Sujata Rao http://blogs.reuters.com/sujatarao Sujata Rao's Profile Mon, 09 Nov 2015 11:15:10 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.5 Fed expectations knock emerging assets; India lags http://www.reuters.com/article/2015/11/09/emerging-markets-idUSL8N13423920151109?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/sujatarao/2015/11/09/fed-expectations-knock-emerging-assets-india-lags/#comments Mon, 09 Nov 2015 10:43:28 +0000 http://blogs.reuters.com/sujatarao/?p=1598 LONDON, Nov 9 (Reuters) – India was the weak link in
emerging markets on Monday after a regional election defeat for
the pro-business ruling party while mounting expectations of a
U.S. rate rise pushed emerging shares to one-month lows.

The dollar stands near seven-month highs and 10-year U.S.
bond yields have surged as strong jobs growth last month and a
drop in the unemployment rate to April 2008 lows have increased
the likelihood that the Federal Reserve will raise rates in
December for the first time in almost a decade.

MSCI’s emerging equity index fell almost 1 percent
while Hong Kong-listed Chinese shares closed down 0.6
percent, shrugging off buoyant mainland markets that were
celebrating the resumption of new share listings
.

Indian shares, bonds and currencies – investor favourites
this year – slumped to six-week lows after Prime Minister
Narendra Modi’s defeat in Bihar state elections raised concerns
over the fate of key policy reforms.

The rupee lost 0.4 percent, with the central bank spotted
intervening to stem the currency’s losses, while equities
fell as much as 2.3 percent before closing just
over 1 percent lower. Bond yields rose to six-week highs.

Ilan Solot, a strategist at Brown Brothers Harriman, said
that while a Fed move was a headwind, emerging markets had
broadly priced this in and would also focus on other issues.

“I don’t see any reason to think that EMs will be terribly
hurt by this – the market is … reacting to a stronger dollar.
But it isn’t a continuous negative development, you adjust to it
and move on,” Solot said.

The markets’ optimism on India was being tested, Solot said,
adding: “The question is whether India will slip back into the
old paradigm of inaction – that’s the problem.”

Analysts at Citi told clients: “It is a political pothole –
a bump that you usually ride out of with some temporary
discomfort (though you do start looking at the road more
closely).”

Politics also hurt Croatian assets, with the kuna down 0.2
percent after weekend elections that yielded a hung parliament.
Five-year credit default swaps rose 2 basis points (bps) to 308
bps, the highest since December.

Egyptian CDS meanwhile hit 18-month highs as fears grew for
the tourism-reliant economy after investigators said the recent
air disaster that killed 224 Russian tourists was likely caused
by a bomb.

Egypt’s 2020 dollar bond fell half a cent in price to the
lowest since August 2014, while the 2025 issue is at a record
low of 91 cents in the dollar, Tradeweb data showed
.

Shares in South Africa’s MTN tumbled more than 1 percent
and bond prices fell over half a cent
after the resignation of its CEO following the imposition of a
$5.2 billion fine by Nigeria.

The rand lost 0.8 percent against the dollar.

Most other emerging currencies also retreated, with the
Turkish lira and Russian rouble losing 0.4 percent
.

For GRAPHIC on emerging market FX performance 2015, see link.reuters.com/jus35t

For GRAPHIC on MSCI emerging index performance 2015, see link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2015, see link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2015, see link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see )

(Additional reporting by Claire Milhench; Editing by Tom
Heneghan)

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Big funds cautiously raise allocations to cheap emerging stocks http://www.reuters.com/article/2015/11/06/us-emerging-stocks-funds-idUSKCN0SV26F20151106?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/sujatarao/2015/11/06/big-funds-cautiously-raise-allocations-to-cheap-emerging-stocks/#comments Fri, 06 Nov 2015 15:43:44 +0000 http://blogs.reuters.com/sujatarao/?p=1595 LONDON (Reuters) – After several false dawns in emerging market equities, some big asset managers reckon it could be time to start buying even if the sector’s recent rally looks fragile.

Once-booming emerging markets have underperformed their developed peers for five years running. Investors who bought into the sector five years ago would be sitting on a 6 percent loss now if they tracked MSCI’s benchmark index. By contrast, an investment following the U.S. S&P500 would have returned 13 percent, asset manager Blackrock notes.

A convincing reversal on emerging markets is still some way off. Morgan Stanley data showed this week that companies in the sector will miss analysts’ earnings forecasts for the 12th quarter out of the past 14. Many big emerging economies such as Brazil and Russia are in recession while growth in others has slipped to multi-year lows.

