If the backdrop for global emerging markets (GEM) were not already challenging enough, there are, these days, some authorities that step in and try to make things even worse, writes Societe Generale strategist Benoit Anne. He speaks of course of Poland, where the government this week announced plans to transfer 121 billion zlotys ($36.99 billion) in bonds held by private pension funds to the state and subsequently cancel them. The move, aimed at cutting public debt by 8 percentage points, led to a 5 percent crash yesterday on the Warsaw stock exchange, while 10-year bond yields have spiralled almost 50 basis points since the start of the week. So Poland, which had escaped the worst of the emerging markets sell-off so far, has now joined in.
But worse is probably to come. Liquidity on Polish stock and bond markets will certainly take a hit — the reform removes a fifth of the outstanding government debt. That drop will decrease the weights of Polish bonds in popular global indices, in turn reducing demand for the debt from foreign investors benchmarked to those indices. Citi’s World Government Bond Index, for instance, has around $2 trillion benchmarked to it and contains only five emerging economies. That includes Poland whose weight of 0.55 percent assumes roughly $11 billion is invested it in by funds hugging the benchmark.
LONDON (Reuters) – Newly cheap currencies may soon start to boost emerging markets’ exports but for many that will only soften the bigger blow of imported inflation and the higher interest rates needed to stabilize their exchange rates.
Currencies from the Indian rupee to the Brazilian real have lost 12-20 percent of their value against the dollar this year in a rout that has wiped billions of dollars off stock indices and put investors to flight right across emerging markets.
LONDON, Sept 6 (Reuters) – Newly cheap currencies may soon
start to boost emerging markets’ exports but for many that will
only soften the bigger blow of imported inflation and the higher
interest rates needed to stabilise their exchange rates.
Currencies from the Indian rupee to the Brazilian real have
lost 12-20 percent of their value against the dollar this year
in a rout that has wiped billions of dollars off stock indices
and put investors to flight right across emerging markets.
LONDON, Sept 5 (Reuters) – The Indian rupee’s 1.5 percent
rebound led emerging markets broadly higher on Thursday but the
growing likelihood of U.S. stimulus rollback dampened gains and
Polish assets were dented by a controversial pension reform
The rupee’s gains were driven by moves from Indian officials
to deal with the spillover from the Fed’s plans to reduce its
bond buying, while markets were also watching a meeting of the
G20 bloc of world powers for measures to combat the currency
LONDON, Sept 4 (Reuters) – Default insurance costs for a
“Fragile Five” of emerging economies have rocketed since early
May, reflecting how investors are discriminating between
countries reliant on foreign capital and their more robust
In the four months since the U.S. Federal Reserve first
hinted that its monetary stimulus may soon be reined in,
five-year credit default swaps (CDS) for Brazil, Turkey and
Indonesia have more than doubled, the following graphic shows:
LONDON, Sept 4 (Reuters) – Central bank action lifted some
emerging market currencies off lows on Wednesday but higher U.S.
yields and the likelihood of military action against Syria kept
the sector under pressure.
Emerging stock markets were flat after Tuesday’s
U.S. manufacturing data supported the view that the Federal
Reserve would start rolling back stimulus at its mid-September
LONDON, Sept 3 (Reuters) – Emerging market assets posted
modest gains on Tuesday after data reinforced evidence of
economic recovery in most parts of the world but in India,
Indonesia and Turkey currencies and stocks lost more ground.
While markets were rattled by reports of missile launches in
the eastern Mediterranean, purchasing managers’ surveys for
August have underlined growth prospects for the global economy.
Stronger Chinese services activity added to robust manufacturing
data released earlier this week.
LONDON (Reuters) – Emerging stocks, bonds and currencies took another hammering on Wednesday as mounting expectations of Western action against Syria pushed up oil prices and drove investors to seek shelter in dollar assets.
The United States and its allies appeared to be gearing up for a military strike against Syria, perhaps within days, as punishment for last week’s chemical weapons attacks which they have blamed on President Bashar al-Assad’s government.
LONDON, Aug 27 (Reuters) – Emerging market currencies such
as the Indian rupee and the Turkish lira have plunged to record
lows against the dollar and trends in the derivatives market
indicate little respite ahead.
One-month implied volatility, a gauge of expected swings in
some emerging market currencies and derived from options prices,
has jumped to its highest in years, reflecting investor
LONDON, Aug 27 (Reuters) – The Indian rupee and Turkish lira
tumbled to new record lows on Tuesday as investors’ headlong
flight out of emerging markets gathered pace with added impetus
from uncertainty over Western military action against Syria.
A number of other emerging currencies hit multi-year lows
even though U.S. Treasury 10-year yields, which such currencies
tend to track, were off two-year highs. The currency losses also
led to an exit from emerging equities, which fell 1.8 percent