Posts Tagged: emerging markets

 

The PBOC has just signed a deal with the BRICS nations on a $100bn Contingent Reserve Arrangement. After finalising the deal they said it was in the best interests of China and the world to help other emerging economies. They also said that it’s is hard for China to be the exception if there is huge volatility in global financial markets.

China’s reach now goes further with this deal. It’s effectively an emergency swap agreement program like the Fed, BOJ, BOE and ECB have agreed for their respective currencies.

The breakdown is as follows;

  • China – USD 41 billion
  • Brazil – USD 18 billion
  • Russia – USD 18 billion
  • India – USD 18 billion
  • South Africa – USD 5 billion

It will be interesting to hear if Russia ever needs to access the swap lines if sanctions bite deeply.

 

MSCI has chosen not to press ahead with a controversial plan to add mainland Chinese equities to its global benchmark indices, while South Korea and Taiwan will no longer be considered for a developed markets ranking.

As part of its annual review, MSCI, an index provider, said it would still consider including China’s so-called A shares in its 2015 review. MSCI Korea and MSCI Taiwan indexes were removed from potential reclassification based on a lack of significant improvements over the past few years in key areas that affect accessibility in those markets.

The prospect of including mainland Chinese equities in global benchmarks would be a major milestone in the opening up of China’s financial markets. More than 200 stocks listed in Shanghai and Shenzhen – known as A shares – would be added to the MSCI China index, which is made up only of mainland companies listed in Hong Kong and New York.

As a result, A shares would also be included in MSCI’s Asia ex-Japan and global emerging markets indices. Taken together, the three benchmarks tracked $3.4tn in funds across the world. >> Read More

 

Mark Mobius, Templeton Emerging Markets Group Executive Chairman sits down with WSJ Editor in Chief Gerard Baker to discuss the current geopolitical landscape and his investment outlook for emerging economies including Nigeria, Ukraine, Russia, Brazil, India and China.

 

So-called “frontier markets” are the hot new investment theme as investors search for new opportunities outside the more mainstream developing countries.

But as Min Zhu of the International Monetary Fund has pointed out in a blog, they “combine huge potential with big risks”.

The potential is clear. These more exotic markets – such as Bolivia, Ghana, Honduras, Mongolia, Nigeria, Vietnam and Mozambique – are for the most part growing rapidly even as bigger emerging markets have hit a sticky patch. A chart below from the IMF shows just how well frontier markets are doing relative to developed and emerging ones.

Their economies have been helped by commodity exports, fundamental improvements in governance and policymaking, attractive demographics and better financial metrics after reducing debts significantly in recent years – some through the IMF and World Bank’s “Highly Indebted Poor Country Initiative”.

Many have also been buoyed by capital inflows as investors search for new, lucrative investment opportunities, as Mr Zhu – deputy managing director of the IMF – points out:

Low interest rates combined with advanced economies shedding debt have pushed investors to search for higher returns on their investments, which has expanded their interest to invest >> Read More

 

Advanced economies and emerging markets are assuming unexpected roles, with the former leading the recovery in the global economy while the latter weighs on global growth, at least temporarily, says Moody’s Investors Service in a report published today.

 The report, entitled ” Global Macro Outlook 2014-15: Role Reversal, as Advanced Economies Emerge as Engine of Recovery”, is available on www.moodys.com. The Global Macro Outlook underpins Moody’s universe of ratings, providing a consistent benchmark for analysts and investors. This report is an update to the February 2014 Global Macro Outlook report. It reviews key recent developments, provides an update on Moody’s central forecasts for 2014-15, and discusses the key risks around its forecasts.

 Moody’s notes that reforms and accommodative monetary policy in the aftermath of the global financial and the euro area crises are slowly bearing fruit in advanced economies. After a soft patch at the start of the year, US economic activity is set to pick up during 2014 on the back of strong corporate balance sheets, favourable financing conditions, a smaller fiscal drag and strong price competitiveness. Moreover, after two years of recession, the euro area will contribute positively to global growth in 2014 as exporters benefit from competitiveness-improving reforms and as constraints on households’ budgets ease. >> Read More

 

India slid down to 83rd spot among 148 economies in terms of leveraging information and communications technologies (ICT) for growth and well being, says a World Economic Forum report.