Nevertheless, some funds are cautiously upping their allocations. UBS Wealth Management, for instance, has gone neutral weight on emerging markets after being underweight for more than a year. That means its allocations are now on par with emerging stocks’ weight in world benchmark indexes.

“It is not yet time for emerging market bulls to run loose, but a more balanced stance may be warranted,” said Jorge Mariscal, the company’s head of the EM investment office.

Investors worldwide pared net underweight positions on emerging market (EM) stocks to 28 percent in October from a record 34 percent the previous month, according to Bank of America Merrill Lynch’s monthly survey.

Emerging equities rose 7 percent last month after five straight months in the red. Hints of more central bank money-printing to stimulate the economies of Japan and the euro zone helped, as did a belief that U.S. interest rates may not rise this year. So far in November the MSCI benchmark index is up almost 2 percent.

Emerging equity funds started receiving new money in mid-October following $50 billion in outflows in July-September, although flows have since stalled after hitting 16-week highs at the end of last month.

UBS Wealth Management said “attractive” stock valuations and tentative signs of stabilisation in data from emerging economies had encouraged the change. Bearish positions had hit extremes in markets such as Brazil where UBS has raised holdings to prepare for a bounce.

The index as a whole trades around 11 times forward earnings of its constituent stocks. This is off lows hit in recent years but considerably cheaper than developed market valuations of almost 16 times earnings, as this graphic shows:

link.reuters.com/rut87v

Cheap share prices are probably justified, given the four-year recession in emerging corporate earnings, but 10-30 percent depreciations of most emerging currencies against the dollar this year mean that economic adjustment in many countries is already underway, some argue.

Gerardo Rodriguez, Blackrock’s head of multi-asset emerging markets, said his top investment idea is to raise EM equity holdings versus developed markets, betting that as the U.S. economy picks up, many emerging economies will ride along.

“Looking at valuation metrics, there is clearly an interesting entry opportunity, especially against developed markets which have been rallying for years,” Rodriguez said. “We are saying it is time to look again at EM … It is time to at least go back to benchmark (weight)”.

TACTICAL MOVES

But after the false starts over the past five years, fund managers are wary of big positions in a sector that is so tied to the fortunes Chinese economic growth, world trade and U.S. interest rates.

For instance, emerging stocks took a hit on Friday as strong U.S. employment data encouraged those who believe the Federal Reserve will raise borrowing costs next month for the first time in almost a decade.

So while some money has trickled back, Bank of America Merrill Lynch estimates that for every $100 redeemed from emerging equity funds over the summer, only $2 has returned.

“This doesn’t feel like a structural rebound. That will happen at some point but we will have to see relative valuations lower than now, company earnings have to come through and countries have to work on reforms,” said Ayesha Akbar, portfolio manager in Fidelity Worldwide Investments’ multi-asset team.

However, in a tactical move Akbar recently reduced her long-standing underweight in emerging stocks. “We don’t think China is out of the woods yet but at the margins things could be stabilising.,” she said. “That provides some comfort.”

A fully-fledged rebound depends on economic fortunes, and here there are signs of stabilisation in some markets. Russian manufacturing expanded in October for the first time in 11 months while the sector’s growth hit multi-month highs in India and Mexico.

Capital Economics said its GDP tracker, based on monthly output and spending data, showed that the downturns in Russia and Latin America had levelled out. China has stabilised and should gather momentum due to monetary policy easing, it added.

But exports, a driver of emerging market earnings and economic growth, remain in the doldrums. World demand for the commodities which many emerging economies produce is unlikely to rebound, while goods exports also remain weak. South Korea, a bellwether for global demand, expects its exports to continue falling this quarter.

Because of these factors, shares are not yet so cheap that it is possible to “close your eyes and buy”, says John Bilton, global head of multi-asset strategy at JPMorgan Asset Management. He still prefers developed markets over emerging, albeit “in reduced size” compared with before.

(editing by David Stamp)

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Investors put more cash into Europe equity funds http://uk.reuters.com/article/2015/11/06/uk-global-investment-flows-idUKKCN0SV1E220151106?feedType=RSS&feedName=everything&virtualBrandChannel=11708 http://blogs.reuters.com/sujatarao/2015/11/06/investors-put-more-cash-into-europe-equity-funds/#comments Fri, 06 Nov 2015 11:19:43 +0000 http://blogs.reuters.com/sujatarao/?p=1593 LONDON (Reuters) – Investors pumped $2.6 billion into European equity funds in the past week, extending their run of gains but emerging equities snapped a month-long winning streak as $1.2 billion exited, Bank of America Merrill Lynch said on Friday.

