Euro Becoming Haven With Breakup a Memory on Economy: Currencies – Bloomberg 09-06-13

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The 90-day correlation between changes in the euro and a Citigroup index of bond and swaps risk has turned positive for the first time since November 2008, indicating the euro is gaining favor as investors’ perceptions of turmoil in financial markets rises. Hedge funds et al are the most bullish on the euro since 2011.

Valentin Marinov at Citigroup said the euro remains resilient and repatriation from emerging markets is playing an important role, and predicts the euro will end the year at current levels and then fall to $1.30 by June 2014. The median analyst sees the euro falling to $1.28 by year-end, and then to $1.26 by June 2014.

EPFR Global said more than $47 billion has left global funds investing in emerging-market bonds and stocks since May, and the outflow in 2013 to $7.5 billion. Outflows last week were the highest in 2 months, with record withdrawals for Mexico and Philippine equity funds.

Sebastien Galy at Societe Generale said the euro is perceived as a safe haven in the current environment, where we’re not in a G-10 crisis, but an emerging-market one. Galy said people who were wrongly very negative on the euro zone have now changed their mindsets.

CFTC data shows futures contracts signal more gains for the euro.

Economists predict Germany will grow 0.5 percent in 2013, the euro area will shrink 0.6 percent, and the US will expand 1.6 percent.

Simon Derrick at Bank of New York Mellon said that Germany might be showing positive signs, but we still have horrific numbers in peripheral Europe, so the likelihood markets will outperform starts to dwindle. Derrick said the euro may fall to $1.25 in 2013 if the Fed tapers and investors start pricing in higher interest rates.

IMF data shows the euro’s share of worldwide currency reserves remained above levels immediately after its 1999 debut: 24 percent in March 2013 versus 28 percent in September 2009 and 17 percent in September 2000.

BIS said the euro is the most widely traded currency after the dollar and accounted for 33 percent of average daily turnover in foreign-exchange markets in April, versus 87 percent for the dollar. (Foreign-exchange trades involve 2 currencies, so the sum total of percentage turnover is 200 percent.)

Niels Christensen at Nordea Bank said it is difficult to find something negative for the euro, or at least not anything that’s in focus, and when there’s more optimism about the economy, suddenly there is a positive spiral for the euro.

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Emerging Stocks Face Significant Correction, JPMorgan Says – Bloomberg 02-21-13

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Adrian Mowat at JPMorgan said emerging-market stocks may enter a significant correction because fundamentals and technicals are weakening – investors should use options that protect against stock losses and sell equities that are most sensitive to market swings. Mowat sees no near-term changes to these conditions and expects emerging markets to continue to underperform and be a funding source for Japan. Mowat said emerging-market investors should favor quality companies with high return on equity, and is overweight shares in Turkey, India, Mexico, Indonesia, Thailand, the Philippines and Peru.

62 percent of MSCI Emerging Markets Index companies so far reporting missed analyst estimates versus 34 percent of MSCI World Index companies.

John-Paul Smith at Deutsche Bank said shrinking liquidity in China, heavier state intervention in key emerging-market economies, and a dearth of good stock ideas are the main reasons for being bearish. Smith expects a 10 to 15 percent decline for emerging markets in 2013 and more relative to the US. Smith says 2013 is the year people finally realize that the future sustainable rate of growth in China is much lower than they expect.

Bank of America says investors should buy emerging-market equities and bonds as economic growth improves in the BRICs. Analysts forecasts for 2013 suggest the MSCI emerging-market index will rise 13 percent in the next 12 months. The MSCI Index is at 10.5 times projected 12-month earnings, versus 13.7 for the MSCI World Index.

Lewis Kaufman at Thornburg Investment Mgmt said withdrawal of the global stimulus may lead to losses in emerging-market stocks as earnings growth has yet to show signs of recovery, and many companies are struggling to meet earnings expectation – there’s a bit of disconnection between the extent of the rally and underlying fundamentals. Kaufman favors stocks in Southeast Asia and the Philippines as economic growth surprises positively.

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Equity markets stay strong despite economic uncertainty – BBC 01-06-13

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Justin Urquhart Stewart at Seven Investment Mgmt said the coming year depends a lot on the German elections, and the end to the boom in the bond markets is a matter of when rather than if.

The fudging of the fiscal cliff issue means a few more crises ahead in the US.

Stephen Pope at Spotlight Ideas likes Mexico, which since 1994 has been reformed by NAFTA, and which has regained its competitiveness against Asian competitors – wages in Mexico have risen 39% since 2000 versus over 400% in China. Pope says Mexico’s factories, financial sector and oil and gas fields look set to expand and generate a strong growth decade for the economy. Pope says Mexico will grow faster than Brazil again in 2013. Mexico has more free trade agreements than any other country.

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Pimco’s Gross Savors Free Lunch as Peso Bonds Beat Stocks – Bloomberg 12-24-12

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Foreign investors poured a record $7.36 billion into Mexican debt securities in 2012 to take advantage of economic growth that is four times Brazil’s and yields that are still triple those for US Treasuries.

Luis de la Cerda at Afore Sura said foreigners won’t leave the bonds and are here to stay, and Mexican equities are already expensive relative to earnings. The IPC index is at 18.7 times trailing earnings versus 12.3 times earnings for the MSCI Emerging Markets Index, and at 3.1 times net assets, double the valuation in developing nations.

Bill Gross at Pimco said Mexico’s bonds are attractive because they offer higher yields than US and European debt while Mexico has lower debt levels.

Michael Gomez at Pimco said Mexico has well-behaved inflation, a strong government balance sheet, and steady growth prospects.

Carlos Fritsch at Prognosis Economia Finanzas e Inversiones says sell bonds and buy stocks, which offer the best risk-adjusted return in 2013 as they are more economically sensitive and will bring outsized returns as growth accelerates.

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Emerging-Market Fund Flows Signal Drop to Bank of America – Bloomberg 12-14-12

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Michael Hartnett at Bank of America Merrill Lynch said emerging-market stocks are poised to fall after weekly emerging-market fund inflows were the biggest in 10 months and triggered a Sell signal – that 4-week inflows totaling at least 1.5 percent of assets under management precede market declines. Hartnett said the most overbought are the most vulnerable, including Turkey, Mexico, China, and India.

John-Paul Smith at Deutsche Bank said emerging markets will lag behind developed nations in 2013. Mark Mobius at Templeton Emerging Markets Group said emerging markets stocks will climb in 2013 as world central banks add money and investors seek higher returns.

The MSCI Emerging Markets Index trades at 12 times estimated earnings versus the MSCI World at 13.7 times.

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