HSBC Sage Flags Emerging-Market Pullback on Dollar – Bloomberg 08-07-14

Salient to Investors:

  • David Bloom at HSBC said to sell emerging market currencies, including the Rand, Ruble and Mexican and Colombian Peso, on increasing signs of US growth supporting the US dollar .  Bloom said a mass investor exodus depends on what happens to volatility on long-term US rates moving up – if long rates rise then the resulting full-blown dollar rally will hit emerging markets hard.
  • Phoenix Kalen at Societe Generale expects the rand to weaken and become more volatile over the next 3 months.
  • Koon Chow at Barclays said volatility remains near record lows as investors seek higher yields with US rates in their record-low zero to 0.25 percent range.  Chow said low global market volatility and low yields in many developed fixed-income markets will continue to push capital to emerging markets, while gains in the dollar will help differentiate currencies.
  • Futures indicate the Fed won’t raise its benchmark rate until at least mid-2015.
  • Citigroup downgraded its view on developing currencies.
  • Roland Gabert at DWS Investment  dislikes the rand, Brazilian real, South Korean won and zloty and said discussion of a rate hike in the US is negative for emerging-market currencies.


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Emerging Market Dominoes to Fall as SocGen Sees Rout – Bloomberg 06-03-13

Salient to Investors:

Tom Levinson at ING said emerging-market currencies are at the beginning of perhaps longer and deeper correction, while this is where the dollar starts to rally potentially for the right reasons because the US business cycle is further developed.

Kit Juckes at SocGen said the bull market is over for developing-nation currencies, with the rand, Mexican peso and Thai baht the first of a series of dominoes to fall, saying past sell-offs triggered by global policy tightening are pretty indiscriminate. Benoit Anne at SocGen said emerging-market currencies will remain under severe pressure for at least 3 months until fundamentals improve and the US Treasury correction to stabilize.

Murat Toprak at HSBC said the market has taken it very badly because how are you going to finance a widening of your trade deficit where investors are exiting local markets.

Bhanu Baweja at UBS said Bernanke is saying that tapering is not going to happen in a rush but at least the debate is beginning which is a very big deal.

The median analyst expects the lira to rise to 1.8 per dollar, the yuan to rise to 6.1 by year-end 2013, and the rupee to rise to 53.36 by year-end 2013.

IMF predicts China will grow 7.75 percent in 2013 and 8.2 percent in 2014.

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Gross Reduces Treasury Holdings in February From Six-Month High – Bloomberg 03-11-13

Salient to Investors:

Bill Gross at Pimco said:

  • Holdings of Treasuries to 28 percent of assets in February, after a six-month high of 30 percent in January, and cut mortgage holdings to 36 percent, the lowest level since August 2011, and cut non-US developed nations’ debt to 11 percent.
  • Corporate credit and high-yield bonds are exuberantly and irrationally priced, and the economy has to have real growth of 3 percent to justify the current market enthusiasm.
  • The Mexican peso and the Brazilian real stand out as strong currencies.

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Mexico Peso Worst-From-First Slide Means U.S. Slump: Currencies – Bloomberg 11-12-12

Salient to Investors:

The Mexican peso has gone from the world’s strongest major currency to the weakest amid growing investor concern US demand will diminish.

X-Trade Brokers Dom Maklerski expects another 3.9 percent depreciation by September and Bank of Nova Scotia recommends selling the peso. Futures traders are cutting bullish bets at the fastest rate since June.

Economists project the peso is vulnerable because Mexico will expand 3.6 percent next year, the least since the 2009 recession.

Guillermo Ortiz at Grupo Financiero Banorte said the peso is a very good indicator of the risk-on, risk-off mood that markets have been displaying lately.

The Bank of Nova Scotia recommends clients sell the peso due to crowded positioning and “uncertainty” over US debt talks and global growth.  Morgan Stanley advises using options to buy insurance against a deeper sell-off. X-Trade predicts the peso will decline to 13.71 per dollar by the end of September.

The median estimate of over 25 analysts expects the peso to strengthen to 12.8 per dollar by Dec. 31 and to 12.4 by year-end 2013. JPMorgan Chase expects 11.9 by September. Economists predict the central bank won’t reduce benchmark interest rates in the next year.

Thomas Kressin at Pimco likes the fundamentals of Mexico and says the peso is attractively priced and will rise against the dollar and the euro.

The IMF estimates Mexico’s debt at 43 percent of GDP versus 107 percent for the US.

Adrian Owens at GAM said recent peso weakness shouldn’t detract from the bigger picture of an incredibly competitive currency, a very supportive monetary and fiscal backdrop, decent economic data, growth close to 4 percent in 2012, and sound public finances.

Bets by hedge funds et al on a gain in the peso versus a decline is shrinking. The CBOE Volatility Index indicates the peso is the most sensitive of any major currency to shocks to the global economy.

Stephen Jen at SLJ Macro Partners said the Mexican peso has more downside than upside.

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JPMorgan Sees Emerging-Market Debt in ‘Sweet Spot’ as QE3 Starts – Bloomberg 09-27-12

Salient to Investors:

Joyce Chang at JPMorgan Chase said QE3 puts emerging-market corporate and sovereign debt in a sweet spot by reducing bond supply and prompting investors to seek higher-yielding debt – modest borrowing by emerging-market governments and companies has avoided a supply glut. Chang favors commodity-related currencies including the Russian ruble, Mexican peso and Brazilian real.

Dollar-denominated government debt in developing countries has returned 14 percent this year versus a 12 percent gain in corporate securities, and 2.4 percent gain in Treasuries.

Lupin Rahman at Pimco favors local-currency bonds in Brazil, Mexico and South Africa as slower global economic growth allows the countries to keep interest rates low. Rahman said the Brazil real is her currency of choice.

Alberto Ades at Bank of America likes the Russian ruble, Mexican peso and Brazilian real as QE3 weakens the dollar.

Michael Shaoul at Marketfield Asset Mgmt said developing countries’ equities should be avoided as they are in the middle of a bear market as the credit expansion in nations such as Brazil and China starts to reverse.

The MSCI Emerging Market Index is up 8.9 percent in 2012 versus the S&P500 gain of 15 percent.

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