In 2013, it ranked 68th out of 144 countries.

According to the 13th edition of the Global Information Technology Report 2014, little progress has been made in bridging the gap between the world’s most networked economies and the rest of the world.

Many large emerging economies continue to struggle to realise their full digital potential and feature lower down the index, while developed economies feature on the top.

Among emerging market economies, China was placed on the 62nd position, Brazil (69th), Mexico (79th) and India (83rd).

India is the least performing of the BRICS economies and the drop in rankings can be traced back mainly to difficulties in improving historical limitations and keeping up with other emerging economies in several dimensions. >> Read More

 

unilever-asrUnilever said that economic volatility and slowing demand in emerging markets would not fundamentally alter its strategy, as it reported sales growth that topped estimates for the start of the year.

The food and consumer goods giant, which has made a series of brand disposals in developed markets in recent months as it looks to refocus its portfolio, said on Thursday that it was now reviewing both its North America pasta sauces business and its Slim.Fast diet shake brand.

Across the group, underlying sales growth came in at 3.6 per cent for the first quarter, and a stronger 6.6 per cent in emerging markets, as revenues fell to €11.4bn, a 6 per cent drop largely blamed on unfavorable currency movements.

That topped analysts’ estimates, although it was down on the 4.1 per cent group growth seen in the fourth quarter.

Said Unilever’s chief executive Paul Polman: >> Read More

Akash Prakash: This rally is real

11 April 2014 - 7:02 am
 

The Indian equity markets are on a roll. The Nifty index is up about eight per cent in local currency and 11 per cent in dollar terms. India is the second best-performing market in Asia, after Indonesia, and one of the best emerging marketsoverall. We have received inflows of about $4 billion from foreign institutional investors (FIIs) in the first quarter of 2014, of which $2.5 billion have come in the last two weeks of the quarter. The indices are recording new highs on a daily basis, and, after a long time, India is once again a discussion point for global investors. While domestic investors have still not joined this rally, the continued redemptions that accompanied every market rise till now seem to have finally stopped. Therupee has also strengthened, and we have gone from being one of the “fragile five” to having the Reserve Bank of India (RBI) intervene in order to prevent rupee appreciation beyond 60.

Many are sceptical about this rally. They think the stock market is once again showing its casino-like characteristics. They make the point that the markets are getting ahead of themselves, and there is no certainty that Narendra Modi will become the next prime minister. Even if Mr Modi were to form the government, he does not have a magic wand with which to turn things around. How do you revive the private sector investment cycle when more than 50 per cent of the delays in approvals are at state level or have to do with land issues? How do you revive investment when the majority of India’s infrastructure developers are over-leveraged and have no access to equity? >> Read More

 

In terms of economic might, BBVA has created an index of “world market power” enabling an at-a-glance view of a nation’s impact on the global economy via relevance of exports, exposure to external shocks, technological content, and retained value-added. And the winner is… Hint, not USA…

 As BBVA sums up, 

China shows the highest value not only among emerging economies but also when considering all the sample, inverting with the US the rank order given by the exports’ share in nominal terms.

 

China holds the largest share among emerging markets in the sample for 9 out of 18 industries, including all manufacturing groups except food (surpassed by Brazil). The largest industry share corresponds to textiles and leather (above 30%).

 

Russia and especially Saudi Arabia are well ahead in the ranking due to their key role in the oil market for which they show a high degree of product concentration.

 

India and Mexico have a similar share of world exports, although the market power index is significantly higher for the former on dominant positions in ‘other manufactures’ and business services.

BBVA’s Full Report below: >> Read More

 

The International Monetary Fund is releasing a new set of projections for the global economy next week, and Christine Lagarde, head of the fund, sounds more optimistic than she has in a while.

In a speech on Wednesday in Washington, Ms Lagarde said that “the global economy is turning the corner of the Great Recession”.

She pointed to improved economic activity in advanced economies such as the US and Japan and a modest recovery taking hold in Europe.

Meanwhile, emerging economies – which have been slowing – are starting to benefit from the stronger demand in the rest of the world.

Despite that optimism, Ms Lagarde still sees risks. >> Read More

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Team ASR,
Baroda, India.