LONDON, June 12 (Reuters) – The $1 trillion market in
emerging corporate bonds could be headed for a surge in defaults
if company earnings in swiftly depreciating roubles or pesos
fail to keep pace with dollar-based debt repayments.
As the U.S. Federal Reserve considers when to turn off its
printing presses, emerging currencies have crashed to multi-year
lows against the dollar. That rout is a big risk for corporate
debt, which has gone from being a sideshow of the sovereign bond
market to an asset class that surpasses U.S. junk debt in size.
LONDON, June 12 (Reuters) – MSCI, the most widely used
equity index provider, prompted market fears about both Greece
and Egypt on Wednesday, after demoting the former and then
raising concerns about getting money out of the latter.
MSCI redesignated Greece an emerging market late on Tuesday,
12 years after its promotion from the category, assigning it a
tiny 0.3 percent weighting – far less than it had when last in
the emerging index.
LONDON, June 10 (Reuters) – Colombia’s economy faces its
greatest risks this year from instability in neighbouring
Venezuela and the slump in commodity prices, the country’s
finance minister said on Monday.
Growth forecasts for the Andean country are likely to be
downgraded, with 4.4-4.5 percent a likely rate for 2013,
Mauricio Cardenas told Reuters editors and Reuters Television.
LONDON, June 7 (Reuters) – Major developing countries with
big foreign financing needs are acutely vulnerable to the risk
of a sudden stop in investment flows which has unnerved emerging
markets in recent weeks.
Emerging economies such as South Africa, Indonesia, India,
Turkey and Poland are on the front line as investors reconsider
exposure to markets which have attracted trillions of dollars of
cheap money printed by developed world central banks.
The dog that didn’t bark was how the IMF described inflation. But might the fall in emerging market currencies reverse the current picture of largely benign inflation?
Nick Shearn, a portfolio manager at BlueBay Asset Management, sees the rise in inflation as not an if but a when, which makes inflation-linked bonds (linkers in common parlance) a good idea. These would hedge not only against EM but also G7 inflation — he calculates the correlation between the two at around 0.8 percent. He says linkers outperform as inflation uncertainty increases, hence:
LONDON, June 6 (Reuters) – Brazil’s move to drop a tax on
foreign buying of domestic debt will allow more of its bonds to
join two JPMorgan indexes, potentially boosting inflows by at
least $2.8 billion, the bank said on Thursday.
The removal of the 6 percent IOF tax, imposed in 2010 to
fend off so-called hot money flows, could bring up to $30
billion into the local bond market, according to some estimates.
LONDON (Reuters) – Brazil’s move to drop a tax on foreign buying of domestic debt will allow more of its bonds to join two JPMorgan indexes, potentially boosting inflows by at least $2.8 billion, the bank said on Thursday.
The removal of the 6 percent IOF tax, imposed in 2010 to fend off so-called hot money flows, could bring up to $30 billion into the local bond market, according to some estimates.
Brazil’s finance minister Guido Mantega, one of the most shrill critics of Western money-printing, has decided to repeal the so-called IOF tax, he imposed almost three years ago as a measure to fend off hot money flows.
Well, circumstances alter cases, Mantega might say. And the world is a very different place today compared to 2010. Back then, the Fed was cranking up its printing presses and the currency war (in Mantega’s words) was raging; today the U.S. central bank is indicating it may start tapering off the stimulus it has been delivering. Nor is investors enthusiasm for emerging markets what it used to be. Brazil’s currency, the real, is plumbing four-year lows against the dollar and local bond yields have risen 30 basis points since the start of May. Brazil’s balance of payments situation meanwhile, is deteriorating, which means it needs all the foreign capital it can get, hot money or otherwise. And currency weakness spells inflation — bad news for Brazil’s government which faces voters next year.
The fierce sell-off that hit emerging market local currency debt last month was possibly down to low levels of currency hedging by investors, JPMorgan says.
Analysts at the bank compare the rout with the one May 2012, caused by exactly the same reason — higher U.S. yields. There was a difference though — back then EM currencies dropped more than 8% on the month but EM local bonds, unlike last month, were little changed.
LONDON, June 4 (Reuters) – Brazil will have to live with a
weaker local currency if its depreciation against the U.S.
dollar is in line with the movement of other currencies, the
Brazilian central bank’s director for monetary policy said on
In comments that drove down its exchange rate, the official,
Aldo Mendes, said that “there is nothing we can do” if the
depreciation of the Brazilian currency, the real, is in
synch with a global currency trend.