Inflows into equity funds overall tapered off to $2 billion, the lowest in four weeks, though this masked strong interest in European stocks which have now taken in new money for 23 out of the past 25 weeks, according to BAML data, which also includes numbers from Boston-based fund tracker EPFR Global.

The expectation of more stimulus from the European central Bank may have helped, with ECB boss Mario Draghi this week indicating that the bond-buying programme could be ramped up if needed.

Global bond funds received $2.3 billion, BAML said.

World stocks have hit 2-1/2 month highs recently and emerging equities have rallied from summer lows as investors grew more confident about China’s economy and the U.S. recovery.

U.S. jobs data due later on Friday could provide the signal the Federal Reserve needs to start raising interest rates in December. These expectations have pushed the dollar to three-month highs against a basket of currencies.

BAML said a Fed move appeared largely priced in.

“Flows corroborate that sentiment is no longer “uber” bearish and more recently investors are expecting Fed to start raising interest rates,” the bank said.

However, Japanese and U.S. funds saw losses of $600 million and $500 million respectively in the past week, the data showed.

Emerging equity funds meanwhile lost $1.2 billion over the week, while emerging debt funds too shed a similar amount. The latter have seen outflows in 14 out of the past 15 weeks as investors have been deterred by weakness in emerging currencies and the prospect of higher U.S. rates.

“The lonely bear remains in emerging markets,” BAML said. “For every $100 redeemed from high-yield during the third-quarter sell-off, $88 has returned; for every $100 redeemed from EM equity funds only $2 have returned.”

Junk-rated high yielding bonds remained in vogue, attracting $3.6 billion while flows to investment grade debt picked up to a 13-week high of $1.7 billion.

Government bond funds however lost $2.1 billion, BAML said.

(Reporting by Sujata Rao; editing by Ralph Boulton)

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Investors put more cash into Europe equity funds, exit EM-BAML http://www.reuters.com/article/2015/11/06/global-investment-flows-idUSL8N1312Q020151106?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/sujatarao/2015/11/06/investors-put-more-cash-into-europe-equity-funds-exit-em-baml/#comments Fri, 06 Nov 2015 11:18:06 +0000 http://blogs.reuters.com/sujatarao/?p=1591 LONDON, Nov 6 (Reuters) – Investors pumped $2.6 billion into
European equity funds in the past week, extending their run of
gains but emerging equities snapped a month-long winning streak
as $1.2 billion exited, Bank of America Merrill Lynch said on
Friday.

Inflows into equity funds overall tapered off to $2 billion,
the lowest in four weeks, though this masked strong interest in
European stocks which have now taken in new money for 23 out of
the past 25 weeks, according to BAML data, which also includes
numbers from Boston-based fund tracker EPFR Global.

The expectation of more stimulus from the European central
Bank may have helped, with ECB boss Mario Draghi this week
indicating that the bond-buying programme could be ramped up if
needed.

Global bond funds received $2.3 billion, BAML said.

World stocks have hit 2-1/2 month highs recently and
emerging equities have rallied from summer lows as investors
grew more confident about China’s economy and the U.S. recovery.

U.S. jobs data due later on Friday could provide the signal
the Federal Reserve needs to start raising interest rates in
December. These expectations have pushed the dollar to
three-month highs against a basket of currencies.

BAML said a Fed move appeared largely priced in.

“Flows corroborate that sentiment is no longer “uber”
bearish and more recently investors are expecting Fed to start
raising interest rates,” the bank said.

However, Japanese and U.S. funds saw losses of $600 million
and $500 million respectively in the past week, the data showed.

Emerging equity funds meanwhile lost $1.2 billion over the
week, while emerging debt funds too shed a similar amount. The
latter have seen outflows in 14 out of the past 15 weeks as
investors have been deterred by weakness in emerging currencies
and the prospect of higher U.S. rates.

“The lonely bear remains in emerging markets,” BAML said.
“For every $100 redeemed from high-yield during the
third-quarter sell-off, $88 has returned; for every $100
redeemed from EM equity funds only $2 have returned.”

Junk-rated high yielding bonds remained in vogue, attracting
$3.6 billion while flows to investment grade debt picked up to a
13-week high of $1.7 billion.

Government bond funds however lost $2.1 billion, BAML said.

