05 December 2013 - 22:13 pm
For much of the last decade emerging markets such as China, Brazil and India have ferociously hoovered up foreign direct investment (FDI). They’ve been where economic growth rates and potential returns – if investors pick well – have been most eye-watering.
But according to a new report from the World Bank, this hoover-like ability of the last decade has lost a bit of its suction power.
After peaking at $628bn in 2011, FDI into developing economies fell 6 per cent last year and is expected to register a gain of just 2 per cent this year, according to the World Investment and Political Risk report.
And for the first time since the Multilateral Investment Guarantee Agency (MIGA), an arm of the World Bank, began the survey five years ago, macroeconomic instability is the biggest risk for outside investors when weighing up whether to put capital to work in developing economies. The report finds:
Macroeconomic instability rates at the top of investor concerns for the first time and this concern has tempered the historically bullish investor sentiment.
That in turn has left 37 per cent of investors surveyed by the MIGA unwilling to increase their investments in developing economies over the next 12 months, a proportion that the report says is “somewhat higher” than previously. It adds that 47 per cent intend to put more capital to work in developing economies. >> Read More
01 December 2013 - 9:20 am
Note the 2013 leaders led in November – Japan, the U.S. and Germany. And the dogs remained dogs – Brazil and Russia.
Can you imagine a strategist just 18 months ago stating Japanese equities would outperform the BRICs by some 6,000 basis points? He/She would have been laughed off the Street!
Were watching to see if emerging markets rally in December as it may reflect early positioning for a 2014 comeback rally. Stay tuned.
16 November 2013 - 10:45 am
Emerging markets suffered a bout of fevered selling in the summer, as investors absorbed the import of the US Federal Reserve’s plans to start scaling back its vast stimulus programme. Now, their malaise is starting to look more like a persistent winter flu.
Each time a run of stronger US data prompts speculation that Fed “tapering” is imminent, the pressure on emerging markets ratchets up – as it has this month, sending the more fragile currencies tumbling against the dollar.
Indonesia’s rupiah hit its weakest level in two and a half years against the dollar on Wednesday, even though the country’s central bank had just announced an unexpected increase in interest rates. Raghuram Rajan, India’s central bank governor, called a hasty press conference as the rupee slipped to a two-month low to assure financial markets that there was “no fundamental reason” for the currency’s volatility, but the rupee has remained limp.
Retail investors have also taken fright, leading to the largest EM equity outflows in 20 weeks, and largest EM debt outflows in 10 weeks, according to EPFR.
Some respite came this week, when Janet Yellen, nominee for Fed chair, articulated a resolutely dovish defence of the central bank’s asset-purchase programme at her confirmation hearing. >> Read More
31 October 2013 - 23:58 pm
Greek stocks, once shunned by investors concerned that a default would force the nation out of the euro, are beating every market in the world as a six-year recession eases and new investors consider purchases.
Since June 5, 2012, two weeks before MSCI Inc. gave notice it may reclassify Greece as an emerging market, the country’s ASE Index has surged 146 percent, trimming the decline from its 2007 peak to 79 percent. The gains topped all 94 national benchmarks globally in the period, except Venezuela, according to data compiled by Bloomberg. Yields on Greece’s 10-year government bonds have dropped to 8.31 percent from a peak of 33.7 percent in March 2012.
Paulson & Co. and JPMorgan Chase & Co. have bought shares as emerging-market funds including Renaissance Capital Holdings Ltd. and Templeton Emerging Markets Group expressed interest. JPMorgan’s Francesco Conte, who dumped Greek stocks from his European Small Cap Fund more than three years ago as the government’s budget deficit spiraled, has purchased stakes in retailer Jumbo SA and jewelry maker Folli Follie SA after the world’s biggest sovereign debt restructuring.
“The outlook for the country has completely changed,” Conte, who manages about $2.8 billion in London, said by phone on Oct. 24. “I’m very overweight Greece because I find very, very good opportunities, very well-run companies and very cheap valuations. Greece is only just emerging from the crisis. Because they’ve cut their cost bases so low, the profitability growth is going to be enormous if we get positive GDP growth.”
