Investment strategy Correspondent
Sujata's Feed
Oct 28, 2014

Rousseff’s win in Brazil raises questions about EM reforms

LONDON (Reuters) – Pledges of reform in emerging markets have encouraged investors this year, but Brazil’s vote against any change at the top of its government is raising questions over whether the reforms will be delivered in hyped-up markets like India and Indonesia.

Leftist Dilma Rousseff won re-election as Brazil’s president by a slim margin over business favorite Aecio Neves. Her Workers’ Party is credited with lifting 40 million Brazilians out of poverty, but investors want to see bold pro-business measures to reverse the country’s deepening economic funk.

Oct 17, 2014
via Global Investing

Strong dollar, weak oil and emerging markets growth

Many emerging economies have been banking on weaker currencies to revitalise economic growth. ¬†Oil’s 25 percent fall in dollar terms this year should also help. The problem however is the dollar’s strength which is leading to a general tightening of monetary conditions worldwide, more so in countries where central banks are intervening to prevent their currencies from falling too much.

Michael Howell, managing director of the CrossBorder Capital consultancy estimates the negative effect of the stronger dollar on global liquidity (in simple terms, the amount of capital available for investment and spending) outweighs the positives from falling oil prices by a ratio of 10 to 1. Not only does it raise funding costs for non-U.S. banks and companies, it also usually forces other central banks to keep monetary policy tight, especially in countries with high inflation or external debt levels. Howell says:

Oct 15, 2014

Kazakhstan’s Alliance Bank says near completion of debt restructuring, merger

LONDON (Reuters) – Kazakhstan’s Alliance Bank ALLBy.LU, majority owned by the country’s sovereign wealth fund, is close to completing a $1.2 billion debt restructuring and a merger with two other banks, its chief executive said on Wednesday.

Timur Issatayev, who has been meeting creditors in London and New York, told Reuters he was confident of getting the go-ahead at creditor and shareholder meetings due in coming weeks.

Oct 15, 2014

South Africa finmin sees slower growth but no recession

LONDON, Oct 15 (Reuters) – South Africa is likely to cut its
2014 growth forecast next week but the government does not
expect the economy to slip into recession, Finance Minister
Nhlanhla Nene said on Wednesday.

The country, a top metals exporter, is feeling the impact of
a slowdown in key market China and a fall in mining output, due
largely to labour unrest.

Oct 10, 2014

As rouble slides, pressure builds for steep interest rate hikes

LONDON, Oct 10 (Reuters) – Russian companies’ scramble to
swap roubles for dollars has pushed up the cost of such forward
swap contracts, building pressure on authorities to boost
official interest rates to stabilise the currency market.

As availability of dollars and euros on Russian markets
dries up, three-month forward rate agreements (FRAs) that allow
traders to lock in existing market interest rates for six months
jumped to 12 percent on Friday — up 2 percentage
points from the start of the week, the following graphic shows:

Oct 10, 2014
via Global Investing

Measuring political risk in emerging markets

(Corrects to say EI Sturdza is UK investment firm, not Swiss)

Commerzbank analyst Simon Quijano-Evans recently analysed credit ratings for emerging market countries and concluded that there is a strong tendency to “under-rate” emerging economies – that is they are generally rated lower than developed market “equals” that have similar profiles of debt, investment or reform. The reason, according to Quijano-Evans, is that ratings assessments tend to be “blurred by political risk which is difficult to quantify and is usually higher in the developing world compared with richer peers.

However there are some efforts to measure political risks, and unfortunately for emerging economies, some of those metrics seem to indicate that such risk is on the rise. Risk consultancy Maplecroft which compiles a civil unrest index (CUI), says¬†street protests, ethnic violence and labour unrest are factors that have increased chances of business disruption in emerging markets by 20 percent over the past three months. Such unrest as in Hong Kong recently, can be sudden, causing headaches for business and denting economic growth, Maplecroft says. Hong Kong where mass pro-democracy protests in the city-state’s central business district which shuttered big banks and triggered a 7 percent stock market plunge last month.

Oct 9, 2014

Russia reserve fall defies emerging markets trend in 2014

LONDON, Oct 9 (Reuters) – Sanctions-hit Russia has lost
around a tenth of hard currency reserves so far this year in
dollar terms, bucking a generally rising trend across most
emerging markets.

Developing economies that spent billions of dollars last
year to support their currencies are being forced to do so again
in recent weeks as the dollar rises on expectations of higher
U.S. interest rates from mid-2015.

Oct 9, 2014

Emerging-market assets get respite as dollar pulls back

LONDON, Oct 9 (Reuters) – A decline by the dollar boosted
most emerging-market assets on Thursday, with the main equity
index up 1 percent and bond yields at multi-week or even record
lows. The rouble steadied after hefty central bank
interventions.

Bond yields in Poland hit record lows across the curve after
a larger-than-expected rate cut, dragging down yields in central
Europe. South African yields tumbled to one-month lows, tracking
U.S. Treasury moves.

Oct 8, 2014

Dollar surge forces central banks to tap reserves

LONDON (Reuters) – The U.S. dollar’s recent surge to four-year highs has forced central banks across the world to intervene on open markets to prevent their currencies falling too sharply.

As the Fed ends its asset purchase programme this month and investors brace for higher U.S. interest rates next year, yields on U.S. Treasury bonds have climbed relative to those of other governments. Dollar-funded ‘carry trades’ – where traders borrow in low interest currencies to buy higher yielding but riskier assets – are also being rapidly unwound.

Oct 8, 2014

Factbox: Dollar surge forces central banks to tap reserves

LONDON (Reuters) – The U.S. dollar’s recent surge to four-year highs has forced central banks across the world to intervene on open markets to prevent their currencies falling too sharply.

As the Fed ends its asset purchase program this month and investors brace for higher U.S. interest rates next year, yields on U.S. Treasury bonds have climbed relative to those of other governments. Dollar-funded ‘carry trades’ – where traders borrow in low interest currencies to buy higher yielding but riskier assets – are also being rapidly unwound.