(Reporting by Sujata Rao; editing by Ralph Boulton)

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Emerging assets retreat before US data; tenge at new record low http://www.reuters.com/article/2015/11/06/emerging-markets-idUSL8N13124120151106?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/sujatarao/2015/11/06/emerging-assets-retreat-before-us-data-tenge-at-new-record-low/#comments Fri, 06 Nov 2015 09:55:21 +0000 http://blogs.reuters.com/sujatarao/?p=1589 LONDON, Nov 6 (Reuters) – Emerging market assets retreated
on Friday for the second day in a row as the U.S. dollar flexed
its muscles but Chinese stimulus expectations boosted mainland
stocks which ended with weekly gains of over 6 percent.

The dollar firmed to three-month highs against a basket of
major currencies before the release of U.S. jobs data which
could give investors clues on whether interest rates could be
raised in December.

MSCI’s emerging equity index fell half a percent but is on
track to end the first week of November in the black,
extending October’s 7 percent gains. While Hong Kong stocks fell
0.8 percent HSI>, Chinese mainland shares jumped 2 percent and
have risen 25 percent from end-August troughs.

“Recent data is a little bit more favourable, particularly
from China,” said Sebastien Barbe, head of emerging markets
strategy at Credit Agricole, noting latest data from carmaker
Ford and GM showed strong vehicle sales in China.

“Compared to one or two months ago, people realize that the
no-hard-landing scenario has become increasingly likely.”

Barbe added: “If the (jobs) data is stronger than expected
we will see a more accelerated normalization of rates in the
U.S. and emerging markets could weaken.”

The yuan was on track for its worst weekly performance
against the dollar since its mid-August devaluation while
other emerging currencies also weakened.

The Turkish lira and South African rand slipped 0.4 percent
to the dollar, with both countries seen as highly
vulnerable to higher U.S. rates. The lira now stands around 4
percent off Monday’s post-election high.

Oil’s 3 percent fall this week is another headwind for
energy exporters such as Russia with the rouble down 1 percent
. Kazakhstan’s tenge fell 2.5 percent, extending
Thursday’s 4 percent loss after authorities switched to a
hands-off approach to conserve central bank reserves.

Renaissance Capital analyst Oleg Kouzmin said the tenge
devaluation was overdone.

“In our base case, we estimate that the tenge could average
260 per dollar in 2016 if oil averages $60 per barrel. This is
required to bring Kazakhstan’s balance of payments into a
healthy state. If oil stays flat at $50, the exchange rate could
average 285 per dollar next year,” he added.

Kazakh sovereign bond yield spreads were stable at 359 basis
points over U.S Treasuries after tightening 40 basis
points on Thursday when state oil firm Kazmunaigaz launched a
$3.4 billion bond buyback.

Elsewhere, shares in South African telecoms firm MTN fell
0.7 percent though they have eked out a small gain this
week following last week’s recoerd 17 percent fall due to the
imposition of a $5.2 billion fine by Nigerian regulators.

The company is negotiating to reduce the fine, three sources
familiar with the talks told Reuters.

MTN 2024 dollar bonds slipped to 94 cents in the dollar,
though this is off the lows below 90 hit earlier in the week
.

For GRAPHIC on emerging market FX performance 2015, see link.reuters.com/jus35t

For GRAPHIC on MSCI emerging index performance 2015, see link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2015, see link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2015, see link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see )

(Additional reporting by Karin Strohecker; Editing by Toby
Chopra)

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Kazakh privatisation wave may start next year via stake sales, IPOs – official http://uk.reuters.com/article/2015/11/04/kazakhstan-privatisations-idUKL8N12Z43N20151104?feedType=RSS&feedName=everything&virtualBrandChannel=11708 http://blogs.reuters.com/sujatarao/2015/11/04/kazakh-privatisation-wave-may-start-next-year-via-stake-sales-ipos-official/#comments Wed, 04 Nov 2015 15:18:56 +0000 http://blogs.reuters.com/sujatarao/?p=1587 LONDON, Nov 4 (Reuters) – Kazakhstan, buffeted by lower oil
revenues, is determined to complete long-delayed privatisations
that will cut state ownership in 60 of the biggest firms and
many more smaller ones, the head of the country’s investment
agency said on Wednesday.

The privatisations, which may start as early as next year,
will be carried out via a mix of stock market listings and sales
of strategic stakes, Borisbiy Zhangurazov, executive chairman of
the Kaznexinvest agency, said in an interview.

Sources told Reuters this week that the energy-rich Central
Asian country planned to sell some or all its stakes in 60
companies, including miner Eurasian Resources Group (ERG), flag
carrier Air Astana and Kazakhtelecom

Many of these stakes are held by wealth fund Samruk Kazyna
and a list of companies will be released in the next week or
two, said Zhangurazov, who is accompanying Kazakh President
Nursultan Nazarbayev on a visit to Britain.

