FT Alphaville participated in a “Gold Bulls vs Bears” event hosted by the Association of Mining Analysts (AMA) on Wednesday.
The motion being discussed was:
Is gold’s role as a safe haven asset in the global financial system outdated and redundant and if the ubiquitous QE programs have been successful and the global economic upturn is confirmed, the price of gold will continue to struggle?
There may be signs that the wealthiest few zillionaires in emerging markets are outgrowing their love of bling or at least becoming more discerning.
But the fashion houses in Milan and Paris are unlikely to be losing sleep over that. Because for many millions in the EM, success and status remains all too bound up with having Chanel’s double-Cs on their handbag or an Ω on their wrist. Read more
According to the list of emerging and frontier sovereign debt covered by the specialists at Exotix (and Exotix cover a lot) the 10 per cent foreign-currency yield might be dying out (click to enlarge):
Beyond all the interesting (maybe precedent-setting) stuff about pari passu…
Since last week’s US Appeals Court ruling went against Argentina, there’s been a lot of comment about how the country could try changing the trustee or payments structure of the bonds which came out of its 2005-2010 restructuring. Read more
Capital Economics ponders whether falling commodities prices will harm the emerging economies that rely most on selling them, and comes up with an answer: not much. At least, for most of them… Read more
Or, a new Bloody Ridiculous Investment Concept to save Germany.
From Handelsblatt (in the fine FT Alphaville tradition of Google Translated German): Read more
Enthusiasm for emerging markets stocks is perhaps a little dampened of late, along with every other risk asset. But there’s still a widespread and intuitive perception that equities in a fast-growing economy are likely to be a good bet. In fact judging from this report by Bloomberg, there is strong foreign interest in Chinese stocks, which have been in a bear market for well over 18 months (never mind that domestic investors see things very differently).
But the broad assumption that GDP growth equals a good equities opportunity is wrong, according to Morgan Stanley. Read more
Consumer and business confidence in Europe and the US is down. Even McDonald’s, the fastfood eatery that ensures students can afford meat for dinner, is worried about the impact of the gloom on its profits. It’s ugly out there.
However, let’s take a moment to reflect on the longer term, and more global, picture.
Also we need to meet our quota of one positive news story per week. Courtesy of UBS, here’s how consumption of certain white goods generally evolves as the GDP per capital for a country increases (using data from Euromonitor as well as their own): Read more
IMD has released its latest competitiveness rankings, which measure ”how well countries manage their economic and human resources to increase their prosperity”. Needless to say, the usual European suspects are right down the bottom and falling: Spain (39), Portugal (41) and Greece (58).
More interestingly, research by the Switzerland-based business school confirms what we have suspected for some time — emerging countries are losing competitiveness. Read more
Presenting… the Bermuda Triangle of emerging markets FX!
Sort of. And one for emerging markets credit! Read more
So says HSBC’s Stephen King in the bank’s latest Emerging Markets Index quarterly. Click for the report:
A horribly-fonted chart from Ashmore Investment showing the development of local-currency emerging market fixed income debt…
Money has poured into emerging markets this year, with funds dedicated to the asset class enjoying their best start to a year since 2006 amid continued investor wariness over developed markets, the FT reports. Emerging market equity funds, which fell out of favour for much of last year, attracted $3.5bn in the week ending February 1, the most in almost a year, taking the total inflows this year to $11.3bn, according to EPFR Global, a data provider. Emerging market bond funds saw inflows of $1.2bn last week, the most since March last year. Buoyed by the renewed surge in capital inflows, emerging market currencies have also enjoyed a strong start to the year. “The appetite towards emerging markets has been so far remarkable,” strategists at Société Générale said in a recent note. “To a large extent, it has reflected some [European] debt crisis fatigue, and the fact that investors have been keen to put risk back on to the table.” Read more
Emerging market currencies are on track for their best start to the year since the turn of the century as risk appetite among investors improves, the FT reports. The Mexican peso, Brazilian real and Indian rupee have outstripped currencies in the world’s most industrialised nations to gain more than 5 per cent against the US dollar this year, bouncing back from sharp falls in recent months. “It has been a spectacular start to the year for emerging market currencies,” said Benoit Anne, currency analyst at Société Générale. The peso and the rupee have both risen 7 per cent this month against the dollar, while the real and the Russian rouble are up 6 per cent since the start of the year. Read more
Brazil’s central bank has cut interest rates for the fourth time running as the government seeks to revive an economy that stalled in the second half of last year, says the FT. The 50-basis point cut in the central bank’s benchmark Selic rate to 10.5 per cent comes as Brazil’s development bank, which has a balance sheet four times the size of that of the World Bank, announced a reduction in lending last year in a move that should also aid efforts to ease rates. “The monetary policy committee understands that to mitigate in a timely way the effects coming from a more restrictive global environment, a moderate adjustment in interest rates is consistent with the convergence of inflation to the target in 2012,” the central bank said. The central bank abruptly ended a tightening cycle in August after Latin America’s largest economy began slowing on the back of tighter monetary and fiscal conditions, the negative impact of a strong currency on manufacturing and the eurozone crisis.
