Indonesia has just given the go-ahead for another leg down in the rupiah. It has cut its forecasts for the exchange rate to 9,700 per dollar compared to the 9,200 level at which the central bank used to step in. The currency has duly weakened and nervous foreigners have rushed to hedge exposure — 3-month NDFs price the rupiah at almost 10,000 to the dollar. The rupiah last week hit a three-year low, its weakness coming on top of a dismal 2012 which saw it fall 6 percent as the current account deficit worsened. Traders in Jakarta are reporting dollar hoarding by exporters.
All that is spooking foreigners who own more than 30 percent of the domestic bond market. The currency weakness hit them hard last year as Indonesian bonds returned just 6 percent, a third of the sector’s 16 percent average (see graphic).
Emerging bonds have got off to a flying start in 2013, with debt funds taking in over $2 billion this past week, the second highest weekly inflow ever, according to fund tracker EPFR Global. Issuance is strong - Turkey for instance this week borrowed cash repayable in 10 years for just 3.47 percent, its lowest yield ever in the dollar market.
Yet not everyone is optimistic and most analysts see last year’s returns of 16-18 percent EM debt returns as out of reach. The consensus instead seems to be for 5-8 percent as tight spreads and low yields leave little room for further rallies — average yields on the EMBI Global sovereign debt index is just 4.4 percent. Domestic bonds meanwhile could suffer if inflation turns problematic. (see here for our story on emerging bond sales and returns).
LONDON, Jan 11 (Reuters) – Asian firms and Eurobond
debutants from Africa will be prominent among emerging borrowers
hoping to tap buoyant appetite for high-yield assets in 2013
although issuance and investor returns may fall short of last
The new year has got off to a flying start. Investors, for
example, lent Turkey cash repayable in 10 years at a cost of
3.47 percent, the lowest it has achieved in the dollar debt
LONDON, Jan 11 (Reuters) – Asian firms and African
governments will lead emerging borrowers hoping to tap into
buoyant appetite for high-yield assets in 2013 although issuance
levels and investor returns may fall short of last year.
The new year has already got off to a flying start -
investors lent Turkey cash repayable in 10 years at a cost of
3.47 percent, the lowest it has ever achieved in the dollar debt
Could Asia be headed for a debt crisis?
The very thought may seem ludicrous given the region’s mighty current account surpluses and brimming central bank coffers. But a note from RBS analysts Drew Brick and Rob Ryan raises some interesting concerns.
Historically speaking, most EM crises have been borne on the back of excessive capital inflows, Brick and Ryan write. And in many Asian countries, the consequence of these flows has been over-easy monetary policy that has left citizens and companies addicted to cheap money. Personal and corporate indebtedness levels have spiralled even higher in the past five years as governments across the continent responded to the 2008 credit crunch by unleashing billions of dollars in stimulus.
LONDON, Jan 10 (Reuters) – Emerging markets ended 2012 with
a modest acceleration in economic growth thanks to a pick-up in
manufacturing activity that hints at further improvement in
coming months, a survey found on Thursday.
All four big BRIC economies posted a rise in economic
activity in the last quarter of 2012, with Chinese manufacturing
returning to growth for the first time in 18 months, according
to HSBC’s emerging markets index (EMI).
LONDON (Reuters) – The key to preventing a messy devaluation of Egypt’s pound may lie with the country’s households, whose dollar holdings are being eyed by foreign investors as a critical gauge of trust in the authorities.
Countless emerging market crises have shown over the decades that it is not the withdrawal of foreign investors from a market but the flight of local households and businesses from a currency that is instrumental in its collapse.
LONDON, Jan 8 (Reuters) – The key to preventing a messy
devaluation of Egypt’s pound may lie with the country’s
households, whose dollar holdings are being eyed by foreign
investors as a critical gauge of trust in the authorities.
Countless emerging market crises have shown over the decades
that it is not the withdrawal of foreign investors from a market
but the flight of local households and businesses from a
currency that is instrumental in its collapse.
Global Investing has written several times about Japanese mom-and-pop investors’ adventures in emerging markets. Most recently, we discussed how the new government’s plan to prod the Bank of Japan into unlimited monetary easing could turn more Japanese into intrepid yield hunters. Here’s an update.
JP Morgan analysts calculate that EM-dedicated Japanese investment trusts, known as toshin, have seen inflows of $7 billion ever since the U.S. Fed announced its plan to embark on open-ended $40-billion-a-month money printing. That’s taken their assets under management to $67 billion. And in the week ended Jan 2, Japanese flows to emerging markets amounted to $234 million, they reckon. This should pick up once the yen debasement really gets going — many are expecting a 100 yen per dollar exchange rate by end-2013 (it’s currently at 88).
CAIRO/LONDON, Jan 3 (Reuters) – Egypt dipped deeper into its
rapidly shrinking currency reserves on Thursday, fighting to
slow a sliding pound which is likely to push up inflation and
risks reigniting popular unrest.
Economists warned that the central bank had little room left
for manoeuvre with its readily available foreign currency
reserves enough to cover just over two months of Egypt’s import
bill, well below levels in many of its emerging market peers.