A fascinating note has arrived in our inbox from Steven Holden of Copley Fund Research, which tracks the investments of 100 big global EM equity funds with about $285bn of assets under management.
Readers may remember a recent piece based on his monthly report in October, showing that big fund managers were predominantly underweight in China compared with the MSCI Emerging Markets index, and overweight in India. An analysis of data from his November report shows that, on average, managers are in line with the MSCI regarding Russia – but that, individually, they diverge greatly from the index, in ways that suggest contrasting views on the crisis in Ukraine and how to play it as an investor. Read more
Ministers resign all the time and there’s nothing unusual about one of them handing in his or her notice as the head of government is preparing to unveil a new cabinet for a second term in office. But Marta Suplicy’s resignation as Brazil’s minister of culture on Tuesday had a peculiar sting in the tail.
After the usual stuff about how happy she was to have achieved all she had done in the job, Suplicy delivered what journalists sometimes refer to as a “nut paragraph”: Read more
When Dilma Rousseff was re-elected as president of Brazil on October 26, she promised to be a much better president than she had been during her first term (which ends on December 31). Whatever she meant by that, analysts do not seem to believe it will result in a pick up in economic growth. The central bank’s latest weekly survey of market economists, on the contrary, shows the consensus on GDP growth this year falling to just 0.2 per cent (the black line in the chart) and that for 2015 falling to a not much better 0.8 per cent (the red line). Read more
Source: Thomson Reuters
The Russian rouble dived deeper to new lows on Friday, as the central bank’s decision on Wednesday to let the currency float failed spectacularly to put a floor under the exchange rate. It went briefly through Rbs48 to the dollar during the morning before recovering slightly, down from a low of Rbs45 to the dollar on Wednesday.
“People are in disbelief. The rouble is being smashed again,” said Timothy Ash of Standard Bank. “The central bank is nowhere.” Read more
What you see above is a graphic representation of something anyone who followed the campaign that led to the re-election of Dilma Rousseff as Brazil’s president on October 26 already knows: the election was the most polarised in the country’s history.
Brasil was split down the middle, not only numerically (Dilma got 52 per cent, Aécio Neves 48) and geographically (Dilma won in the less developed north, Aécio in the more prosperous south). The twitterspere, too, was divided into two camps. Not only that; they hardly talked to each other at all. Read more
More evidence of the slowdown afflicting emerging markets: bank lending conditions have dipped back into negative territory. So finds a report to be published today by the Institute of International Finance. The tightening in the third quarter of the year follows an improvement in the second quarter and was driven by weaker demand for credit and a significant increase in non-performing loans, according to the IIF.
Felix Huefner, the IIF’s deputy director for global macroeconomic analysis, said the deterioration in bank lending on the demand side had come even as funding conditions, on the supply side, had shown some improvement. But he said even those conditions had become more challenging at the end of the quarter. Read more
Of the many resources used by Dilma Rousseff’s campaign managers in Brazil’s close-fought and acrimonious presidential election, one of the most striking was a simple, full-face photograph. The original was taken 44 years ago, when the 22-year-old Rousseff was under arrest as a member of the armed resistance to Brazil’s military dictatorship. What was already a striking portrait has been worked on and reshaped to produce something truly powerful, an image verging on the iconic that is packed with significance not only for Brazil’s past and present but also, who knows, for its future. Read more
What to make of Dilma Rousseff’s acceptance speech on Sunday night as her victory was confirmed in Brazil’s presidential election?
Her calls for unity and dialogue did little to calm investors. The main index on the São Paulo stock exchange fell more than 6 per cent in its first half hour of trading on Monday, bringing to 15 per cent its fall over the past fortnight as Dilma’s chances of re-election increased. Brazil’s currency, the real, fell to R$2.54 to the dollar from R$2.47 on Friday and R$2.40 two weeks ago. Read more
With GDP growth in China slumping to a five-year low, it’s unsurprising that many fund managers have cut their positions in Chinese equities to less than the weighting suggested by the benchmark MSCI Emerging Markets index.
But if you are an active fund manager, how strong a position have you taken by going underweight if all the other fund managers are underweight, too? Read more
Do Brazilian voters care whether their politicians are corrupt? More particularly, do they care about political scandal at Petrobras, the state-controlled but publicly traded oil group that is both national champion and national treasure, a cherished symbol of Brazilian potential and prowess?
If you believe the latest opinion polls they either do care, in spades, or they don’t, not one bit. Read more
What will happen in the second round of Brazil’s presidential election? The race has been thrown wide open by the surprisingly strong showing in the first round of Aécio Neves, the pro-business candidate of the centre-right PSDB. He won 33.6 per cent of the vote, well ahead of his highest standing in opinion polls just before Sunday’s election, of 27 per cent support. He enters the second round 8 percentage points behind the incumbent, Dilma Rousseff of the leftwing PT, who got 41.6 per cent of the vote, compared with 46 per cent in the latest poll.
Source: Thomson Reuters
With Aécio on the way up and Dilma on the way down, investors cannot contain their excitement. The Bovespa equities index was up 7 per cent in the first half hour of trading on Monday morning in São Paulo. Read more
Enthusiasm over Narendra Modi’s election in India and fears that Dilma Rousseff may be re-elected in Brazil have prompted a sharp reversal in the two countries’ positions among equity fund managers.
Source: Copley Fund Research
According to a report published on Monday by Copley Fund Research, which tracks the investments of 100 global EM equity funds with $280bn of assets under management, India overtook Brazil in September to become the second biggest EM after China in terms of aggregate country holdings, with $31.6bn in AUM, ahead of Brazil’s $29.6bn. Read more
Extraordinary early results in Brazil’s presidential election. With 83 per cent of the votes counted, Dilma Rousseff has 40 per cent and Aécio Neves – the markets’ favourite, until recently lagging in third place in onion polls – is close behind on 35 per cent.
Marina Silva, the leader in the polls just a couple of weeks ago, is on 21 per cent. Read more
A double dose of gloom from Capital Economics on Tuesday. Its proprietary EM GDP tracker – compiled from monthly data on output and spending as an advance proxy for GDP – shows growth slowing across emerging markets to its slowest pace since early last year. A separate report shows that while EM assets have suffered across the board this month, the pain has been particularly severe in Latin America and especially in Brazil.
First, here are the charts from the GDP tracker. They show growth across EMs slowing to 4.3 per cent year on year in July, down from 4.5 per cent in June. Capital says preliminary data for August suggest growth will be even slower, at 4.1 per cent. Read more
Portfolio flows to emerging markets made up some of last month’s losses in September, according to estimates by the Institute of International Finance. Its Portfolio Flows Tracker for September, published on Monday, shows that flows to EM equities fell slightly to about $8bn in the month, while flows to EM debt picked up to about $10bn.
Nevertheless, the IIF described investor behaviour as “cautious” amid changing expectations about the pace of monetary tightening in the US. Read more