Budget deficit >> Read More
28 October 2013 - 12:44 pm
Anyone who was stoical enough to buy emerging market stocks at their global financial crisis low point five years ago is likely sitting on a decent profit, thanks in part to the Chinese government pumping cash into the economy.
The MSCI Emerging Markets index has risen 126 per cent since October 27 2008, its post-Lehman bankruptcy low.
Here are some reasons why emerging market shares have done well.
The Beijing government unveiled plans to pour $585bn into the Chinese economy in November 2008. State owned companies then poured a whole lot of concrete, creating ghost towns and industry overcapacity, but also an incredible demand for commodities that powered natural resources led booms in nations from Indonesia to Australia.
The American central bank’s quantitative easing has created cheap money that traders pumped into higher yielding stocks, bonds and currencies in developing countries. Fears of the Fed reducing its $85bn per month purchasing programmesparked panics among emerging market investors in the summer, but analysts have since pushed back “taper talk” well into 2014.
Newly minted emerging market consumers
Citizens of Brazil and Indonesia are well known for their love of consumption that has contributed greatly to each countries’ GDP, as this World Bank data shows. Indonesia’s consumer boom is faltering. But some observers argue Brazil’s credit-fuelled shopping spree has much further to run.
21 October 2013 - 10:57 am
Recent pressure on emerging market currencies has rightfully made headlines. But the broader issue for emerging markets is that such episodes could easily reoccur, or even get worse, over the next few years. This is because, over the past decade, these economies have increasingly pinned their economic hopes to foreign capital flows.
The numbers speak for themselves; portfolio flows to the emerging markets have grown by 400 per cent over the past 10 years, compared to nominal GDP growth of 200 per cent. And the same is true of the broader private capital measure, which also includes bank lending and direct investment. This has increased by 5.5 times over the same period.
This increase in flows relative to GDP means capital withdrawals are now particularly painful in times of stress. Repeatedly, we have seen that investors’ fear of the unfamiliar results in a herd mentality, repatriating capital to more familiar domestic markets.
In the coming years it means investors will need to keep an eye on those economies most vulnerable to this dynamic. As we have seen recently, so called “double deficit” countries, those with both a fiscal and a current account deficit, will be highly exposed; and necessary but growth-retarding policies, such as interest rate hikes, will become more common and of a larger magnitude. >> Read More
17 October 2013 - 23:28 pm
- Sulzer, Outotec issue profit warnings
- US agreement fails to lift markets
- German growth forecasts cut
FTSE Mibtel: -0.40%
Ibex 35: 0.39%
Stoxx 600: 0.11%
European markets finished mixed on Thursday as investors gave a cool reaction to the US agreement to avert a debt default, with sentiment dampened further by profit warnings from Sulzer and Outotec.
With just hours to go before the US was due to hit its borrowing limit, both the Senate and House of Representatives passed a bill late on Wednesday night to fund the government through to January 15th 2014 and raise the debt ceiling until February 7th. Budget negotiations were also pushed back to December 13th.
While the deal has brought an end to the first US government shutdown in 17 years, Standard & Poor’s has estimated that the closure has already cost the US economy $24bn in lost activity, which will have a 0.6% adverse impact on growth in the fourth quarter. Meanwhile, Chinese credit-ratings agency Dagong downgraded its rating for US sovereign debt from ‘A’ to ‘A-’, keeping a negative outlook. >> Read More
17 October 2013 - 22:20 pm
The partial shutdown of the US government for the last three weeks has created a headache for a data-dependent Federal Reserve: there hasn’t been much of it.
Charles Evans, the president of the Reserve Bank of Chicago and a voter at the Fed this year, said:
Only the data can tell us how much progress we’ve made, and they aren’t saying much right now: The data available in September were inconclusive, and since then, incoming information has been silenced with the federal government shutdown.
Mr Evans, who has been a voice at the Fed for maintaining the level of stimulus to the economy, said that he still expects the pace of economic growth to pick up to about 3 per cent next year.
Mr Evans acknowledges that his previous forecasts have all proved too optimistic. But the central banker says his confidence comes because “economic fundamentals are much improved.”
Specifically, he points to a stronger housing market, an improvement in the financial health of American households and rising equity markets.
However, Mr Evans warns that growth will only pick up if the world’s biggest economy manages to avoid significant jolts over the next year. He says: >> Read More