“More than 60 companies will be privatised, and if we
include small regional companies it is a few thousand,” he told
Reuters. “This is a very necessary thing because with low oil
prices the budget cannot count on oil revenues.”

Kazakhstan relies on oil for more than half its budget
revenues. It was recently forced to devalue its tenge currency,
which hit a record closing low earlier on Wednesday, and the
economy is projected to grow by just 1.5 percent this year.

Zhangurazov said the aim is to cut state ownership in the
economy to around 15 percent from 60-70 percent at present while
small firms which find no buyers could be liquidated.

No time frame has been revealed but the programme will kick
off next year, Zhangurazov said, adding: “There will be some
budget deficit, privatisation proceeds will form part of the
financing next year.”

INITIAL PUBLIC OFFERINGS

Kazakhstan’s minister for investment and development Asset
Issekeshev separately told Reuters that the government had
engaged consultants to advise which stakes would be sold to
strategic investors and which ones would be sold via IPOs.

IPOs will be conducted in the Kazakh capital Astana, which
the government hopes to develop as a financial centre,
Issekeshev added.

After a privatisation wave in the 1990s, Kazakhstan’s
divestment plans have repeatedly failed to come to fruition.

Instead, the reverse has happened as cash-flush Samruk took
stakes in many troubled private banks after 2008. Zhangurazov
said that model was not viable in a low oil price environment.

Kazakhstan’s budget for this year is based on an oil price
of $50 per barrel and Zhangurazov said the price envisaged in
the 2016 budget would be “more or less the same”.

Deals worth $5 billion have been signed during Nazarbayev’s
visit to Britain, the government has said.

One deal, signed between Kazakhstan and Citi, envisages the
issuance of global depositary notes, potentially allowing the
government to raise debt in tenge via special securities that
will pay interest and principal in dollars.

“This will give the finance ministry an additional cushion
if things get worse than expected,” Zhangurazov said.

But he was optimistic about investment prospects. Kazakhstan
is receiving roughly $10 billion a year in foreign direct
investment but FDI in manufacturing has doubled since 2013 to
around $1 billion a year, Zhangurazov said.

“We hope to maintain the same level of FDI and increase the
share of FDI to the manufacturing sector,” he added.

(Reporting by Sujata Rao and Marc Jones; Editing by Gareth
Jones)

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Turkey outperforms subdued emerging markets after election result http://www.reuters.com/article/2015/11/02/emerging-markets-idUSL8N12X1MR20151102?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/sujatarao/2015/11/02/turkey-outperforms-subdued-emerging-markets-after-election-result/#comments Mon, 02 Nov 2015 09:48:56 +0000 http://blogs.reuters.com/sujatarao/?p=1585 LONDON, Nov 2 (Reuters) – An outright election win for
Turkey’s ruling AK Party helped Turkish assets score sharp gains
on Monday, outperforming other emerging markets where moves were
subdued amid persistent worries over China’s economy.

Emerging markets, which face the twin headwinds of a slowing
Chinese economy and a looming U.S. interest rate rise, saw
MSCI’s equity benchmark stay flat. The sector was pressured by
1.6 percent losses in mainland Chinese shares after data showed
fresh manufacturing contractions .

In Turkey, however, the mood was buoyant after the
Islamist-rooted AKP swept to an unexpected landslide victory on
Sunday, returning Turkey to single-party rule in an outcome that
will boost President Tayyip Erdogan’s power.

“This is a major surprise – they’ve done 9-10 percentage
points better than what the polls were suggesting, so the market
is pricing that move towards stability,” said Manik Narain, a
strategist at UBS in London.

The Istanbul stock market jumped 5 percent for its biggest
one-day gain in more than three years while the lira currency
rose 3 percent, a three-month high against the dollar
.

But the result may deepen social divisions with Kurdish
militants in the country’s east, and within the different
political classes.

Shares in firms seen as linked to dissident cleric Fethullah
Gulen tumbled, with mining firm Koza falling as much
as 12 percent. Shares in the Dogan conglomerate,
whose media group is being investigated by prosecutors, dropped
around 10 percent.

Turkish five-year credit default swaps fell 24 basis points
(bps) from Friday’s close to 229 bps while external debt prices
rose – sovereign dollar bonds maturing 2030 and 2034 firmed more
than 2 cents in the dollar .

