By Javier Santiso of ESADE Business School
Sovereign wealth funds are more fashionable than ever. In Latin America, some countries – Chile, Trinidad and Tobago and Venezuela – have had theirs for some time. Brazil – with reserves of over $250bn – joined them last year. In 2011 Peru, Colombia, Panama and Bolivia took moves towards creating their own.
When jaw-jaw won’t work, sometimes you have to resort to tougher measures – as traders in Poland’s zloty found out on Friday.
With fears rising that the zloty’s continued decline could push public debt beyond the legal threshold of 55 per cent of gross domestic product and worsen the country’s foreign mortgage debt woes, the Polish authorities stepped in to prop up the currency.
So are central banks in emerging markets finally trying to put a stop to the sharp plunge in their currencies over the past month?
You might think so, given the interventions of the Brazilian, South Korean and Indonesian authorities on Thursday and Friday, and of Turkey earlier in the week. But are they seriously attempting to reverse the decline? Probably not. They seem more interested in bringing order to what have been, at times, some very disorderly markets.
Some may say it was inevitable. Monte Carlo, known for its gambling and tax-dodging billionaires, has found a home in the oil-rich emirate of Abu Dhabi.
Tucked away on a desert island, beyond the acres of construction, the Monte Carlo Beach Club is open for business.
As the rupee on Friday hit its lowest point since May 2009 – at 49.89 rupees to a dollar – one of the key beneficiaries of depreciation would seem to be India’s vaunted IT outsourcing sector.
But analysts told beyondbrics that while the weak rupee is a positive for the industry, the effect could be muted by the sheer instability of today’s global currency markets and the industry’s growing complexity. Still, IT companies could take some comfort this week – the sector’s shares outperformed most others in the general mayhem.
The CEE markets advanced slightly in early trading on Friday, sparking hope for a reverse of recent losses. But it soon became obvious they would not quickly recover from their worst week since the start of the financial crises. Declines on bourses in the region extended on Friday, showing no relief after the G20 pledge for support.
Budapest’s BUX index was the surprise winner, edging down only 0.2 per cent. At the other end of the spectrum was the Prague PX index, down 4.28 per cent and hitting a 29-months low.
China has long been known for cheap mass production. Now an arrest made by the Beijing police has revealed that this business model has taken root even in Chinese cybercrime.
A man surnamed Zhao has been arrested for illegal online identity trade, the People’s Daily reported Friday, and the sheer scale of his business is mind-boggling. On a hard drive found in Zhao’s office, police found the personal information of several million people. The shop, headquartered in an office building in a district in the south of the capital, offered the data for just Rmb0.1 per set, and discounts and free extras were given for bulk orders.
Turkey’s central bank needs to pay more attention to inflation and to restore its credibility through interest rate rises, the International Monetary Fund has said.
The criticism comes at a time when the country’s currency is also under strain amid fears that global economic turbulence will expose the vulnerabilities of Ankara’s domestic demand-driven economic boom.
By Nathan Sandler of ICE Canyon
As the leaders of global finance assemble in Washington DC for the annual meetings of the IMF, they face a familiar menu of economic and financial risks – but with a new twist. Today’s address for sovereign debt crisis, financial instability and declining living standards is the advanced economies, not the old emerging ones. Globalization 2.0 has arrived.
It had to happen. After 25 straight weeks of inflows, EM local currency bond funds are being dumped. Investors withdrew $464m in the week to Wednesday, according to EPFR, the US fund watcher.
The week’s outflows – about double the size of recent weekly inflows – came as panic sweeping global markets finally caught up with an asset class that had hitherto survived as a safe haven among the gathering global storm.
Tanzania is the latest African country to benefit from Chinese largesse – Reuters is reporting it has signed a $3bn deal with Chinese mining company Sichuan Hongda (600331:SHH) to mine coal and iron-ore and agreed a $1bn loan deal with the Chinese government to build a desperately-needed gas pipeline.
Sichuan Hongda’s investment involves the joint venture construction of the Mchuchuma integrated coal-mine / thermal power station and an iron ore mine in the Liganga region in southern Tanzania.
Asian emerging markets equities extended their biggest weekly losses since 2008 on Friday, as the global sell-off showed few signs of abating.
The benchmark MSCI Asia Pacific Index, which doesn’t include Japan, where markets were closed on Friday, slumped 2.2 per cent by midday Hong Kong time, and only recovered slightly to 1.73 per cent towards the late afternoon.
With Taiwan’s exports booming and the economy steadily recovering over the past year, the big question regarding the Taiwan dollar was simply how much the central bank would intervene to keep appreciation in check.
It turned out Taiwan’s central bank governor Perng Fai-nan was happy to allow the currency to gradually rise over a period of months, from around T$32 to the US dollar, to below T$29. But with that process having now reversed strongly in the last month, the question of where next for the Taiwan dollar is far from simple.
Friday’s top picks from the beyondbrics team: the FT’s look at the links between Russian business and politics; why subsidising through prices is not a good idea; and China’s chance to be our saviour. (And a jolly emerging markets song for gloomy times)