Investment strategy Correspondent
Sujata's Feed
Aug 22, 2013

Emerging market sell-off worsens, more pain ahead

LONDON (Reuters) – Heavy selling engulfed emerging markets again on Thursday with more currencies falling prey to fears of higher global borrowing costs and a reduction in cheap cash supplies from the United States.

While the Indian rupee and Turkish lira skidded to new record lows against the dollar and the Indonesian rupiah slumped to fresh four-year lows, currencies such as the Mexican peso and the Korean won that have so far been spared the worst of the recent selloff, are also now feeling the heat.

Aug 21, 2013
via Global Investing

Tapping India’s diaspora to salvage rupee

What will save the Indian rupee? There’s an election next year so forget about the stuff that’s really needed — structural reforms to labour and tax laws, easing business regulations and scrapping inefficient subsidies. The quickest and most effective short-term option may be a dollar bond issued to the Indian diaspora overseas which could boost central bank coffers about $20 billion.

The option was mooted a month ago when the rupee’s slide started to get into panic territory but many Indian policymakers are not so keen on the idea

Aug 21, 2013

Investors, wary of Fed, sell off emerging market assets again

LONDON (Reuters) – The rout in emerging markets gathered pace on Wednesday, extending to the Turkish lira which, with India’s rupee, hit new record lows in a sell off prompted by the expected tailing off of extraordinary U.S. money printing.

The U.S. Federal Reserve publishes the minutes of its most recent meeting later in the day. Investors are hoping for some clarity about the timing of plans to pare, or taper, its $85 billion-a month money quantitative easing program.

Aug 20, 2013

Analysis: Turkish lira may need higher interest rates to escape emerging markets rout

LONDON/ISTANBUL (Reuters) – The Turkish central bank’s latest tightening may briefly boost the lira, but the currency could need far higher interest rates to protect it from the current emerging markets rout.

The bank’s decision on Tuesday to raise the upper end of its interest rate corridor – the so-called lending rate at which it funds the market – by 50 basis points came with a pledge for more tightening if required.

Aug 20, 2013

Turkish lira may need higher interest rates to escape emerging markets rout

LONDON/ISTANBUL, Aug 20 (Reuters) – The Turkish central
bank’s latest tightening may briefly boost the lira, but the
currency could need far higher interest rates to protect it from
the current emerging markets rout.

The bank’s decision on Tuesday to raise the upper end of its
interest rate corridor – the so-called lending rate at which it
funds the market – by 50 basis points came with a pledge for
more tightening if required.

Aug 20, 2013

Emerging stocks, bonds fall as Asian FX losses spiral

LONDON (Reuters) – Emerging stocks fell 1.5 percent on Tuesday, currencies tumbled to yet more lows and bond yield spreads blew out to their highest in five weeks in the wake of U.S. Treasury yields’ surge to two-year highs.

Emerging assets will get little respite ahead of the Wednesday release of Federal Reserve minutes, which could indicate whether the U.S. central bank is indeed on track to start paring back its money-printing from next month.

Aug 20, 2013

Stocks, bonds fall as Asian FX losses spiral

LONDON, Aug 20 (Reuters) – Emerging stocks fell 1.5 percent
on Tuesday, currencies tumbled to yet more lows and bond yield
spreads blew out to their highest in five weeks in the wake of
U.S. Treasury yields’ surge to two-year highs.

Emerging assets will get little respite ahead of the
Wednesday release of Federal Reserve minutes, which could
indicate whether the U.S. central bank is indeed on track to
start paring back its money-printing from next month.

Aug 20, 2013
via Global Investing

Turkey’s central bank — a little more action please

In the selloff gripping emerging markets, one currency is conspicuous by its absence — the Turkish lira. But this will change unless the central bank adds significantly to its successful lira-defensive measures.

Hopefully at today’s policy meeting.

Like India or Indonesia which have borne the brunt of the recent rout, Turkey has a large current account deficit, equating to over 5 percent of its economic output. But what has made the difference for the lira is the contrast between the Turkish central bank’s decisive policy tightening moves and the ham-fisted tactics employed by India and Brazil.  (We wrote here about this).  See the following graphic (from Citi) that shows the central bank has effectively raised the effective cost of funding by 200 basis points to around 6.5 percent since its July 23 meeting.

Aug 19, 2013

Rupee, rupiah, rand lead emerging currency rout; eyes on real

MUMBAI/LONDON, Aug 19 (Reuters) – The Indian rupee crashed
to a new record low against the dollar on Monday, leading a rout
in the emerging market currencies that investors perceive as
being most vulnerable to an exodus of foreign capital.

A fierce selloff in many emerging currencies shows no sign
of abating as the expected withdrawal of U.S. monetary stimulus
prompts investors to shun markets burdened by funding deficits,
slowing economies and inflation.

Aug 19, 2013
via Global Investing

Pakistan, Nigeria, Bulgaria… the cash keeps coming

The frontier markets juggernaut continues. Here’s a great graphic from Bank of America/Merrill Lynch showing the diverging fund flow dynamic into frontier and emerging equity markets.

What it shows, according to BofA/ML  is:

Frontier market funds with year-to-date inflows of $1.5 billion have decoupled from emerging markets ($2.1 billion outflows year-to-date)