In other emerging markets, the Chinese data – with one
survey showing factory activity contracting for the eighth
straight month – weighed. The yuan slipped 0.3 percent
after its biggest one-day gain in almost 10 years on Friday when
state-run banks were suspected of selling dollars.

A slight dollar pull back boosted other Asian currencies
while the rouble and rand also firmed .

But the Kazakh tenge fell 0.4 percent after President
Nursultan Nazarbayev replaced the central bank head after this
year’s sharp devaluation. Data showed sales of $3.9 billion in
October from the Kazakh rainy day fund to support the tenge.

South African stocks fell 0.5 percent, as telecoms
firm MTN extended last week’s 17 percent loss, its
biggest weekly fall since 2008, after Nigerian regulators gave
it two weeks to pay a $5.2 billion fine.

MTN shares lost 7.5 percent on Monday and Eurobonds maturing
2024 fell another 1.3 cents to 91 cents in the dollar. The bonds
have fallen almost 10 cents in the past week
according to Tradeweb data.

Gulf shares rebounded after falling on Sunday in the wake of
a ratings downgrade for Saudi Arabia. Saudi
stocks rose 0.9 percent, recouping most of the previous
session’s losses, with other regional bourses following.

Central European currencies slipped, with the forint falling
0.4 percent after lacklustre euro zone factory growth
.

For GRAPHIC on emerging market FX performance 2015, see link.reuters.com/jus35t

For GRAPHIC on MSCI emerging index performance 2015, see link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2015, see link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2015, see link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see )

(Additional reporting by Claire Milhench Editing by Jeremy
Gaunt)

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European investors buy into ECB QE, sell U.S. assets http://uk.reuters.com/article/2015/10/30/uk-funds-poll-europe-idUKKCN0SO1HS20151030?feedType=RSS&feedName=everything&virtualBrandChannel=11708 http://blogs.reuters.com/sujatarao/2015/10/30/european-investors-buy-into-ecb-qe-sell-u-s-assets/#comments Fri, 30 Oct 2015 14:37:57 +0000 http://blogs.reuters.com/sujatarao/?p=1583 LONDON (Reuters) – European investors cut U.S. stock and bond holdings in October and allocations fpr European assets as they focussed on monetary policy divergence between the United States and elsewhere.

A Reuters poll conducted from Oct. 19 to 28 found that investors had further trimmed overall equity allocations to new 10-month lows of 44.9 percent.

Allocations were cut 3 percentage points in September amid worries about the world economy, slowing Chinese growth and the timing of the first U.S. rate increase in almost a decade.

The October poll was held before the U.S. Federal Reserve signalled it might raise interest rates in December, despite relatively disappointing economic data and the possibility of emerging market crises.

The first estimate of third-quarter U.S. growth, released on Thursday, showed a 1.5 percent annualised expansion, less than the expected 1.6 percent.

“Recent macroeconomic data and even our forecasts for the medium- (to) long-term are not that exciting. We recognise risks are on the downside, but we think the case for `risk on’ remains in place, accompanied by hedges,” said Matteo Germano, global head of multi-asset investing at Pioneer Investments.

“We have increased our preference for European equities versus U.S. equities,” he said.

Asset managers cut U.S. equity allocations for the third straight month to 36.3 percent, or 1.3 percentage points less than September’s. The average weighting to U.S. bonds fell more than 2 percentage points to 25.8 percent, the poll showed.

But they increased holdings of euro zone stocks by almost 1 percentage point to 35 percent, the highest since March. The share of UK equities jumped 2 percentage points to 9.7 percent.

The growing skew away from the United States and towards Europe in portfolios coincides with hints from the European Central Bank about an extension of its asset-purchase programme, or quantitative easing (QE).

Elsewhere, China last week cut interest rates for the sixth time in less than a year, and many expect the Bank of Japan will also extend bond buying.

The predictions of more stimulus and relative stability in China after a turbulent summer have boosted world stocks, which are set for 8 percent gains in October – their biggest in four years – after two months of declines .MIWD00000PUS.

European stocks too are up 8.3 percent, heading for their biggest monthly rise in more than six years .FTEU3.

“In the euro zone and Japan, accommodative central bank monetary policy and a positive outlook for corporate earnings growth should lend support to equity markets,” said Boris Willems, a strategist at UBS Global Asset Management.

Expectations of ECB bond-buying drove a 7 percentage-point jump in euro zone debt allocations to a seven-month high of 57.4 percent. Bonds from emerging Europe also benefited, their share rising to 4.3 percent, up more than 3 percentage points from September levels.

Investors remain worried about emerging markets, but beaten- down asset valuations may be luring some buyers. Allocations to stocks and bonds from all developing regions saw rises compared with September, in some cases to multi-month highs.

