Posts Tagged: emerging markets

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

 

After nearly a year of almost unremitting bearishness on emerging markets, Morgan Stanley – whose analysts coined the “Fragile Five” moniker for the most vulnerable countries – has moderated its view. Somewhat at least.

Manoj Pradhan, a senior economist at Morgan Stanley, admits in a note that emerging market bears are “terrified” of a rally that could set up a classic short squeeze on pessimistic bets, and sees some near-term “shade” for the developing world.

  • The post-Fed resilience of EM markets after the initial shock suggests that US rates and USD will have to move meaningfully higher to create a persistent impact on EM.
  • China: The data are worrisome, banks are tightening lending standards and borrowing conditions have not improved despite lower front-end rates, but all this puts China in the ‘stimulus zone’ and some reprieve from policy-makers is now widely expected.
  • Russia: A stalemate in Crimea seems to be the most likely outcome. If an escalation is less likely, then further FX weakness, rate hikes and more sanctions are less likely too.
  • Brazil: Optimism about reforms after the election and a stable outlook after the S&P downgrade have added to the 13% interest rates that have supported the currency. >> Read More
 

Two weeks ago, MSCI indicated that it was considering including China’s A-shares (yuan-denominated mainland shares)  into its emerging market equity index.  It plans on consulting with 2000-3000 fund managers, with a decision expected in June.  If it does decide to include China, it most likely won’t be until mid-2015.   

The early results are thought to be mixed.  While some fund managers are sympathetic, others have reportedly expressed concern about the investment quotas,  capital gains tax and capital controls. 
 
China’s stock market capitalization is about $3.3 trillion and is the fifth largest in the world.  MSCI estimates that some $12 bln could flow into China stocks if it were to be included in its indices, with $8 bln going into the MSCI Emerging Market equity index.  Private sector estimates tend to be considerably smaller.    Some reports single out the large banks, like China Merchant Bank and the Agricultural Bank of China as likely beneficiaries. 
 
The Qualified Foreign Institutional Investor (QFII) facility through which foreign investors are giving a quota of investments that they can make has been steadily increased.   A little more than $52 bln of foreign investment from a little more than 230 investors has been approved. >> Read More
 

NF-UP BY 272 POINTSForeign institutional investors (FIIs) have been net buyers for 14 consecutive sessions, even as emerging market funds posted outflows of $3 billion for the week ended February 26, as per EPFR Global data. Emerging markets have been on tenterhooks due to QE tapering and more recently the Ukraine crisis.

On Tuesday, FIIs bought another $29.93 million worth of equities, according to the BSE provisional data. In February, FIIs bought $400 million worth of equities, the second highest inflows among Asian emerging markets. Only Indonesia has received higher FII inflow at $658.94 million. Over the last 14 sessions, FIIs have bought $778.16 million worth of equities taking their year-to-date tally to $449.16 million.

In terms of returns, Indian markets have outperformed most of its emerging market peers (excluding South Africa, Thailand and Indonesia) in February with the Sensex gaining 4.25% in dollar terms. >> Read More

What does Mr Raghu Rajan actually want?

25 February 2014 - 22:15 pm
 

IF YOU’RE already fed up with Fed transcripts, you could turn instead to the transcribed words of a different central banker, Raghu Rajan, governor of the Reserve Bank of India. His latest thoughts are drawn from an interview with CNBC at the G20 meeting last weekend. (The transcript was released with a lag of 48 hours, unlike the Fed scripts, which stewed for over five years.)

As I have already discussed ad nauseum, Mr Rajan feels that rich-world central bankers are neglecting, in word and deed, the damaging side-effects of their policies on emerging economies. In the CNBC interview, Mr Rajan made it clear that he was complaining on behalf of the emerging economies as a whole, not on behalf of India in particular. His country, he points out, weathered the latest bout of emerging-market turmoil quite well. He also emphasises that his complaint was symmetrical. He worries about “gales of capital” blowing in both directions: heedless monetary easing is as destabilising as heedless tightening.

Indeed, Mr Rajan, it turns out, does not want the Fed to delay its cuts in bond purchases. “I would not alter the pace of tapering,” he said. The “$10 billion that was done in the last two Fed meetings is fine.”

So what does he want the Fed and others to do? He wants them to recognise the side-effects of their decisions on emerging markets. Second, he wants them to acknowledge those spillovers in their language. Third, he seems to want rich-world central bankers to say what they would do if those side-effects prove particularly large and damaging:

[T]here is a lot of forward guidance that industrial countries’ central banks give on what happens if the domestic situation changes. Some sensitivity to what happens if the international situation changes dramatically would be useful.  >> Read More

 

Investors are still rushing out of emerging market Asia funds, but at a pace that’s less alarming than last week.

Outflows from EM Asia equity and bond funds totalled $2.2bn in the week ended Feb 12, about half the pace of the prior week’s $4.2bn outflow, according to EPFR data distributed by ANZ.

Global equities have rebounded this week after Federal Reserve chairwoman Janet Yellen implied monetary policy would remain loose. Analysts at ANZ say that helped to slow the withdrawals. But developed markets have seen a clearer rebound (see chart below).

The key takeaway is that improved risk appetite has benefited mainly developed markets while portfolio outflows from emerging markets continued.

ASIA PACIFIC BOND AND EQUITY FUND FLOW

 

With the stellar run in the U.S. property market in 2013 and the economic recovery, all eyes are now on Europe and emerging markets.

In a new report titled “Investing In Dysfunctional Markets: Why Emerging Markets Could Crash Further,” Societe Generale Patrick Legland, Daniel Fermon, and Laure Fauchet point out that this is a three step crisis.

Europe is seeing a nascent recovery but now we’re seeing a real rout in emerging markets.

Here’s their chart of the three-step crisis:

SG-VIEW

Double Good News For Emerging Markets

12 February 2014 - 18:38 pm
 

Suddenly people aren’t worried so much about emerging markets.

 Their currencies haven’t been tanking lately – in fact they’ve been quite strong, especially the Lira.

And already the story is changing.

The latest? Good news for emerging markets from both China and the US.

Here’s Kit Juckes of SocGen: >> Read More

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Team ASR,
Baroda, India.