From the World Bank’s latest global economic outlook (emphasis ours):
While contained for the moment, the risk of a much broader freezing up of capital markets and a global crisis similar in magnitude to the Lehman crisis remains. In particular, the willingness of markets to finance the deficits and maturing debt of high-income countries cannot be assured. Should more countries find themselves denied such financing, a much wider financial crisis that could engulf private banks and other financial institutions on both sides of the Atlantic cannot be ruled out. The world could be thrown into a recession as large or even larger than that of 2008/09. Although such a crisis, should it occur, would be centered in high-income countries, developing countries would feel its effects deeply. Even if aggregate developing country growth were to remain positive, many countries could expect outright declines in output. Overall, developing country GDP could be about 4.2 percent lower than in the baseline by 2013 — with all regions feeling the blow. Read more
Developing countries should take steps to plan for a global economic meltdown on a par with 2008-09 if the European sovereign debt crisis escalates, the World Bank warned on Wednesday. The FT reports the World Bank is forecasting significantly slower global growth in 2012 than it expected last summer even if the eurozone muddles through its crisis, of 2.5 per cent in 2012 and 3.1 per cent in 2013 compared with forecasts of 3.6 per cent for both years forecast only six months ago. If financial markets deny funds to eurozone economies, global growth would be about 4 percentage points lower than even these figures, with poorer economies far from immune. Andrew Burns, head of macroeconomics at the Bank, stressed the importance of contingency planning, adding: “An escalation of the crisis would spare no one. Developed and developing-country growth rates could fall by as much or more than in 2008-09.” The world economy would find it much more difficult to grow out of a new economic crisis, the World Bank warned, because rich countries had little monetary or fiscal ammunition available to stem any vicious circle and poorer countries now have “much less abundant capital, less vibrant trade opportunities and weaker financial support for both private and public activity [than in 2009]”. The World Bank declined to predict how likely such a scenario was and added that there was little that developing countries could do to prevent a severe crisis, but urged them to evaluate their vulnerability to a euro-led crisis. It also cited failure so far to resolve high debts and deficits in Japan and the United States and slow growth in other high-income countries, and cautioned those could trigger sudden shocks, says Reuters. On top of that, political tensions in the Middle East and North Africa could disrupt oil supplies and add another blow to global prospects, the World Bank said in a sobering assessment of the challenges facing the economy. Read more
The Barclays Capital note we discussed earlier this week, postulating that China had already begun to see a critical increase in its household consumption-to-GDP ratio, has generated a few questions over email.
So, we’re going to go into it in a little more detail. But stay tuned — this is interesting. Really. Read more
Hungary — still in basket-case mode earlier on Thursday… (a snapshot courtesy of Bloomberg):
The government sold 35 billion forint ($140 million) of one-year bills, 10 billion forint less than targeted, data from the Debt Management Agency on Bloomberg show. The average yield rose to 9.96 percent, the highest since April 2009, from 7.91 percent at the last sale of the same-maturity debt on Dec. 22… Read more
ALMATY/LONDON, Jan 4 (Reuters) – BTA, Kazakhstan’s third-largest bank by assets, failed to make around $160 million in coupon payments due by Jan. 3, three sources told Reuters on Wednesday…
Yep, it’s Kazakh bank debt! Read more
India will allow foreign nationals to invest directly in the country’s listed companies, in a bid to deepen its under-developed capital markets, reports the FT. “[We] decided to allow qualified foreign investors to directly invest in the Indian equity market in order to widen the class of investors, attract more foreign funds, and reduce market volatility,” the finance ministry said in a statement. The move, which also allows pension funds and trusts greater freedom to invest directly, was announced over the holiday weekend and will come into into effect on January 15. Foreign institutional investors have turned bearish on India in recent months, scaling back investments as the country’s growth prospects dimmed and the global economic outlook worsened. Overseas funds withdrew a net $380m last year compared to record inflows of $29bn in 2010. Read more
Brazil’s economy stalled in the third quarter of this year, demonstrating the vulnerability of the world’s emerging market growth engines to the eurozone crisis and the slowdown in the developed world, reports the FT. Gross domestic product contracted 0.04 per cent in the three months ending on September 30 compared with the previous quarter as weakness in the industrial sector spread to Brazil’s once vibrant consumer. The country’s financial markets reacted calmly on Tuesday to the report, says the NYT, reflecting a belief that the government still has various policy tools at its disposal to stimulate growth.
Tin hats at the ready. If the eurozone trouble deepens, emerging market equities could once again overshoot fair value in a wave of deleveraging.
So it’s time to put a value on them hedges… Read more
Eurozone banks selling assets in Emerging Europe – to tart up their capital ratios under crisis pressure – is not front-page news at the moment.
Frankly, we think it should be! Read more
Under-promise then under-deliver. Then watch markets tank. That’s the prognosis for the G20 summit, courtesy of Capital Economics’ crystal ball.
After poo-pooing suggestions Bric nations will ride to the eurozone’s rescue or take constructive measures to resolve global imbalances, the research house made what we think is a sensible prediction on Wednesday: Read more
Something to take G20 Cannes delegates’ minds off Greece…
How’s this for evidence that the emerging markets growth story is overblown? Of all the G20 countries, the US would have given you the greatest equity returns over the past year, not Brazil or China. Read more
Here, charted, is the master-servant relationship between emerging and developed markets.
The following shows the average local-currency yield spread — 10-year government bond yields less 3-month interbank rates — in the G3 compared to the average spread across 25 major EM economies, according to UBS (click to enlarge): Read more
If you were expecting widespread easing of policy rates across the emerging world, think again.
Since the end of August three EM central banks have cut rates — Brazil, Israel and Indonesia – but don’t go expecting much more monetary easing, Citi has cautioned in a recent report. Read more
Knights in shining armour that is.
The recently-floated plan for the big emerging markets to send money to Europe via an IMF-led SPV, which could be used alongside the EFSF to buy sovereign debt, is getting the lead balloon treatment. Read more