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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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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BRICs Biggest Currency Depreciation Since 1998 to Worsen – Bloomberg 06-25-12

Salient to Investors:

For the first time in 13 years, the real, ruble and rupee are weakening the most among developing-nation currencies, while the yuan has depreciated more than in any other period since its 1994 devaluation.

Investors are fleeing the BRICs, after Brazil’s consumer default rate rose to the highest level since 2009, prices for Russian oil exports fell to an 18-month low, India’s budget deficit widened and Chinese home prices slumped.

Lloyd Blankfein said the BRICs are still strong enough to account for 80 percent of growth at Goldman Sachs.

Warren Hyland at Schroder Investment Management is buying ruble bonds of Russian companies, saying weaker currencies will stimulate economic expansion by making exports more competitive.


Stephen Jen at SLJ Macro Partners is bearish, saying a slowing of the global economy and capital flow will expose many problems in the BRICs. He expects BRI currencies to decline at least 15 percent further by end of 2012.

John Taylor at FX Concepts said all the BRICs looked ugly, and predicted the real and ruble will suffer fairly decent declines later this year as a global recession spurs investors to buy dollars as a haven.

Derivatives traders see no sign of a turnaround.

Option traders are the most bearish on the ruble since October and they expect price swings in the rupee to be the biggest in Asia.

Amit Rajpal at Marshall Wace expects a surge in bad loans in Brazil to weaken the real further, and a full-blown credit problem, resembling the collapse of the U.S. subprime mortgage market in 2007.

Eric Fine at Van Eck Global said investors are still too bullish on assets in the BRICs as Europe’s debt crisis weighs on emerging economies.

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