By Alexander Winning
What are the chances that Western investors will rush back to Russia if a shaky ceasefire in Ukraine leads to a more lasting peace? Pretty slim, judging by a keynote speech at a recent Russia-focused investment conference in London.
Dmitri Trenin, director of the Carnegie Moscow Centre, told the conference organised by Sberbank CIB, the investment-banking arm of Russia’s top state-controlled lender, there was little prospect of significant Western investment in Russia over the next 5 years:
How much juice is left in the Indian equity story? Mumbai’s share index has raced to successive record highs and has gained 24 percent so far this year in dollar terms as investors have bought into Prime Minister Narendra Modi’s reform promises.
Foreign investors have led the charge through this year, pouring billions of dollars into the market. Now locals are also joining the party – Indian retail investors who steered clear of the bourse for three years are trickling back in – they have been net investors for 3 months running and last month they purchased Rs 108 billion worth of shares, Citi analysts note.
By Andrew Winterbottom
Russian stocks are up today, for the fifth day in a row and at the highest level in two weeks. What’s going on? As we wrote here earlier in the week, foreign investors have been fleeing this market. However it could be that some of them are starting to put aside concerns about the potential for further sanctions on Moscow and are scouring Russia’s stock markets for contrarian buying opportunities.
Russian stocks, chronically undervalued, are trading now at a discount of more than 60 percent to broader emerging markets, and to China which by all accounts is the standout beneficiary of the Russian woes. Just how cheap Russian shares are can be gauged from the fact they trade at a discount event to turbulent Pakistan. Here is a link that compares Russian equity valuations with other emerging and developed markets: http://link.reuters.com/guv77v
We’ve written (most recently here) about all the buying interest that emerging markets have been getting from once-conservative investors such as pension funds and central banks. Last year’s taper tantrum, caused by Fed hints about ending bond buying, did not apparently deter these investors . In fact, as mom-and-pop holders of mutual funds rushed for the exits, there is some evidence pension and sovereign wealth funds actually upped emerging allocations, say fund managers. And requests-for-proposals (RFPs) from these deep-pocketed investors are still flooding in, says Peter Marber, head of emerging market investments at Loomis Sayles.
The reasoning is yield, of course, but also recognition that there is a whole new investable universe out there, Marber says:
Emerging markets have been attracting healthy investment flows into their stock and bond markets for much of this year and now data compiled by consultancy CrossBorder Capital shows the sector may be on the cusp of decisively turning the corner.
CrossBorder and its managing director Michael Howell say their Global Liquidity Index (GLI) — a measure of money flows through world markets — showed the sharpest improvement in almost three years in June across emerging markets. That was down to substantially looser policy by central banks in India, China and others that Howell says has moved these economies “into a rebound phase”.
A colleague of mine, Marius Zaharia (@MZaharia) interviewed Moritz Kraemer, Standard and Poor’s head of sovereign ratings for Europe, Middle East and Africa. (you can read the interview here) Kraemer offered this piece of advice to the African governments who are busily tapping bond markets these days:
What I want to tell all those governments in africa is that you are not a successful market participant when you’ve issued your first eurobond. You are a successful participant when you’ve paid it back for the first time.
South Africa is due ratings reviews this Friday. Chances are that the Standard & Poor’s agency will cut its BBB rating by one, or possibly even two notches. Another agency Fitch has a stable outlook on the rating but could still choose to downgrade the rating rather than the outlook. What will be the damage?
There is undoubtedly a link between ratings and bond prices. So a one-notch ratings downgrade tends to lead to roughly a 20 percent increase in bond yield spreads and credit default swaps (instruments that are used to hedge against default), according to calculations by JPMorgan. But in South Africa the lower credit rating may already be already reflected in asset prices — Panama, Brazil, Colombia, Philippines, Uruguay, Indonesia, and Romania carry lower sovereign credit ratings but boast lower CDS and dollar bond yield premia over Treasuries. Russia and Turkey have lower average ratings than South Africa but their debt and CDS spreads are roughly on the same level.
LONDON, May 8 (Reuters) – Emerging market investors are
dumping once-hot rouble bonds due to the threat of tougher
sanctions hanging over Russia, shifting funds to the likes of
South Africa, Hungary and Turkey which only recently had been
Seemingly conciliatory comments from President Vladimir
Putin on the Ukraine crisis have soothed markets this week. But
fears remain that the West – which has so far targeted only a
small number of Russian individuals and firms – will impose
harsher sanctions, including on the financial sector.
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.
Local emerging debt has been out of favour with investors because of how volatile currencies have been since last May, For an investor who is funding an emerging market investments from dollars or euros, a fast-falling rand can wipe out any gains he makes on a South African bond. But the rand and its peers such as the Turkish lira, Indian rupee, Indonesian rupiah and Brazilan real — at the forefront of last year’s selloff – have stabilised from the lows hit in recent months. According to Pictet Asset Management:
The West has just agreed to stump up a load of cash for Ukraine but there is a distinct sense of deja vu around it all.
Let’s face it – Ukraine’s track record on how it manages ts economy and foreign affairs isn’t great. This is the third aid programme Kiev has signed with the International Monetary Fund in a decade and two of them have failed. The IMF has its fingers crossed that this one will not go the way of the past two. Reza Moghadam, the IMF’s top European official, tells Reuters in an interview: