From Goldman’s economics team, a half-century of debt buildups and Japanese domination:
Basically, a chart to launch a thousand arguments (comparing Italy, Greece and Japan being a good starting point) which you should definitely click and enlarge. Read more
From Morgan Stanley’s Asia Pacific team (do click to enlarge):
The bigger the bubble the bigger the debt, but more on that near the bottom. Read more
The first rule of currency wars is: you always talk about currency wars.
The second rule is: you can always find one to talk about if you look hard enough.
This month’s FX war location of choice is Asia, and here with its proximate cause is BNP Paribas (our emphasis): Read more
Residents of emerging markets owe hundreds of billions more dollars (and euros) than previously thought, because they have sold bonds offshore that don’t get counted in national statistics. An IMF study released at the beginning of the year measured the size of the discrepancy:
This vision of 2014 caught our eye — from Nomura’s annual outlook (out Monday)… Read more
Courtesy of Ajay Singh Kapur and team at Merrill Lynch. Click to enlarge.
First there was plain old commodity inventory.
Then “in-the-ground” inventory — funded by pre-pay deals — started to make an appearance. Most recently, there’s even been the tendency towards “just-in-time” inventory in energy markets. Read more
The thesis that the Asian boom is past its best is not new, but when we come across a particularly well-argued note on the topic, we like to share.
We’ve already given you a snippet from George Magnus’ latest on the topic — with regards to the role of technology in this shift — but we’d like to present the extended argument too. Read more
George Magnus of UBS has a 29-pager out on Monday questioning if the Asian miracle may finally be over? FT Alphaville is still poring through the details, but couldn’t wait to bring you a substantial chunk of the note which is dedicated to the role of technology and its impact on Asian market dynamics.
We’ve noted on more than one occasion that economists may be missing a trick when it comes to how technology is changing the global economy. More so, that developments like 3D printing, could even pose a black-swan risk for Asia in their own right. Read more
Many banks in the eurozone have a significant international presence. The diversification is a positive if the home market is suffering disproportionately. That being the case, perhaps one could expect further investment in less sickly markets abroad?
Maybe. Read more
Looking for supply headwinds in obscure commodity markets?
Then look no further than the global palm oil market. Read more
European stocks followed Asian peers lower after China cut its growth target and a survey showed the eurozone’s private sector contracted in February, the FT reports. The FTSE Eurofirst 300 was down 0.9 per cent following a 0.9 drop for the Asia-Pacific region. S&P 500 futures suggested Wall Street would shed 0.6 per cent later in the day. The “risk-off” theme left the FTSE All-World index lower by 0.5 per cent, with most gauges behaving in the manner expected under such a scenario. The dollar index, for example, was exhibiting its usual inverse correlation to risk appetite, rising 0.1 per cent, and the euro was trading at $1.3172 against Friday’s close of $1.3201. Commodities weakened as the session progressed, and supposed fixed-income havens, which were initially seeing little demand, started attracting funds; the yield on US 10-year notes was down 1 basis point to 1.97 per cent.
Nearly half of Asia’s larger companies are planning to make a significant acquisition in Europe over the next year, drawn by the availability of cheap assets amid the eurozone crisis, according to a survey by FTI Consulting, the FT reports. Some 45 per cent of Asian businesses quizzed in a poll of 800 companies around the world, all with at least 250 employees, said they were now looking to make strategic acquisitions in the region, as the eurozone’s problems have taken their toll on the valuation of businesses, particularly in the financial services sector. Lord Malloch-Brown, chairman of the European arm of FTI, said there was still unlikely to be a “rush to buy distressed Europe”, with continued nervousness among potential investors over the eurozone’s problems and timing and manner of any resolution of them. Reflecting those jitters, nearly a third of respondents in the FTI poll thought the euro would not survive 2012 intact.
A particular grade of Asian fuel oil has, for want of another word, skyrocketed in price over the last few weeks.
The grade in question is called 380-centistoke, and its cash differential (versus the benchmark grade) has performed as follows: Read more
Protracted US budget negotiations will cast a shadow over President Barack Obama’s trip to the Asia-Pacific next week where he will tout growing US-Asian economic and security co-operation, Reuters reported. Obama is set to visit Hawaii, Australia and Indonesia from Friday, coinciding with the Asia-Pacific Economic Cooperation summit that he will host in Honolulu on November 12-13. However, Obama’s bid to market his export strategy to Asia – hot on the heels of the recent free-trade agreement with South Korea – coincides with domestic calls to cut the nine-day trip short amid US budget talks and the 2012 presidential election, the wire reported. An editorial in the New York Times on Friday urged the President to tout his free market credentials and “make a case for expanding and liberalizing trade with other Pacific Rim countries”.
Billionaire owners of “ultra prime” homes have watched the values of their properties soar through the global economic turmoil, particularly in the emerging financial centres of Mumbai and Singapore, the FT reports. The spike in value of these properties – defined as homes worth in excess of £10m ($15.7m) – has been far less marked, however, in the western cities that have traditionally played host to the world’s wealthy elite. According to new research from Savills, the estate agent, billionaire homeowners in Mumbai and Singapore have seen the value of their properties increase by 138 per cent and 144 per cent, respectively, during the past five years. By contrast, the value of ultra-prime homes in London and New York have appreciated by less than 40 per cent during the same period. The property market in each of the cities – in terms of both pricing and style of living – examined in the Savills report, is driven by a multitude of factors.
Chinese premier Wen Jaibao threw some shade on the eurozone on Wednesday, and the US too — insisting they get their own fiscal and monetary houses in order and recognise China as a market economy if they really want to see some investment.
His own house didn’t look so great, either, when the Asian Development Bank challenged the likelihood of a much hoped-for Chinese soft landing with its updated outlook. It raised the inflation forecast for China, while cutting growth forecasts (hmm… stagflation, anyone?). Read more
Gold has powered to a fresh record, revelling in investors’ fears of a sharp global economic slowdown that have laid waste to growth-focused assets, the FT reports. The bullion was up 2.3 per cent to $1,865 an ounce, having earlier touched $1,867; a surge that was also predicated on worries over the fiscal difficulties of developed nations and in particular how this was being expressed in the financial system of the eurozone. The same concerns were boosting perceived haven bonds, with German, US and UK yields sitting near record or multi-decade lows. The yield on the US 10-year note, which on Thursday breached 2 per cent for the first time since 1950 before paring its move, was down 2 basis points to 2.04 per cent. In contrast, the FTSE All-World equity index was down 1.6 per cent, taking its losses since May’s cyclical peak to more than 19 per cent. Asia has fallen 3.2 per cent, with South Korea’s Kospi bearing the brunt with a 6.2 per cent stumble, despite the authorities in Seoul suspending programme trading in an attempt to slow the slide.
If Asia’s equity and bond markets are any guide, then investors seem pretty sanguine about the risks of the US Treasury running out of cash or the eurozone debt crisis spinning out of control, says the FT. There’s scant evidence of worry so far: Asian stocks have risen in recent weeks, with the All-World Asia Pacific excluding Japan index 3 per cent higher than at the start of the year. The
iTraxx Asia ex-Japan index – a measure of credit risk – remains well below its average levels of 2010. The relatively illiquid US CDS market is less sanguine, with insurance costs against a US default hitting a record on Wednesday, according to the FT. FT Alphaville had more on US CDS, including its inversion, a couple of days ago.
Millionaires across the world are now richer than they were before the financial crisis, the latest sign that the wealthy have weathered the downturn far better than other groups, writes the FT. Global wealth among individuals with $1m of investable assets or more rose to $42,700bn in 2010, up from $40,700bn in 2007, according to the Merrill Lynch Cap Gemini World Wealth Report. Rising equity markets and Asian growth helped expand the fortunes of the global elite, with the number of Asian millionaires now exceeding that of Europe.
Tracking the causes of the commodities crash is starting to feel like peeling an onion.
One layer gets pulled back only to reveal another, and then another — and then you start to cry. Last week we had UBS analysts blaming “extreme positioning short the dollar and long commodities.” Read more
In the sober world of debt investing, few products are racier than perpetual bonds. With no maturity date, they allow the issuing company to pay the money back any time it wants. And now, few sectors come with more danger signs than Chinese property, as Beijing clamps down on the market to curb soaring house prices, writes the FT. So many bond investors were stunned last week when Sino-Ocean Land, a Chinese property developer with no credit rating, raised $400m from a dollar-denominated perpetual bond at a coupon of 10.25 per cent. “It’s a risky industry and a risky structure,” says Guy Stear, Hong Kong-based credit analyst at Société Générale.
Chinese companies have this year embarked on an unprecedented borrowing spree in international bond markets, a trend driven by property developers starved of credit by state-owned banks, the FT reports. Mainland groups have already borrowed $12.2bn from international investors so far in 2011 – more than five times the amount they had secured by the same point last year, according to data provider Dealogic. Dealmakers calculate that within a couple of months the total will break the record $15.8bn that Chinese companies raised from offshore bond sales during the whole of 2010. ”It’s been a phenomenal start to the year for the China market,” said Terence Chia, of Citigroup’s Asian debt syndication team. “We expect this trend to continue.” Half of the offshore bond issuance this year has come from privately-owned property companies – such as Evergrande, Country Garden and Longfor Properties – that have seen funding channels dry up on the mainland.
Most of the world’s focus is on Libya-related contagion spreading into other Middle Eastern countries and kingdoms.
But, suggests a report from Standard & Poor’s research arm on Tuesday, it may be time to start looking a little further afield. Read more
As oil prices spiral higher amid turmoil in Libya, developing countries across Asia are taking evasive action, shoring up their strategic petroleum reserves against the risk of a prolonged supply shock, reports the FT. Their actions could propel crude even higher. The Philippines, citing events in the Middle East, announced on Wednesday that it would require oil companies in the country to maintain 15 days of reserves, and refineries to keep enough oil to last for 30 days.
Stocks were back within 1 per cent of last month’s cyclical highs as the market once again showed its fortitude, swiftly absorbing Mideast turmoil and rising inflationary pressures, the FT’s global market review reports. The FTSE All-World equity index was up 0.4 per cent to 227.6. The benchmark hit a post credit crunch high of 229 just seven days ago on hopes the global economic recovery was gathering steam, and those convictions clearly remained intact. S&P 500 futures were up 0.5 per cent. Manufacturing surveys out of China and India show the sector continued to expand, though tighter monetary conditions in the former appear to have reduced the pace of activity to a six-month low. This has has led to some selling of industrial metals during the Asian trading session on concerns that demand from the Middle Kingdom may ease. The surveys also showed surging input prices as higher raw materials prices feed into the supply chain.
The tidal wave of analysis centring on Libya-related concerns about the soaring oil price has become an overnight growth-industry, fuelling further jitters about the fall-out from Middle East turmoil on everything from Korean construction stocks to transport companies.
In geographic terms, Italy, with its heavy exposure to Libya, “looks set to bear the brunt of a fall-out if Libya descends further into chaos”, as BreakingViews put it. Read more
Standing amid the shoppers thronging Asia’s capitals it looks very much as though the region’s V-shaped recovery is steaming ahead. India and China aside, though, a disconcerting slowdown is taking hold, writes the FT. The region seems to be buzzing. Restaurants are full and exports and tourist arrivals are up. Memories of the brief recession of 2009 are obscured by a 9 per cent increase in gross domestic product for Asia excluding Japan in the 15 months to June. Yet a slew of GDP figures for the third quarter tell a different tale: GDP contracted on a seasonally adjusted quarter-on-quarter basis in Singapore, Malaysia, the Philippines and Thailand, where it also fell in the first quarter. On the same basis, growth was flat in Taiwan, and only weakly positive in South Korea, Hong Kong and Indonesia. Even Australia rose just 0.2 per cent, compared with 1.1 per cent in the second quarter, as a rise in the commodity-fuelled local dollar hit exports.
One other encouraging sign from the Asian data: export orders are up around the region, mostly by several points. Not surprisingly perhaps, Japan is the one exception.
One less encouraging sign from Asia: input prices are up just about everywhere, typically by several points. Read more
Asian stocks continued to retreat a day after Pyongyang bombarded a South Korean island in the dictatorship’s bloodiest assault on civilian targets in more than two decades, the FT reports. The FTSE Asia-Pacific index fell 0.4 per cent on Wednesday following a 1.1 per cent drop in the previous session. South Korea’s Kospi was down 0.6 per cent at noon in Seoul, having dipped as much as 2.4 per cent in morning trading. The won slid 1 per cent to 1,149.30 per dollar. Japan’s Nikkei 225, which was shut on Tuesday for a holiday, fell 0.8 per cent. Hong Kong’s Hang Seng rose 0.6 per cent after tumbling 2.7 per cent the day before.