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.
Investment banks have been dismayed this year by the slump in first-time share listings across emerging markets, the area they had hoped would yield the most growth (and fees). But as we pointed out in this story, emerging IPO volumes fell 40 percent this year. And equity bankers have seen lucrative IPO fees dry up – they almost halved this year from 2011 and are a third of 2007 levels.
One market that has possibly disappointed investors most is Russia. Its plan a few years ago to privatise large swathes of state-run companies via share sales had bankers salivating — estimates for the proceeds ranged from $30-$50 billion. The pipeline is still alluring, with all manner of companies up for privatisation, including shipping company Sovcomflot and the Russian Railways monopoly. The Kremlin did raise $5 billion this year by selling a 7.6 percent stake in Sberbank, the banking giant, but not much else has come to pass. In fact, 2012 saw the state tighten its grip on the energy sector, as government-controlled Rosneft bought oil producer TNK off BP, forking out $12.3 billion and some equity.
With Shinzo Abe’s new government intent on prodding the Bank of Japan into unlimited monetary easing, it is hardly surprising that the yen has slumped to two-year lows against the dollar. This could lead to even more flows into overseas markets from Japanese investors seeking higher-yield homes for their money.
Japanese mom-and-pop investors — known collectively as Mrs Watanabe - have for years been canny players of currency and interest rate arbitrage. In recent years they have stepped away from old favourites, New Zealand and Australia, in favour of emerging markets such as Brazil, South Africa and Turkey. (See here to read Global Investing’s take on Mrs Watanabe’s foray into Turkey). Flows from Japan stalled somewhat in the wake of the 2010 earthquake but EM-dedicated Japanese investment trusts, known as toshin, remain a mighty force, with estimated assets of over $64 billion. Analysts at JP Morgan noted back in October that with the U.S. Fed’s QE3 in full swing, more Japanese cash had started to flow out.
LONDON, Dec 26 (Reuters) – Already struggling at home with
weak revenues and tough new capital and leverage requirements,
investment banks are now also facing a slump in their once most
promising business — emerging markets.
Fees are plummeting because of a sharp decline in first-time
share listings and mergers across such economies.
Hungary’s outlook upgrade to stable from positive by Fitch was greeted with incredulity by many analysts. Benoit Anne at Societe Generale wonders if the decision had anything to do with the Mayan prophecy that proclaiming the end of the world on Dec. 21:
What is the last crazy thing you would do on the last day of the world? Well, the guys at Fitch could not find anything better to do than upgrading Hungary’s rating outlook to stable. Now, that really makes me scared.
A rate cut in Hungary is considered a done deal today. But a sharp downward move in the forint is making future policy outlook a bit more interesting.
The forint fell 1.5 percent against the euro on Monday to the lowest level since July and has lost 2.6 percent this month. Monday’s loss was driven by a rumour that the central bank planned to stop accepting bids for two week T-bills. That would effectively have eliminated the main way investors buy into forint in the short term. The rumour was denied but the forint continues to weaken.
A big week for central bank meetings looms and the doves are likely to be in full flight.
Take the Reserve Bank of India, the arch-hawk of emerging markets. It meets on Tuesday and some, such as Goldman Sachs, are predicting a rate cut as a nod to the government’s reform efforts. That call is a rare one, yet it may have gained some traction after data last week showed inflation at a 10-month low, while growth languishes at the lowest in a decade. Goldman’s Tushar Poddar tells clients:
Adversity is a great leveller. Just look at the way sovereign credit ratings in the developed and emerging world have been converging ever since the credit crisis erupted five years ago. JPMorgan has crunched a few numbers.
Few were surprised last week by S&P’s decision to cut the outlook on Britain’s AAA rating to negative. That gold-plated rating is becoming increasingly rare — according to JP Morgan, just 15 percent of global GDP now rates AAA with a stable outlook — a whopping comedown from 50 percent in 2007. Only 13 developed economies are now rated AAA, compared to 21 before the crisis. And only one, Australia, now has a higher rating (AAA) than in 2007 — 16 of its peers have suffered a total of 129 downgrades in this period. With 20 rich countries on negative outlook, more downgrades are likely.