Investment strategy Correspondent
Sujata's Feed
Nov 22, 2013

Analysis: Counting the cost of currency risk in emerging bond markets

LONDON (Reuters) – Once a source of rich returns for yield-hungry investors, emerging markets are hammering home a long-ignored truism: banking on currency strength to enhance returns on stocks and bonds is not a one-way ticket to profits.

Currencies such as the rupiah and lira have slumped 10-20 percent this year as a seismic shift in global capital flows rattles even relatively robust markets, exacerbating international investors’ losses on the underlying assets.

Nov 22, 2013

Counting the cost of currency risk in emerging bond markets

LONDON, Nov 22 (Reuters) – Once a source of rich returns for
yield-hungry investors, emerging markets are hammering home a
long-ignored truism: banking on currency strength to enhance
returns on stocks and bonds is not a one-way ticket to profits.

Currencies such as the rupiah and lira have slumped 10-20
percent this year as a seismic shift in global capital flows
rattles even relatively robust markets, exacerbating
international investors’ losses on the underlying assets.

Nov 19, 2013

Investec sees euro crisis flare-up risk; short French bonds vs Bunds

LONDON (Reuters) – Stagnant growth and possible deflation could trigger fresh upheaval in Europe next year, says Investec, which has short positions on peripheral bonds and expects European stocks to lag other developed equities in 2014.

Philip Saunders, Investec’s head of multi-asset investment business, told the Reuters Global Investment Outlook Summit on Tuesday that European equities would probably deliver positive returns next year but inflows of cash rotating from emerging and U.S. markets could soon dry up.

Nov 18, 2013
via Global Investing

Red year for emerging bonds

What a dire year for emerging debt. According to JPMorgan, which runs the most widely run emerging bond indices, 2013 is likely to be the first year since 2008 that all three main emerging bond benchmarks end the year in the red.

So far this year, the bank’s EMBIG index of sovereign dollar bonds is down around 7 percent while local debt has fared even worse, with losses of around 8.5 percent, heading for only the third year of negative return since inception. JPMorgan’s CEMBI index of emerging market corporate bonds is down 2 percent for the year.

Nov 18, 2013

ING IM likes developed stocks, peripheral Europe; sees future corporate bond risks

LONDON (Reuters) – Developed equities will be the top performing asset class of 2014 given ample cheap cash and robust earnings growth, while U.S. 10-year yields will not rise above 3.5 percent, ING Investment Management said on Monday.

Hans Stoter told the Reuters Global Investment Outlook Summit that while the U.S. Federal Reserve would probably start unwinding its $85 billion-a-month stimulus in the first half of next year, policy would remain extremely loose in the United States as well as the euro zone, benefiting equities.

Nov 15, 2013
via Global Investing

Barclays sees 20 pct rise in EM bond supply in 2014

Sales of dollar bonds by emerging governments may surge 20 percent over 2013 levels, analysts at Barclays calculate.  They predict $94 billion in bond issuance in 2014 compared to $77 billion that seems likely this year. In net terms –excluding amortisations and redemptions — that will come to $29 billion, almost double this year’s $16 billion.

According to them, the increase in issuance stems from bigger financing needs in big markets such as Russia and Indonesia along with more supply from the frontiers of Africa. Another reason is that local currency emerging bond markets, where governments have been meeting a lot of their funding needs, are also now struggling to absorb new supply.

Nov 14, 2013
via Global Investing

Venezuelan bonds — storing up problems

Last week’s victory for Miss Venezuela in a global beauty pageant was a rare bit of good news for the South American country. With a black market currency exchange rate that is 10 times the official level, shortages of staples, inflation over 50 percent and political turmoil, Venezuela certainly won’t win any investment pageants.

This week investors have rushed to dump Venezuela’s dollar bonds as the government ordered troops to occupy a store chain accused of price gouging. Many view this as a sign President Nicolas Maduro is gearing up to extend his control over the private sector.  Adding to the bond market’s problems are plans by state oil firm PDVSA to raise $4.5 billion in bonds next week. Yields on  Venezuelan sovereign bonds have risen over 100 basis points this week; returns for the year are minus 25 percent, almost half of that coming since the start of this month.  Five-year credit default swaps for Venezuela are at two-year highs, having risen more than 200 basis points in November. And bonds from PDVSA, which is essentially selling debt to bankroll the government and pay suppliers, rather than to fund investments, have tanked too.

Nov 12, 2013

Weaker on buoyant dollar; China stocks climb

LONDON, Nov 12 (Reuters) – Emerging equities slipped for the
ninth straight session on Tuesday, despite a 1 percent gain in
Chinese stocks, as a buoyant dollar kept emerging market
currencies on the back foot.

MSCI’s emerging equity index fell 0.2 percent,
touching near six-week lows, while reform hopes for the world’s
No. 2 economy lifted Chinese stocks on thin volumes as leading
Shanghai and Shenzhen A-share listings rebounded from
end-August lows.

Nov 11, 2013
via Global Investing

Beaten-down emerging equities may not be all that cheap

It’s generally accepted these days that emerging equities are cheap and that value-focused investors should consider buying. But some disagree  — analysts at UBS say the alleged cheapness of EM equities rings hollow when you look at the return-on-equity on emerging companies. They don’t dispute that the market has de-rated significantly on price-earnings and price-book metrics (at 10.5 times and 1.5 times respectively, they are well below long-term averages). But they argue that these have not been excessive when compared to the decline in profitability.  Emerging return-on-equity pre-crisis was usually higher than developed. Once at a lofty 17 percent, emerging ROE now languishes at 12.7 percent, almost on par with ROE for developed companies. Check out this graphic:

Multiples in EM have de-rated in only lock step with the de-rating in  margins and RoEs relative to the developed world  (UBS write)

Nov 8, 2013

Index entry means billion-dollar boost for Greek stocks

LONDON, Nov 8 (Reuters) – Greece’s leading companies are set
for a multi-billion-dollar boost in stock market value as a
result of their inclusion in MSCI’s flagship emerging market
index, improving their appeal to investors as they struggle in a
deep recession.

Ten Greek companies will enter MSCI’s Emerging Markets index
on Nov. 27, the index provider said on Thursday. The
Greek bourse had already been surging in heavy volume as
international investors took a fresh look at a country whose
debt crisis hammered asset values.