A perfect storm seems to be brewing for the Russian rouble. It has tumbled to four-year lows against a euro-dollar basket. Against the dollar, it has lost around 7 percent so far this year, faring better than many other emerging currencies. But signs are that next year will bring more turmoil.
While oil prices, the mainstay of Russia’s economy, are holding up, Russian growth is not. It is running at 1.3 percent so far this year and capital outflows continue unabated — $48 billion is estimated to have fled the country in the first nine months of 2013 compared with $55 billion in 2012. Russia’s mighty current account surplus has shrunk to barely nothing and could fall into deficit by the middle of next year, reckons Alfa Bank economist Natalia Orlova. Finally, the rouble can no longer count on the central bank for wholehearted day-to-day support. FX market interventions cost the bank $3.5 billion last month but it also shifted the exchange-rate corridor upwards six times, indicating it is keen to move to a fully flexible currency.
By Shadi Bushra
Yet another sign of the growth convergence between developed and emerging markets. Two of the “BRIC’ countries have dropped out of the Top-30 in a growth index compiled by political risk consultancy Maplecroft, while several Western powerhouses have nudged their way onto the list.
Maplecroft’s 2014 Growth Opportunities Atlas showed that Brazil and Russia — the B and R of the BRIC bloc — had dropped 26 and 41 places, respectively – due to slow economic reforms and diversification. The United States, Australia and Germany meanwhile broke into the top 30 on the index, which evaluates 173 countries on their growth prospects over the next 20 years.
LONDON, Nov 27 (Reuters) – Greek stocks made their trading
debut on MSCI’s emerging equity index on Wednesday after a
12-year gap, rising 1 percent on the back of European gains,
though broader emerging stocks were subdued after mixed U.S.
Earlier in Asia too the picture was mixed, with Chinese
shares rallying but the Indonesian and Thai currencies extending
losses, the latter hit by political turmoil and an unexpected
interest rate cut.
LONDON, Nov 25 (Reuters) – Turkey’s stock market surged 1.6
percent on Monday after Iran sealed a historic nuclear deal with
the West read as reducing political risk in the oil-producing
Middle East and opening the door to more trade with one of the
region’s biggest countries.
While emerging markets were generally firmer, political
tensions weighed on Thai and Ukrainian assets, and oil’s 3
percent dip pushed the Russian rouble lower.
LONDON (Reuters) – Once a source of rich returns for yield-hungry investors, emerging markets are hammering home a long-ignored truism: banking on currency strength to enhance returns on stocks and bonds is not a one-way ticket to profits.
Currencies such as the rupiah and lira have slumped 10-20 percent this year as a seismic shift in global capital flows rattles even relatively robust markets, exacerbating international investors’ losses on the underlying assets.
LONDON, Nov 22 (Reuters) – Once a source of rich returns for
yield-hungry investors, emerging markets are hammering home a
long-ignored truism: banking on currency strength to enhance
returns on stocks and bonds is not a one-way ticket to profits.
Currencies such as the rupiah and lira have slumped 10-20
percent this year as a seismic shift in global capital flows
rattles even relatively robust markets, exacerbating
international investors’ losses on the underlying assets.
LONDON (Reuters) – Stagnant growth and possible deflation could trigger fresh upheaval in Europe next year, says Investec, which has short positions on peripheral bonds and expects European stocks to lag other developed equities in 2014.
Philip Saunders, Investec’s head of multi-asset investment business, told the Reuters Global Investment Outlook Summit on Tuesday that European equities would probably deliver positive returns next year but inflows of cash rotating from emerging and U.S. markets could soon dry up.
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.