Emerging Stocks Drop to Four-Month Low Amid Hong Kong Protests – Bloomberg 09-29-14

Salient to Investors:

  • Hertta Alava at FIM Asset Mgmt said Hong Kong is usually very safe so the riots are unexpected, while Russia’s economy is getting weaker.
  • Dmitry Polevoy at ING said the market is getting closer to panic, while the ‘ghost’ of peak external debt payments in September and December is the most often-cited enemy of the ruble.
  • The MSCI Emerging Markets Index is at 10.7 x estimated earnings versus 14.8 x for the MSCI World Index.
  • Arbitrage opportunities between dual-listed stocks in Hong Kong and Shanghai are disappearing as prices move toward parity before the cities link their bourses.

Read the full article at http://www.bloomberg.com/news/2014-09-29/emerging-stocks-drop-to-four-month-low-after-hong-kong-protests.html

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What Putin Wrought Has World Asking What Russia Might Have Been – Bloomberg 09-29-14

Salient to Investors:

  • Michael McFaul at Stanford University sees long-term damage to Russia from Putin’s new direction.
  • Anders Aslund at the Peterson Institute for Intl Economics sees a similar shortfall in Russia’s 2014 growth to 2013’s growth of 1.3%, and versus IMF’s 2013 forecast of 3.9%.
  • Alexei Kudrin expects Russia to post zero or negative growth for the next 2 to 3 years.
  • Charles Collyns at IIF said engagement with Ukraine has put the Russian economy on a far weaker growth path.
  • EPFR Global said global investors withdrew $850 million from Russian bond and stock funds in the year through September 24.
  • Goldman Sachs and Citigroup CEOs skipped the Petersburg Economic Forum gathering in May. Blackstone has stopped seeking investments in Russia.
  • Sergei Guriev said Putin’s dream of making Russia one of the world’s 5 biggest economies by 2020 is in ruins and predicts he will soon have to shrink spending on military and pensions as a falling oil price provides another fiscal challenge.
  • Vladimir Lukin said the US and EU must bear some responsibility for their persistent and unilateral expansion of NATO, and then the EU, towards Russia’s borders.
  • Benoit Anne at Societe Generale expects further sell-offs in ruble assets because international investors are either primarily or have decided to avoid them.

Read the full article at http://www.bloomberg.com/news/2014-09-29/the-cost-of-putin-s-economic-u-turn.html

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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.

 

Read the full article at http://www.bloomberg.com/news/2014-08-07/hsbc-sage-flags-emerging-market-pullback-on-dollar.html

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Did Bernanke Signal Return of Risk-Off Market? – Bloomberg 06-27-13

Salient to Investors:

A. Gary Shilling at A. Gary Shilling & Co. writes:

Short stocks and commodities, go long the dollar and Treasuries – if stocks continue to decline, the safety of Treasuries and investment-grade bonds will outweigh concerns about the end of QE.

World economies are growing slowly at best and hold no interest for equity investors, whose entire focus has been on QE.

Investors are facing two shocks: the end of QE and a hard landing in China.

China’s growth is slowed by huge excess capacity and declining numbers of labor force entrants. Official growth data are vastly overstated. and is closer to the 5 percent to 6 percent hard-landing level. China’s total domestic credit from banks et al was 207 percent of GDP in 2012 versus 145 percent in 2008, with much of the increase coming from shadow banking. Short-term interest rates rose to 25 percent last week.

Ultralow interest rates have pushed investors into the highest-yielding assets they could find, regardless of risk, including junk bonds, leveraged loans that finance private-equity buyouts, developing country bonds, investor-owned single-family rentals, and high-dividend stocks such as utilities and consumer staples.

Investors are dumping emerging-market assets and junk bonds. High dividend stocks which outperformed in Q1 underperformed in the recent sell-off. Pension funds have moved into private equity, developing-country stocks and bonds, hedge funds and even commodities.

The average closed-end bond fund has fallen 10.7 percent in the past month versus a 3.4 percent decline in open-end bond funds.

Developed country stocks have much further to drop. The sluggish US economic recovery has produced minimal sales volume growth and no increased pricing power as inflation rates fell to zero, resulting in companies cutting costs, pushing corporate profits’ share of national income to an all-time high.

Robert Shiller’s cyclically adjusted P/E indicates the S&P 500 is 30 percent above its long-term trend.

Slower Chinese growth in manufacturing undermines the rationale for the commodity bubble of the early 2000s. Higher interest rates are eliminating the incentive to store crude oil for sale in the futures market at higher prices.

Gold buyers who thought QE would promote instant hyperinflation are finding instead inflation rates dropping to zero and higher interest carrying costs.

The dollar should continue to gain as a haven, especially as protection from the euro. The strong dollar makes many commodities more expensive for businesses that operate in weakening currencies.

The yen will continue to drop against the dollar as Abe tries to turn deflation into 2 percent annual inflation and force the BoJ to double its purchases of securities.

Commodity currencies such as the Australian dollar, the Brazilian real and the Russian ruble remain vulnerable as exports and prices continue to fall.

Currency devaluations in Japan and elsewhere will be matched by competitive devaluations worldwide. No country wins in competitive devaluations as foreign trade is disrupted. In the end, most will end up devaluing against the US dollar.

Read the full article at  http://www.bloomberg.com/news/2013-06-27/did-bernanke-signal-return-of-risk-off-market-a-gary-s.html

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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.

Read the full article at http://www.bloomberg.com/news/2012-09-27/emerging-market-debt-in-sweet-spot-jpmorgan-s-chang-says-1-.html

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.

Predictions:

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.

Read the full article at http://www.bloomberg.com/news/2012-06-24/brics-biggest-currency-depreciation-since-1998-to-worsen.html