LONDON (Reuters) – Korean homebuyers and Chinese small firms, Brazilian motorists and Turkish banks are now among the main culprits in running up emerging market debt, replacing governments who have largely put their books in order.
Investors’ eagerness to lend at record low interest rates in a world awash with cheap money is seducing companies and households, and threatening to counter a decade of government efforts to lower debt ratios.
Indians have reacted to the latest gold prices falls by — buying more gold. And why not? Aside from Indians’ well known passion for the yellow metal (yours truly not excluded) gold has by and large served well as an investment: annual returns over the past five years have been around 17 percent, Morgan Stanley notes.
Now, gold’s near 20 percent plunge this year has wiped some $300 billion off Indians’ gold holdings, Morgan Stanley estimates in a note (households are believed to own about 15,000 metric tonnes of gold). So is the gold rush in India over?
India’s finance minister P Chidambaram can be forgiven for feeling cheerful. After all, prices for oil and gold, the two biggest constituents of his country’s import bill, have tumbled sharply this week. If sustained, these developments might significantly ease India’s current account deficit headache — possibly to the tune of $20 billion a year.
Chidambaram said yesterday he expects the deficit to halve in a year or two from last year’s 5 percent level. Markets are celebrating too — the Indian rupee, stocks and bonds have all rallied this week.
Asian equity markets tend to be casualties of weak yen. That has generally been the case this time too, especially for South Korea.
Data from our cousins at Lipper offers some evidence to ponder, with net outflows from Korean equity funds at close to $700 million in the first three months of the year. That’s the equivalent of about 4 percent of the total assets held by those funds. The picture was more stark for Taiwan funds, for whom a similar net outflow equated to almost 10 percent of total AuM. Look more broadly though and the picture blurs; Asia ex-Japan equity funds have seen net inflows of more than $3 billion in the first three months of the year, according to Lipper data.
Will the yen continue to weaken?
Most people think so — analysts polled by Reuters this month predict that the Japanese currency will fall 18 percent against the dollar this year. That will bring the currency to around 102 per dollar from current levels of 98. And all sorts of trades, from emerging debt to euro zone periphery stocks, are banking on a world of weak yen.
Now here is a contrary view. David Bloom, HSBC’s head of global FX strategy, thinks one-way bets on the yen could prove dangerous. Here are some of the points he makes in his note today:
Someone’s loss is someone’s gain and as Russian and South African markets reel from the recent oil and gold price rout, investors are getting ready to move more cash into commodity importer India.
Stubbornly high inflation and a big current account deficit are India’s twin headaches. Lower oil and gold prices will help with both. India’s headline inflation index is likely to head lower, potentially opening room for more interest rate cuts. That in turn could reduce gold demand from Indians who have stepped up purchases of the yellow metal in recent years as a hedge against inflation.
LONDON, April 11 (Reuters) – The opening up of China’s $3
trillion mainland share market, one of the world’s last big
investment frontiers, is setting the stage for a huge shake up
of equity indices and global fund flows.
The giant stock markets of Shanghai and Shenzen, or
A-shares, have long been no-go areas for international
investors, who have been largely confined to the offshore, Hong
Kong-listed H-shares that represent China in global equity
There’s cash in that trash.
Analysts at Bank of America/Merrill Lynch are expounding opportunities to profit from the burgeoning waste disposal industry, which it estimates at $1 trillion at present but says could double within the next decade. They have compiled a list of more than 80 companies which may benefit most from the push for recycling waste, generating energy from biomass and building facilities to process or reduce waste. It’s an industry that is likely to grow exponentially as incomes rise, especially in emerging economies, BofA/ML says in a note:
We believe that the global dynamics of waste volumes mean that waste management offers numerous opportunities for those with exposure to the value chain. We see opportunities across waste management, industrial treatment, waste-to-energy, wastewater & sewage,…recycling, and sustainable packaging among other areas.
Taiwan’s forecast-beating export data today came as a pleasant surprise amid the general emerging markets economic gloom. In a raft of developing countries, from South Korea to Brazil, from Malaysia to the Czech Republic, export data has disappointed. HSBC’s monthly PMI index showed this month that recovery remains subdued.
With Europe still in the doldrums, this is not totally unsurprising. But economists are growing increasingly concerned because the lack of export growth coindides with a nascent U.S. recovery. Clearly EM is failing to ride the US coattails.
The Bank of Japan unleashed its full firepower this week, pushing the yen to 3-1/2 year lows of 97 per dollar. Year-to-date, the currency is down 11 percent to the dollar. But those hoping for a return to the carry trade boom of yesteryear may wait in vain.
The weaker yen of pre-crisis years was a strong plus for emerging assets, especially for high-yield currencies. Japanese savers chased rising overseas currencies by buying high-yield foreign bonds and as foreigners sold used cheap yen funding for interest rate carry trades. But there’s been little sign of a repeat of that behaviour as the yen has fallen sharply again recently .