
"I guess I need to apologize to the Central Bank of Turkey which on many occasions had been the object of my sarcasm over the past few months: the Central Bank of the Republic of Turkey is actually at the forefront of policy-making in the emerging-markets universe. And I bet some other central banks will follow suit with rate cuts in the pipeline."
Islamic finance faces diversity crossroads
Is diversity of opinion boon or bane for Islamic finance?
Market participants gathered for a conference at Thomson Reuters’ London headquarters earlier this week discussed the need for more convergence in the industry estimated to be worth $1 trillion.
Of particular focus was the role of sharia scholars who rule on whether investment products are in line with Islamic teachings.
“Sharia scholars who sit as advisers have a crucial role to play in retaining public confidence,” Rifaat Ahmed Abdel Karim, secretary general of the Islamic Financial Services Board, an international standards-setting body for the industry, told the forum.
Beyond commonly agreed principles such as the emphasis on shared profit and the prohibition on usury, divergent opinion has emerged among these scholars on issues ranging from financial derivatives and deferred payment contracts.
Last year, the issuance of sukuk or Islamic bonds was hit when the top scholar of an influential industry body declared that about 85 percent of sukuk was un-Islamic.
from Global News Journal:
Back to the future in Malaysia with Anwar sodomy trial II
By Barani Krishnan
A decade ago, Malaysia's former deputy prime minister Anwar Ibrahim was on trial for sodomy and corruption in a trial that exposed the seamy side of Malaysian justice and the anxieties of a young country grappling with a crushing financial crisis and civil unrest.
Anwar is Malaysia's best known political figure, courted in the U.S. and Europe and probably the only man who can topple the government that has led this Southeast Asian country for the past 51 years.
Anwar vowed in a recent interview to fight what he says are trumped up charges.
The 14 months I spent covering the 1998 trials saw Anwar accused of sodomy with three men and having sex with a woman over a period of years. This case is simpler, there is just one accuser. All homosexual acts are illegal in this mainly Muslim country and sex outside marriage is illegal for Muslims.
The first trial was gruelling. Lines began as early as four in the morning as people tried to get into the court that could seat less than 200. Most of the spectators were ordinary people, but there was a sprinkling of dignitaries and businessmen who had known Anwar when he was in office.
There was a separate media queue and again a fight to get in line as dozens of reporters from local and international outlets jockeyed for space. Ringing the court were hundreds of riot police, backed by watercannon, waiting for trouble in a country where there were daily protests at the time, often involving tens of thousands of people.
Malaysia has more than once used the sodomy card to assassinate political opponents.
from Global News Journal:
Giving in to Ali Baba
I once paid a cop 30 ringgit (about $10 then) for making an apparently illegal left-hand turn in Kuala Lumpur. Scores of drivers in front of me were also handing over their "instant fines", discreetly enclosed within the policeman's ticketing folder. It was days ahead of a major holiday and the cops were collecting their holiday bonus from the public.
Malaysia opposition leader Anwar Ibrahim holds a disc he says contains evidence of judge-fixing in Malaysia
I felt bad about this, of course. What I was doing was illegal, immoral and perpetuating an insidious culture that goes by many names in the East -- "baksheesh" in India, "Ali Baba" (and his 40 thieves) in Malaysia, "swap" in Indonesia (means "to feed"). But the policeman pointed out I would have to take off the good part of a day to go to court and pay 10 times as much to the judge. So I rationalised: "When in Rome..."
Alas it was not the first time, nor would it be the last that I have (ahem) paid an "informal levy" to officialdom. I've given baksheesh to the phone company in India to get a telephone installed, and to get a driver's license without a test (no wonder there are so many accidents in India.) I've paid the immigration officer at Jakarta airport to let me in with a nearly expired passport.
Many of my friends in Asia have similar tales to tell about bribing customs agents, power companies, hospitals, schools -- anybody with the power to give a license or provide a service. A couple of bucks here, a couple there. Pretty soon you're talking about real money. Daniel Kaufmann, who spearheaded the World Bank's efforts to improve the study of governance and the rule of law estimates that $1 trillion of bribes are paid every year. A Reuters series on corruption in Asia found that perceptions of corruption in the emerging markets of Asia have not improved much over the years and have even declined in some cases. This is despite a growing revulsion among people in those countries for business as usual on the "demand" or government side, and a growing realisation from companies on the "supply side" of the bribery equation that payola is simply bad for business.
Protester holds a wanted poster for ousted Thai premier Thaksin Shinawatra at a mass anti-government rally in Bangkok.
Part of the problem is mindset and a major attitude adjustment might be needed. People may be fed up with "money politics" and crony capitalism in their countries, but they still pay off people in their neighbourhoods. A U.S. National Bureau of Economic Research study on unpaid parking fines issued to diplomats in New York, home to the U.N., showed Southeast Asian nations again among the league leaders and a remarkable correlation with more conventional measures of corruption. You can take the man out of his corrupt country, but you can't take the culture of corruption out of the man.
The writer makes no mention of the UK, but corruption is alive and well here as well. We give it fancy names like “cash for questions”, “cash for peerages” or “cash for votes”, but the principle is the same.