“We are still negative on emerging markets, both on the equity and bond side. However, our market breadth indicators for EM are suggesting that prices may be bottoming,” said Donatella Principe, head of institutional business at Schroders Italia Sim.

The fund recently took profits on several short emerging debt positions, Principe added.

(Additional reporting by Hari Kishan, editing by Larry King)

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European investors buy into ECB QE, sell U.S. assets: Reuters poll http://www.reuters.com/article/2015/10/30/us-funds-poll-europe-idUSKCN0SO1J220151030?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/sujatarao/2015/10/30/european-investors-buy-into-ecb-qe-sell-u-s-assets-reuters-poll/#comments Fri, 30 Oct 2015 13:42:54 +0000 http://blogs.reuters.com/sujatarao/?p=1581 LONDON (Reuters) – European investors cut U.S. stock and bond holdings in October and allocations fpr European assets as they focused on monetary policy divergence between the United States and elsewhere.

A Reuters poll conducted from Oct. 19 to 28 found that investors had further trimmed overall equity allocations to new 10-month lows of 44.9 percent.

Allocations were cut 3 percentage points in September amid worries about the world economy, slowing Chinese growth and the timing of the first U.S. rate increase in almost a decade.

The October poll was held before the U.S. Federal Reserve signaled it might raise interest rates in December, despite relatively disappointing economic data and the possibility of emerging market crises.

The first estimate of third-quarter U.S. growth, released on Thursday, showed a 1.5 percent annualized expansion, less than the expected 1.6 percent.

“Recent macroeconomic data and even our forecasts for the medium- (to) long-term are not that exciting. We recognize risks are on the downside, but we think the case for `risk on’ remains in place, accompanied by hedges,” said Matteo Germano, global head of multi-asset investing at Pioneer Investments.

“We have increased our preference for European equities versus U.S. equities,” he said.

Asset managers cut U.S. equity allocations for the third straight month to 36.3 percent, or 1.3 percentage points less than September’s. The average weighting to U.S. bonds fell more than 2 percentage points to 25.8 percent, the poll showed.

But they increased holdings of euro zone stocks by almost 1 percentage point to 35 percent, the highest since March. The share of UK equities jumped 2 percentage points to 9.7 percent.

The growing skew away from the United States and towards Europe in portfolios coincides with hints from the European Central Bank about an extension of its asset-purchase program, or quantitative easing (QE).

Elsewhere, China last week cut interest rates for the sixth time in less than a year, and many expect the Bank of Japan will also extend bond buying.

The predictions of more stimulus and relative stability in China after a turbulent summer have boosted world stocks, which are set for 8 percent gains in October – their biggest in four years – after two months of declines .MIWD00000PUS.

European stocks too are up 8.3 percent, heading for their biggest monthly rise in more than six years .FTEU3.

“In the euro zone and Japan, accommodative central bank monetary policy and a positive outlook for corporate earnings growth should lend support to equity markets,” said Boris Willems, a strategist at UBS Global Asset Management.

Expectations of ECB bond-buying drove a 7 percentage-point jump in euro zone debt allocations to a seven-month high of 57.4 percent. Bonds from emerging Europe also benefited, their share rising to 4.3 percent, up more than 3 percentage points from September levels.

Investors remain worried about emerging markets, but beaten- down asset valuations may be luring some buyers. Allocations to stocks and bonds from all developing regions saw rises compared with September, in some cases to multi-month highs.

“We are still negative on emerging markets, both on the equity and bond side. However, our market breadth indicators for EM are suggesting that prices may be bottoming,” said Donatella Principe, head of institutional business at Schroders Italia Sim.

The fund recently took profits on several short emerging debt positions, Principe added.

(Additional reporting by Hari Kishan, editing by Larry King)

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Poland’s election risk rattles investors http://www.reuters.com/article/2015/10/21/poland-election-investors-idUSL8N12L2Q820151021?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/sujatarao/2015/10/21/polands-election-risk-rattles-investors/#comments Wed, 21 Oct 2015 16:59:42 +0000 http://blogs.reuters.com/sujatarao/?p=1579 LONDON, Oct 21 (Reuters) – Losses on Polish financial
markets have highlighted investors’ anxiety over the country’s
expected lurch towards populist, pro-welfare policies after
Sunday’s election, but a history of rock-solid growth should
shield against a broader selloff.

The main opposition Law and Justice (PiS) party is tipped to
win the parliamentary poll. Socially conservative and
eurosceptical, PiS has called for sharp increases in public
spending and wants banks to foot the bill for converting
households’ hard currency loans into zlotys.

