Daily Archives: Sep 20, 2011

Hungary’s central bank, concerned over the risk to the banking sector posed by the goverment’s scheme to allow mortgage lenders struggling to repay Swiss-franc loans at below market rates, is to allow domestic banks access to the country’s foreign reserves – if required – in order to “damp financial stability risks,” Bloomberg reports on Tuesday.

Andras Simor, central bank governor, estimates that 20 per cent of Hungary’s €18bn in forex mortgages could be switched into forint loans, causing “significant losses” at local banks, weakening their ability to boost lending and hurting the country’s economic outlook. 

The sight of roadblocks and razor wire on the evening news naturally makes investors in the Balkans nervous. To take the current example, a tense stand-off in northern Kosovo drags on, with ethnic Serb protestors showing no sign of lifting their blockade around two hotly contested customs gates.

But investors in Serbia – the largest market in the former Yugoslavia – are less concerned about the (remote) dangers of renewed inter-ethnic fighting than about the (real) risk of a protracted trade war. 

Turkey’s policy makers will be well satisfied. Not only was the country’s local currency debt surprisingly promoted to investment grade by Standard & Poor’s on Tuesday. Markets also gave a qualified welcome to the central bank’s decision to leave interest rates unchanged and to intervene heavily in foreign exchange markets, apparently drawing a line in the sand following the lira’s 20 per cent devaluation since last November.

But in another surprise move on a busy day, the central bank also began publishing figures – previously closely-guarded – on the country’s short term external debt. As Timothy Ash of RBS told beyondbrics, these show just how vulnerable Turkey is from an external finance point of view. Turkey hasn’t turned the corner yet. 

snailsEmerging markets have fared better than the developed world in the latest round of  growth forecast cuts from the International Monetary Fund.

In its World Economic Outlook on Tuesday, the Fund cut the prediction for developed world 2011 GDP growth by 0.6 percentage points to 1.6 per cent, For the emerging markets it shaved off only 0.2 percentage points to 6.4 per cent.

But that’s almost beside the point. The bulk of the report is dominated by a gloomy assessment of global prospects in which, as the authors say, the “risks are clearly to the downside”. 

Russia must have feared the worst from Tuesday’s Strasbourg ruling on the Yukos affair: headlines saying Moscow had been found to have expropriated the oil company’s assets and should pay tens of billions in damages to shareholders.

In the event, the European Court of Human Rights ruling was a lot better news for the Russian government than for the Yukos side. 

scissorsTo cut or not to cut will be the crucial decision as South Africa’s monetary policy committee holds the first of its fourth quarter meetings this week in an environment of gloomy growth prospects and inflationary pressure.

The Reserve Bank, which is generally credited for its  prudence, has left interest rates unchanged at 5.5 per cent this year

Chinese consumers are nothing if not adventuresome: they love a new look, a new taste, a new product. They love brands – but not the same ones all the time. Keeping them happy is no easy task.

Now Chinese car buyers – traditionally among the most conservative on earth – are emerging as some of the world’s fastest evolving consumers. Before the global financial crisis – a short three years ago – they overwhelmingly preferred their cars dark, boxy, and boring. Even hatchbacks were considered too racy by many buyers. Sport utility vehicles were stared at. 

Chinese banks are expanding rapidly into transactional services, such as cash management and trade finance,  increasing their positions in sectors traditionally dominated by their western rivals.

An FT Special Report, discussing the importance of transactional services in an increasingly risk-averse world, highlights the increasing trade volumes across Asia which are leading to competition for business between the bigger western and Asian banks. 

* Brazil to seek new arms for currency battle

* Turkish gunship threat over gas drilling

* Venezuela bans gold exports

 

Rupee/USDDespite the Reserve Bank of India’s aggressive moves to contain inflation, the rupee hit a two-year low at 48.23 rupees against the dollar on Tuesday. Those looking for a bottom may be left waiting.

The combination of a dramatic decrease in foreign inflows, global factors driving up demand for US dollars, market volatility and a rising trade deficit, foreign exchange analysts told beyondbrics, means little may change in the short term.  the only consolation to rupee fans is that the speed of the decline should temper. 

Korea hidesSouth Korean officials are worried. Concerned about the country’s long-standing vulnerability to external shocks, they have in the past year tried to protect its economy from sharp swings in external financing.

They have succeeded in limiting gyrations in the high short-term external debt. But, with global conditions deteriorating and the won falling sharply in the past 10 days, the real test is still to come.   

This summer, emerging market currencies seemed something of a safe haven in the latest global financial storm. While EM equities plunged, currencies held firm.

Now, the latest blasts of bad news from the eurozone appear to have blown away EM currency confidence – and sent investors running for the traditional fastnesses of the US dollar, the Swiss franc and gold. On Tuesday, Asian currencies were mostly down against the US dollar, with the South Korean won falling by as much as 1.7 per cent, India’s rupee by over 1 per cent and the Indonesian rupiah by more than 2 per cent.  Though the three currencies later clawed back some losses, there was no mistaken the nervous mood. 

Tuesday’s top picks from the beyondbrics team: why can Britain be proud of Tata, what to expect when sentiment rules economics and Lex column on Chinese property market. 

[UPDATE] Thank you for all your questions to Alexei Ulyukayev, the deputy head of Russia’s central bank. His answers will appear on beyondbrics later this week (late September).

Growth prospects? Financial reforms?  Monetary policy? Ulyukayev has agreed to cover a wide range of issues.  He will be answering your questions later this week. Thank you for all submissions. 

A global survey of business leaders released on Tuesday shows that while most expect China to dominate the world economy in a decade’s time, it won’t be through innovation.

In fact, over a third of those surveyed by the Harvard Business Review thought China already was the global economic leader, but ranked the country only just ahead of Japan in terms of innovation, and way behind the US.