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.
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.
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.
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.
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
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)
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
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.
As in many countries with memories of hyperinflation and currency collapse, Turkey’s middle class have tended to hold at least part of their savings in hard currency. But unlike in Russia and Argentina, Turkish savers’ propensity to save in dollars has on occasion proved helpful to companies and the central bank. That’s because many Turks, rather than just accumulating dollars, have evolved into savvy players of exchange rate swings and often use sharp falls in the lira to sell their dollars and buy back the local currency. Hence Turks’ hard currency bank deposits, estimated at between $70-$100 billion – on a par with central bank reserves — have acted as a buffer of sorts, stabilising the lira when it falls past a certain level.
But back in 2011, when the lira was in the eye of another emerging markets storm, we noticed how some Turks had become strangely reluctant to sell dollars. And during this year’s bout of lira weakness too, Turkish savers have not stepped up to help out the central bank, research by Barclays finds. Instead they are accumulating dollars — “rather than being contrarian, their behaviour now seems aligned with global capital flows,” Barclays analysts write. While the lira has weakened to record lows this year, data from UBS shows that the dollarisation ratio, the percentage of bank deposits in foreign currency, has actually crept up to 37.6 percent from 34.5 percent at the start of the year. Here’s a Barclays graphic that illustrates the shift.
LONDON, Nov 6 (Reuters) – Russian and Turkish local currency
bonds may receive billions of dollars in capital inflows after
their inclusion into a flagship global index, a vote of
confidence for markets that are just recovering from a bruising
Being part of a widely-used index tends to bring in cash
because investment funds tracking the index will have to make
room in their portfolios for the bond or stock in question.
Investors in emerging markets are facing a tough choice. Should one buy cheap shares in the hope that poor corporate governance and profitability will improve some day? Or is it better to close one’s eyes and buy into expensively valued companies that sell mobile telephones, holidays and handbags — all the things high-spending emerging market consumers hanker after?
At the moment, investors are plumping for the latter, growth-at-any price investment strategy. Result: a lopsided emerging equity index in which consumer discretionary shares are up more than 5 percent this year, energy shares have lost 7 percent while MSCI’s benchmark emerging equity index is down 3 percent.