Editor, Investment Strategy. Europe, Middle East and Africa, London
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Jun 24, 2013
Jun 20, 2013
Jun 12, 2013

Emerging market crunch may cause Fed to think twice

LONDON (Reuters) – If currency turbulence in emerging markets escalates into full-scale investor flight, the U.S. Federal Reserve may have a fresh headache in deciding when to slow its dollar printing policy.

Given all the obvious influences on Fed policy – domestic inflation, jobless youths, long-term unemployment, stuttering credit creation or banking stability – gyrations on markets from Turkey to South Africa or South Korea may seem tangential.

Jun 12, 2013

Analysis: Emerging market crunch may cause Fed to think twice

LONDON (Reuters) – If currency turbulence in emerging markets escalates into full-scale investor flight, the Federal Reserve may have a fresh headache in deciding when to slow its dollar printing policy.

Given all the obvious influences on Fed policy – domestic inflation, jobless youths, long-term unemployment, stuttering credit creation or banking stability – gyrations on markets from Turkey to South Africa or South Korea may seem tangential.

Jun 6, 2013
Jun 6, 2013
Jun 6, 2013
Jun 6, 2013
via Global Investing

Weekly Radar: A ‘sudden stop’ in emerging markets?

Turkey’s lira, South Africa’s rand and South Korea’s won have all lunged, local currency debt yields have suddenly surged, there’s an intense investor focus on domestic political risks again and governments like Brazil who were taxing what they feared were excessive foreign investment over the past couple of years have U-turned as those flows evaporate. 

What some have feared for many months may well be materializing – a ‘sudden stop’ in financing flows to emerging markets as the makings of a perfect storm gathers. With the Fed mulling some reduction in the amount of dollars it’s pumping into the world, the prospect of a rare and protracted rise in the dollar and U.S. Treasury yields potentially changes entire EM investment metrics for U.S. funds (who make up almost half of the world’s private institutional investors) and from markets which have willingly or not been some of the biggest beneficiaries of QE in recent years but also to where where , by some estimates, nearly $8 trillion of FDI and portfolio flows have flowed over the past decade. It doesn’t even have to mean a reversal of capital already in emerging markets, but even a sudden stop in new flows there could seriously undermine the currency and debt markets of countries heavily dependent on rolling foreign financing – those with large current account gaps to finance. As emerging and global economic growth has eased and return on equity sinks, emerging equity markets have already underperformed for three years now. But the biggest wave of recent investment in EM had been into its bond markets, most recently to higher-yielding local-currency debt markets. And it’s these flows that could dry up rather quickly and shockingly, with all the attendant pressure on currency rates and vice versa. For context, a record of more than $410 billion new sovereign and corporate bonds from emerging economies were sold last year alone, according to JPMorgan, and Morgan Stanley estimates show emerging companies alone have sold some $130 billion worth of new debt so far this year – up 30 percent on last year and more than twice the same period in 2011.
               Already we’re seeing big hits to big current account deficit countries Turkey and South Africa in this region and, as is so often the case in emerging markets, the withdrawal of capital leads to an intense focus on domestic and political risks. These are two of the five biggest destination for bond flows over the past four years, a list –measured on flows as share of GDP – also includes Poland and Czech Republic. Mexico is top of the list, but many see its geographic and financial proximity to the US insulating it.

Jun 4, 2013
May 24, 2013

Dollar builds steam, unnerves emerging markets

LONDON, May 24 (Reuters) – As the dust settles on a volatile
week, many strategists now sense a green light for a
long-brewing multi-year rise of the U.S. dollar – with unnerving
portents for emerging markets.

The U.S. Federal Reserve’s now open debate about the
beginning of the end of its massive money-printing programmes
caused gyrations on stock and bond markets everywhere this week.

    • About Mike

      "Mike Dolan is Reuters' Investment Strategy Editor in Europe. He has been a correspondent and editor for the past 20 years, working for Reuters from London and Washington DC in a variety of roles covering global policymaking, economics and investment trends."
      Joined Reuters:
      1995
      Awards:
      Reuters Editor of the Year, 2009. Reuters multimedia journalist of the year award, 2011
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