LONDON, Sept 28 (Reuters) – Emerging equities rose on Friday
and were on track for their biggest monthly gain since January
while South African assets firmed modestly on after being
knocked lower by a one-notch credit ratings downgrade in the
Markets everywhere have been buoyed by expectations that
Spain’s tough budget is a prelude to an EU programme that will
allow the European Central Bank to buy its bonds.
With the U.S. Fed having cranked up its printing presses, there seems little to stop emerging central banks from extending their own rate cut campaigns this week.
The most interesting meeting promises to be in the Czech Republic. We saw some extraordinary verbal intervention last week from Governor Miroslav Singer, implying not only a rate cut but also recourse to “unconventional” monetary loosening tools. Of the 21 analysts polled by Reuters, 18 are expecting a rate cut on Thursday to a record low 0.25 percent. Indeed, in a world of currency wars, a rate cut could be just what the recession-mired Czech economy needs. But Singer’s deputy, Moimir Hampl, has muddled the waters by refuting the need for any unusual policies or even rate cuts. Expect a heated debate (forward markets are siding with Singer and pricing a rate cut).
The wealthy in the United States have a reputation for being firmly on the side of the Republican Party, but maybe they shouldn’t be for the November presidential election.
According to Tom Stevenson, investment director at asset manager Fidelity Worldwide Investments, past evidence points to Democrat Barack Obama as possibly the more lucrative bet for equity investors. He says:
The currency war is back.
Since last week when the Fed started its third round of money-printing (QE3), policymakers in emerging markets have been busily talking down their own currencies or acting to curb their rise. These efforts may gather pace now that Japan has also increased its asset-buying programme, with expectations that the extra liquidity unleashed by developed central banks will eventually find its way into the developing world.
The alarm over rising currencies was reflected in an unusual verbal intervention this week by the Czech central bank, with governor Miroslav Singer hinting at more policy loosening ahead, possibly with the help of unconventional policy tools. Prague is not generally known for currency interventions — analysts at Societe Generale point out its last direct interventions were conducted as far back as 2001-2002. Even verbal intervention is quite rate — it last resorted to this on a concerted basis in 2009, SoGen notes. Singer’s words had a strong impact — the Czech crown fell almost 1 percent against the euro.
Central bankers as carry traders? Why not.
As we wrote here yesterday, FX reserves at global central banks may be starting to rise again. That’s a consequence of a pick up in portfolio investment flows in recent weeks and is likely to continue after the U.S. Fed’s announcement of its QE3 money-printing programme.
According to analysts at ING, the Fed’s decision to restart its printing presses will first of all increase liquidity (some of which will find its way into central bank coffers). Second, it also tends to depress volatility and lower volatility encourages the carry trade. Over the next 12 months these two themes will combine as global reserve managers twin their efforts to keep their money safe and still try to make a return, ING predicts, dubbing it a positive carry story.
JOHANNESBURG/LONDON (Reuters) – Wildcat strikes in South Africa’s platinum belt have entered a sixth week with no resolution in sight and investors are worried about the government’s inability to quell the unrest.
Critics say Pretoria’s response to the strikes has been slow and ineffective, exposing the ruling African National Congress and President Jacob Zuma as ill-equipped to handle crisis and lifting the chances of a credit downgrade.
One of the big stories of the past decade, that of staggering reserve accummulation by emerging market central banks, appeared to have ground to a halt as global trade and economic growth slumped. But according to Bank of America/Merrill Lynch, reserves are starting to grow again for the first time since mid-2011.
The bank calculates that reserve accumulation by the top-50 emerging central banks should top $108 billion in September after strong inflows of around $13 billion in each of the first two weeks. Look at the graphic below.
Jim O’ Neill, creator of the BRIC investment concept, has been exasperated by repeated calls in the past to exclude one or another country from the quartet, based on either economic growth rates, equity performance or market structure. In the early years, Brazil’s eligibility for BRIC was often questioned due to its anaemic growth; then it was the turn of oil-dependent Russia. Over the past couple of years many turned their sights on India due to its reform stupor. They have suggested removing it and including Indonesia in its place.
All these detractors should focus on China.
China’s validity in BRIC has never been questioned. Aside from the fact that BRI does not really have a ring, that’s not surprising. China’s growth rates plus undoubted political and economic clout on the international stage put it head and shoulders above the other three. And after all, it is Chinese demand which drives a large part of the Russian and Brazilian economies.
LONDON, Sept 13 (Reuters) – U.S. money printing has ignited
currency wars in the past but a third round of Fed stimulus
could prove less inflammatory as weakening economies dampen
investors’ enthusiasm for emerging markets.
The U.S. Federal Reserve appears set to launch additional
bond-buying at its Thursday meeting, or at least signal the
timing of the operation, known as quantitative easing, or QE.
LONDON (Reuters) – Investors fed up with years of poor returns are deserting BRIC equity funds, pushing share valuations to record cheap levels and questioning the future of the high-profile investment theme.
The term, coined in 2001 by Goldman Sachs banker Jim O’Neill, provided a catchy acronym to unite the four biggest emerging economies, two of which were also growing at turbo-charged 9-12 percent rates.