Investors got a further jolt this week when senior PiS
lawmaker Henryk Kowalczyk called for cheap central bank loans
totalling almost $100 billion over six years to support economic
growth, comments that drove the zloty to nine-month lows versus
the euro on Wednesday. .

However for many investors surveying the bleak landscape of
today’s emerging markets, Poland resembles the proverbial
one-eyed man in the kingdom of the blind – for all its political
uncertainty it still looks in fairly good shape compared with
bigger peers such as Brazil, Russia or Turkey.

Poland, once seen as a very safe and reliable bet, has in
fact been losing its gloss for months due to the election risks.
The zloty is down 5 percent against the dollar this year
and the Warsaw stock market is down almost 10 percent,
performing much worse than its central European neighbours.

Shares in banks, which may bear the brunt of PiS policies,
are down 13 percent. Polish credit default swaps –
derivatives used for insuring exposure to a market – recently
hit 18-month highs.

“Without elections, Poland would have been a great market,”
said Maarten-Jan Bakkum, a strategist at NN Investment Partners,
which has a small overweight position on Polish stocks relative
to their share in the MSCI equity index.

Bakkum said the prospect of PiS ousting the pro-business,
centrist Civic Platform (PO) party prevented him from adding
exposure. To explain the overweight, he added: “I struggle to
find any good stories elsewhere in EM.”

SUCCESS STORY

Polish market moves indeed look modest against this year’s
15-30 percent losses in many other developing countries.

Nonetheless they show investors are rattled by the prospect
of change in a country seen as one of the biggest emerging
market success stories of the past two decades.

The economy has expanded at an annual 3.5 percent for the
past decade while net private capital flows since 2000 amount to
a whopping $428 billion, according to the Institute of
International Finance. Bricks-and-mortar direct investment
comprised almost 40 percent of this, the IIF said.

Poland also has among the highest foreign ownership levels
in its bond markets of 40 percent, according to JPMorgan.

This is down mainly to a steadfastly independent central
bank. But with several monetary council members up for
replacement in 2016, new PiS appointees are likely to prioritise
interest rate cuts.

The calls for cheap central bank loans are especially
worrying, said Jakub Borowski, chief Poland economist at Credit
Agricole.

“(The proposal) suggests that politicians perceive the
central bank as a tool to implement the government’s economic
policy,” Borowski said.

Poland’s economy, growing at a brisk 3 percent clip is in no
need of extra stimulus, the bank says. It reckons in fact, that
PiS’s bank tax and loan conversion plans, along with rising
political risk, could shave half a percent off annual growth.

PiS, which was in power between 2005-2007, also wants to
halt privatisations, lower the retirement age and raise spending
to boost the birth rate. Its opposition to admitting migrants
may also reignite tensions with the European Union.

RESPECTING THE RULES

EU membership gives Poland access to 78 billion euros in
funding in the 2014-2020 period, according to the European
Commission website, which comes on top of 67 billion euros
allocated in the six years to 2013.

But the grants, sizeable for a 470 billion-euro economy, may
be suspended if additional state spending pushes the budget
deficit well above 3 percent of annual economic output, under
the EU’s ‘excessive deficit procedure’.

PiS officials say they will respect that ceiling. Poland’s
budget deficit stood at 3.3 percent of GDP last year.

Claire Dissaux, global head of economics and strategy at
asset manager Millenium Global, said Poland had a strong
incentive to respect the rules if it wanted to continue
receiving EU funds.

While acknowledging the possibility of more bond market
volatility, Dissaux said she remained “constructive”, given
Poland’s high real or inflation-adjusted interest rates and also
its strength compared with other emerging markets.

Inflation is flat to negative while the bank has steadfastly
held interest rates at 1.5 percent.

“If you look at the fundamentals and not the politics, there
is probably room to cut interest rates if the global environment
continues to deteriorate,” Dissaux said.

Finally, if global growth deteriorates and China’s woes
start filtering through via Germany – Poland’s biggest trade
partner – some stimulus may in fact prove timely.

Barclays analysts have advised short zloty positions against
Hungary’s forint currency and see little potential for a sharp
pickup in economic growth. But they added:

“If a PiS government can somehow finance and stimulate more
investment with unorthodox policies, this would be positive for
short- and medium term growth, but it would likely take some
time before it was effective.”

(Additional reporting by Jakub Iglewski and Marcin Goclowski in
Warsaw and Marc Jones in London; Editing by Gareth Jones)

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