Investment strategy Correspondent
Sujata's Feed
Jan 8, 2014
via Global Investing

Market cap of EM debt indices still rising

It wasn’t a good year for emerging market bonds, with all three main debt benchmarks posting negative returns for the first time since 2008. But the benchmark indices run by JPMorgan nevertheless saw a modest increase in market capitalisation, and assets of the funds that benchmark to these indices also rose.

JPMorgan says its index family — comprising EMBI Global dollar bond indices, the CEMBI group listing corporate debt and the GBI-EM index of local currency emerging bonds — ended 2013 with a combined market cap of $2.8 trillion, a 2 percent increase from end-2012. Take a look at the following graphic which shows the rise in the market cap since 2001:

Jan 6, 2014
via Global Investing

Waiting for current account improvement in Turkey

The fall in Turkey’s lira to record lows is raising jitters among foreign investors who will have lost a good deal of money on the currency side of their stock and bond investments.  They are also worrying about the response of the central bank, which has effectively ruled out large rate hikes to stabilise the currency. But can the 20 percent lira depreciation seen since May 2013 help correct the country’s balance of payments gap?

Turkey’s current account deficit is its Achilles heel . Without a large domestic savings pool, that deficit tends to blow out whenever growth quickens and the lira strengthens . That leaves the country highly vulnerable to a withdrawal of foreign capital. Take a look at the following graphic (click on it to enlarge) :

Jan 6, 2014

China growth worries weigh; Turkey lira at new record low

LONDON, Jan 6 (Reuters) – Signs of a growth slowdown in
China pushed emerging shares down almost 1 percent on Monday,
while the Turkish lira, battered by messy politics, led losses
among emerging market currencies.

The lira slumped to a new record low against the dollar
as investors fretted about the central bank’s reluctance
to tighten monetary policy, but other emerging currencies also
lost ground, with worries about China’s slowdown pushing Asian
currencies to multi-month lows.

Jan 5, 2014
via Global Investing

The annus horribilis for emerging markets

Last year was one that most emerging market investors would probably like to forget.  MSCI’s main equity index fell 5 percent, bond returns were 6-8 percent in the red and some currencies lost up to 20 percent against the dollar.  Here are some flow numbers  from EPFR Global, the Boston-based agency that released some provisional  annual data to its clients late last week.

While funds dedicated to developed markets — equities and bonds –  received inflows amounting to over 7 percent of their assets under management (AUM), funds investing in emerging stocks lost more than 6 percent of their AUM.

Jan 3, 2014

Fed’s bitter medicine may help heal emerging markets

By Sujata Rao

LONDON, Jan 3(Reuters) – If the medicine tastes bad, it’s
probably doing you good. Emerging economies might console
themselves with that thought when they’re suffering market
cramps and haemorrhaging capital as the U.S. ends its monetary
stimulus.

The Federal Reserve will begin winding down, or tapering,
its $85 billion-a-month money-printing programme this month, and
emerging markets are seeing foreign investment pull back as a
result. Last year, around $30 billion fled emerging equity and
bond funds tracked by EPFR Global, provisional data shows.

Jan 3, 2014

Analysis: Fed’s bitter medicine may help heal emerging markets

LONDON (Reuters) – If the medicine tastes bad, it’s probably doing you good. Emerging economies might console themselves with that thought when they’re suffering market cramps and hemorrhaging capital as the U.S. ends its monetary stimulus.

The Federal Reserve will begin winding down, or tapering, its $85 billion-a-month money-printing program this month, and emerging markets are seeing foreign investment pull back as a result. Last year, around $30 billion fled emerging equity and bond funds tracked by EPFR Global, provisional data shows.

Dec 31, 2013

Pricing politics will be long, painful for Turkey investors

ISTANBUL/LONDON, Dec 31 (Reuters) – Reeling from a
corruption scandal in the upper levels of the Turkish
government, investors in the country’s financial markets may
face many more months of instability as they price in political
risks they have ignored for years.

While politics is often centre-stage for investors in
emerging markets, it became something of a sideshow during
Turkey’s economic miracle of the past decade, thanks to red-hot
growth rates and the firm grip of Prime Minister Tayyip
Erdogan’s AK Party on power.

Dec 31, 2013

Funds shrug off default risk in dash for emerging company bonds

LONDON, Dec 31 (Reuters) – When Brazilian oil firm OGX tried
to tap bond markets for $2 billion in 2011, investors were ready
to hand it $5.5 billion. Two years on, OGX is in default and the
debt trades at less than 10 cents of its original face value.

The spectre of such defaults spreading across emerging
markets has not yet dimmed investor enthusiasm for the corporate
debt sector, which saw record-high bond sales of $330
billion-plus in 2013 and more than 150 first-time borrowers.

Dec 24, 2013

Emerging debt sales hit surprise record in 2013, outlook upbeat

LONDON, Dec 24 (Reuters) – Emerging market dollar bond sales
hit record highs of $450 billion this year, surprising industry
players who had predicted issuance to suffer from the threat of
U.S. monetary stimulus withdrawal.

Worries about the squeezing of the U.S. lifeline that had
fuelled demand for risky assets drove money from emerging market
debt funds and hit returns in 2013, after several years of
inflows and double-digit gains.

Dec 19, 2013
via Global Investing

Ukraine aid may pay off for Kremlin

Ukraine said today it was issuing a $3 billion in two-year Eurobonds at a yield of 5 percent in what seems to the start of a bailout deal with Russia. That sounds like a good deal for Kiev — its Eurobond maturing next year is trading at at a yield of 8 percent and it could not reasonably expect to tap bond markets for less than that. In addition,  Ukraine is also  getting a gas price discount from Russia that will provide an annual saving of $2.6 billion or so.

But what about Russia? Whether the bailout was motivated by “brotherly love” as Putin claims or by geo-politics, it sounds like a rotten deal for Moscow. The credit will earn it 5 percent on what is at best a risky investment. What’s more the money will come out of its rainy day fund which had been earmarked to cover future pension deficits. State gas company Gazprom will have to stomach a 30 percent price cut, which according to Barclays analysts is “a reminder of the risks of Gazprom’s quasi-sovereign status.”