Much of the recent ramp up in Indian equities and its currency has tracked polls which increasingly point to a stable government being formed after the elections. Now, there is a chance that markets are getting over excited — as JP Morgan put it, they run the risk of getting ahead of themselves and becoming a victim of their own ever-growing expectations…
The Mexican peso has had a very nice 2012 so far and it is easy to see why. In a world where the prospect of a strong US economy and a faltering global economy is very real, Mexico is uniquely placed among emerging markets to hitch a lift on its neighbour’s coat-tails.
The peso’s 9 per cent bump against the dollar, 7 per cent bump against the euro, and 17 per cent bump against the yen since January 2012 speaks volumes about its strong correlation to the health of the US economy. That correlation might just make the peso the perfect EM currency bet in a risk-off world.
Everyone is moving to the city – and, especially, emerging market cities. According to a report by Credit Suisse this week, by 2037 half of the world’s population will live in one emerging market city or another.
So where should investors look to first if they want to capitalize on this trend? Apparently the smart money should head to China, Egypt, India, Indonesia, Nigeria, Pakistan, the Philippines, Thailand and Vietnam. A motley bunch indeed but the logic is compelling.
It has been a long road and it is threatening to get longer. Every month since the start of 2011 has brought with it an average fall of $1.4bn in Egypt’s foreign currency reserves.
And according to the Egyptian ministry of finance they now sit at $15.1bn. That is below the three months of import cover viewed as safe minimum by the International Monetary Fund and well below the $36.1bn Egypt boasted in December 2010, before its revolution began.
It’s not easy being a bull in central and eastern Europe these days. No matter how much you might want to sell the story the facts just keep getting in the way.
Henning Esskuchen, head of CEE equity strategy for Erste, is one such bull who finds himself in a very tough position. In a report on CEE equity strategy Esskuchen’s normal optimism is very definitely dimmed… not that he couldn’t find some sparks of light in the gloom. In his own words, Esskuchen “dares to hope”.
African beer is big business and every brewer you can name is looking to gain a foothold in its fast-growing markets. Diageo, which already sells more Guinness in Nigeria than it does in Ireland, this Tuesday confirmed it has once again upped its presence on the continent by buying Ethiopian state-owned brewer Meta Abo for $225m.
After a long, loud build-up Nigeria’s battle of the fuel subsidy got serious over a very quiet New Year’s weekend. If the government had hoped a muted announcement would lead to a muted reaction they were, to put it mildly, disappointed.
The removal of the subsidy led to a doubling of fuel prices on Monday morning, according to Reuters, and an unsurprisingly furious reaction from Nigerians for whom the subsidy had represented one of the few tangible benefits they received as citizens of Africa’s largest crude-oil producer.
It has been a torrid year for emerging markets and there have been very, very few success stories. Amid fears of a global recession and huge volatility across markets, investors have fled even remotely risky assets. That has spelt disaster for EMs.
The MSCI emerging market index has fallen 21.5 per cent since January and there have been very few economies which have escaped that trend.
It has been a miserable 2011 for Asian markets. Fears of a global recession and extreme market volatility have seen Asia’s bourses shed nearly one-fifth of their value with many suffering their worst annual losses since 2008.
And 2012 is unlikely to bring any succour for investors who are fleeing into safe havens while warily eyeing up a European led recession and a slowdown in China. Risk-off is here to stay – for a while at least.
Vale, the world’s largest iron ore producer by volume, took a significant step towards its goal of controlling all its shipping to China after it was confirmed that one of its giant new Valemax ships had been allowed to dock in China for the first time.
A person familiar with the situation confirmed that the Berge Everest, owned and operated by Berge Bulk, part of Hong Kong’s BW Group, but chartered long-term to Vale, was allowed into the port of Dalian, north-east China, to unload on Wednesday.
Japan and India are looking to increase economic ties and a $15bn currency swap agreement, announced on Wednesday, is one way to do just that.
The new pact, sealed by Yoshihiko Noda, Japan’s prime minister and Manmohan Singh, his Indian counterpart, replaces an old $3bn swap-deal and will see the two countries swap currencies for US dollars and tap into each other’s foreign exchange reserves to ease any liquidity problems, according to the BBC.
China has again outshone the US as the top venue for initial public offerings despite steep share price falls on the mainland and Hong Kong stock markets, highlighting the shift in global financial activity from west to east.
Companies raised $73bn from IPOs in Shanghai, Shenzhen and Hong Kong this year, according to Dealogic – almost double the amount of money raised on the New York Stock Exchange and Nasdaq combined.
China's currency, the renminbi
It’s always nice to see a bit of academic clarity injected into a muddy debate. And in a paper published on Wednesday looking at the impact of renminbi appreciation on company valuations, Barry Eichengreen and Hui Tong (of Berkeley and the IMF) do just that.
The authors’ findings suggest that, unfortunately for those who advocate a “RMB must appreciate now” position, the actual situation is not that simple: it is entirely conceivable that a RMB appreciation might have overall negative consequences for foreign firms.