Many investors have greeted with enthusiasm India’s plans to get its debt included in international indices such as those run by JPMorgan and Barclays. JPM’s local debt indices, known as the GBI-EM, were tracked by almost $200 billion at the end of 2012. So even very small weightings in such indices will give India a welcome slice of investment from funds tracking them.
At present India has a $30 billion cap on the volume of rupee bonds that foreign institutional investors can buy, a tiny proportion of the market. Barclays analysts calculate that Indian rupee bonds could comprise up to a tenth of various market capitalisation-based local-currency bond indices. That implies potential flows of $20 billion in the first six months after inclusion, they say — equivalent to India’s latest quarterly current account deficit. After that, a $10 billion annual inflow is realistic, according to Barclays. Another bank, Standard Chartered, estimates $20-$40 billion could flow in as a result of index inclusion.
Emerging stocks, in the doghouse for months and months, haven’t done too badly of late. The main EM index, has rallied more than 11 percent since its end-August troughs, outgunning the S&P 500′s 3 percent rise in this period. Bank of America/Merrill Lynch strategist Michael Hartnett reminds us of the extreme underweight positioning in emerging stocks last month, as revealed by his bank’s monthly investor survey. Anyone putting on a long EM-short UK equities trade back then would have been in the money with returns of 540 basis points, he says.
Undoubtedly, the postponement of the Fed taper is the main reason for the rally. Another big inducement is that valuations look very cheap (forward P/E is around 9.9 versus a 10-year average of 10.8) .
LONDON (Reuters) – It will be a jittery 18 months for Ukraine’s international creditors, who are weighing up its $60 billion-plus debt repayment schedule against its fast-diminishing hard currency reserves.
Ukraine’s presidential election in early 2015 is the focus for investors, who reckon the government will then be willing to sign up to a desperately needed loan from the International Monetary Fund. Before that, though, it would prefer to scrape by rather than accede to the IMF’s politically difficult demands.
China’s slowing economy is raising concern about the potential spillovers beyond its shores, in particular the impact on other emerging markets. Because developing countries have over the past decade significantly boosted exports to China to offset slow growth in the West and Japan, these countries are unquestionably vulnerable to a Chinese slowdown. But how big will the hit be?
Goldman Sachs analysts have crunched the numbers to show which markets and regions could be hardest hit. On the face of it non-Japan Asia should be most worried — exports to China account for almost 3 percent of GDP while in Latin America it is 2 percent and in emerging Europe, Middle East and Africa (CEEMEA) it is just 1.1 percent, their data shows.
LONDON (Reuters) – After a stormy year for global emerging markets, one long-term casualty may be the decade-long push for central banking free from politics and the inflation-busting kudos that earned.
Investors see governments once more intent on pumping up economic growth via low interest rates even at the risk of inflation and currency volatility.
LONDON, Oct 8 (Reuters) – After a stormy year for global
emerging markets, one long-term casualty may be the decade-long
push for central banking free from politics and the
inflation-busting kudos that earned.
Investors see governments once more intent on pumping up
economic growth via low interest rates even at the risk of
inflation and currency volatility.
LONDON (Reuters) – The global community should fear the worst over the U.S. debt crisis and shore up its economic defences accordingly, South Africa’s finance minister said on Monday.
Financial markets are getting nervous that the budget deadlock in Congress may not be resolved before Oct 17, the deadline to raise U.S. borrowing limits. That could lead to an unprecedented technical default by the world’s largest economy.
The Fed’s unexpectedly dovish position last week has sparked a rally in emerging markets — not only did the U.S. central bank’s all-powerful boss Ben Bernanke keep his $85 billion-a-month money printing programme in place, he also mentioned emerging markets in his post-meeting news conference, noting the potential impact of Fed policy on the developing world. All that, along with the likelihood of the dovish Janet Yellen succeeding Bernanke was described by Commerzbank analysts as “a triple whammy for EM.” A positive triple whammy, presumably.
Now it may be going too far to conclude there is some kind of Bernanke Put for emerging markets of the sort the U.S. stock market is said to enjoy — the assumption, dating back to Alan Greenspan’s days, that things cant go too wrong for markets because the Fed boss will wade in with lower rates to right things. But the fact remains that global pressure on the Fed has been mounting to avoid any kind of violent disruption to the flow of cheap money — remember the cacophony at this month’s G20 summit? Second, the spike in U.S. yields may have been the main motivation for standing pat but the Treasury selloff was at least partly driven by emerging central banks which have needed to dip into their reserve stash to defend their own currencies. According to IMF estimates, developing countries hold some $3.5 trillion worth of Treasuries, of which just under half is in China. (See here for my colleague Mike Dolan’s June 12 article on the EM-Fed linkages)
LONDON (Reuters) – Global borrowers are hitting the bond roadshow trail, aiming to raise hundreds of billions of dollars in cheap financing after the U.S. Fed’s surprise decision to keep its money taps open for a few more months.
As the bond issuance window unexpectedly swung wide open, a total $16.6 billion was raised on global bond markets on Thursday, leaping four-fold from the day before, Thomson Reuters data shows, while over 20 borrowers worldwide – from Italy’s Intesa to Saudi conglomerate Sabic – announced issuance plans.
Emerging stocks have rallied 3 percent today after the Fed’s startling decision to leave its $85 billion-a month money-printing in place, and some markets such as Turkey are up more than 7 percent. With the first Fed hike now expected to come in 2015 and tapering starting only from December, emerging markets have effectively received a three month breather. So will the buyers return?
A lot of folks have been banging the drum about how cheap emerging markets are these days. But imminent Fed tapering has been scaring away any who might have been tempted. Plus there is the economic growth slowdown that could knock profit margins at emerging market companies. Bank of America/Merrill Lynch which runs a closely watched monthly survey of fund managers shows just in the following graphic how unloved the sector is relative to history: