By Giancarlo Bruno and Michael Drexler of the World Economic Forum
Are emerging countries facing a corporate bond market bubble? That was the central question in a recent article in the FT, which cautioned that foreign investors are pouring too much money too quickly into emerging corporate bond markets.
Indeed, emerging market activity appears higher than ever before: hard currency emerging market bond issuance reached a record $480m last year, driven by global investors’ search for yield. Yet despite this influx of capital, companies in emerging countries often still have difficulty raising bond proceeds. Read more
The decision of several European countries to join the China-inspired Asian Infrastructure Investment Bank has created a widely believed narrative as follows. Beijing, frustrated by its exclusion from the centres of power in existing international economic institutions, creates its own. The accession of the UK to the bank, followed by (to date) five other European countries, is a powerful testament to China’s role as a rising hegemon.
This narrative is not wrong, but is far from the whole story. First, China’s decision to bypass multilateral institutions and go it alone with development lending was hardly forced on it. Second, Beijing’s willingness to allow western nations to join the AIIB is also an admission that its bilateral efforts have often not worked well. Read more
By Takashi Mitachi, Boston Consulting Group
The prize of a new World Trade Organisation (WTO) deal eluded negotiators in Bali at the end of 2013, collapsing over Indian concerns that the planned deal would endanger domestic grain subsidies that help feed India’s poor. In the meantime, there has been a surge of trade talks taking place across the world − some pan-regional, some regional, some bilateral.
Though these agreements may stimulate growth, they are likely to accelerate the multipolarisation of the world and even competition among regional blocs far beyond trade. Larger states are using trade as a geo-economic weapon to increase their dominance of their neighbours and promote their own national champions. And governments are rejecting the shared belief in a ‘win-win’ form of globalisation, where free trade and mutual interdependence bring peace and prosperity. Read more
By Pablo Cisilino, Stone Harbor Investment Partners
After two years of low returns and high volatility, investors are questioning the thesis that supports investing in local currency debt from emerging markets. Notwithstanding the current cyclical factors that, in the short term, seem to support the US dollar, we believe the main structural features that make most emerging markets and currencies an attractive investment destination are still in place.
Some of the most important factors include cleaner sovereign balance sheets and demographic profiles that favour younger workforces and growing populations. In our view, the re-pricing of the asset class over the last couple of years has created considerable value. Read more
“Buy when there’s blood in the streets,” Baron Rothschild once famously said. Applying that wisdom to emerging markets, Gavin Serkin names Nigeria as the most promising emerging market for the next decade. Is he right?
Looking for “the best place in the world to put your money”, Serkin, Emerging Markets editor-at-large at Bloomberg, traveled to 10 preselected emerging markets. Armed with ‘excel spread sheets’ and taking along emerging markets investors such as Mark Mobius, he visited Kenya, Myanmar, Romania, Argentina, Vietnam, Nigeria, Egypt, Saudi Arabia, Sri Lanka, and Ghana. The results of that emerging market Odyssey are in his book “Frontier”. Its conclusion is surprising: the world’s most promising emerging market is also one of the most violent. Read more
Blink and you missed it. The day after the US Federal Reserve appeared on Wednesday to put back the date of its long-awaiting interest rate rise, analysts at Bank of America Merrill Lynch wrote to clients: “Emerging market currencies temporarily halted their losing streak with a dovish Federal Open Market Committee sending the USD lower.”
“Temporarily” is right. The Brazilian real closed at about R$3.21 to the dollar on Wednesday from its open of R$3.24, a rare day’s gain in a two-month slide. But on Thursday it was back on course, falling quickly beyond R$3.30 before recovering a bit, an intraday move of nearly 3 per cent. In less dramatic manner, the Turkish lira, Russian rouble and South African rand all resumed their downward slides, too. Read more
** FT News **
* Dollar recovers ground after dovish Fed | Bond yields fall while equities cheer prospect of lower-for-longer US rates Read more
With a flock of ‘fallen angels’ from Russia and Latin America re-shaping the euro-denominated high yield bond market, investors are scratching their heads about whether they are a blessing or a curse.
Victims of the falling oil price and of Russia’s invasion of Ukraine, a group including Brazilian heavyweight Petrobras, a host of Russian banks and Russia’s largest oil firms Lukoil, Roznek and Gazprom have been downgraded by the credit rating agencies, and fallen out of investment grade status and into the riskier high yield – or ‘junk’ – bracket. Read more
** FT News **
* Clear victory for Netanyahu in Israel | Likud party in decisive defeat of centre left opposition
* Chinese workers strike over benefits | Protests rise in China as labour relations grow increasingly fractious amid slowing economy Read more
** FT News **
* Europeans defy US to join China-led bank | France, Germany and Italy follow Britain in signing up to AIIB
* Israelis vote in knife-edge election | Poll seen as referendum on the leadership of three-term Prime Minister Benjamin Netanyahu Read more
** FT News **
* One million join anti-Rousseff protests | Increasing hardship in Brazil sparks calls for president’s impeachment
* Putin appears in public for first time in 11 days | Vladimir Putin is alive and well. Or, to be more precise, the Russian president has appeared in public for the first time since March 5. Read more
By Hugo Brennan, Verisk Maplecroft
When the Association of Southeast Asian Nations (ASEAN) launches its economic integration project in December this year, it could provide the region with the impetus to become a key emerging market powerhouse. However, the 10 country grouping needs to overcome several significant hurdles if the proposed ASEAN Economic Community (AEC) is to succeed in freeing up trade and commerce between member states.
Chief among these is ASEAN’s institutional weakness, which is hampering efforts to bring together diverging national interests and counteract economic protectionist sentiment in key members, such as Indonesia. Many countries in the bloc also face difficult political realities on the domestic front which have the potential to divert attention away from the goal of integration. The success of the AEC will hinge on these factors, but whether it prospers or flounders, foreign businesses in the region will face a changing investment landscape that they need to be prepared for. Read more
If there’s one thing that central banks like, it is being independent. But EM central bankers’ decisions are currently being made with the influence of their developed economy counterparts looming large over them.
Many central banks in emerging markets are still in easing mode. The People’s Bank of China cut rates by 25 basis points, effective March 1, while a few days later India made the second of two cuts this year outside its normal meeting cycle. But with the dollar soaring, the Fed apparently still on track to raise rates for the first time in June, and the market’s attention focusing on the large stock of dollar-denominated corporate debt issued by emerging markets, further cuts are likely to get riskier as time goes on. Read more
** FT News **
* Alibaba deal values Snapchat at $15bn | Chinese ecommerce giant invests $200m in social app
* Blacklist Putin loyalists, says Navalny | Russian opposition tells FT of frustration over sanctions and impact of Nemtsov death Read more
By Olly Buston and Peter Nicholls
Many people think that slavery ended with the demise of the barbaric trans-Atlantic trade 150 years ago. But modern forms of slavery still exist. According to the Global Slavery Index, an estimated 35.8m people are victims of forced labour, human trafficking or debt bondage, more than at any other moment in history. That’s 35.8m people who are more or less completely controlled by another for their use or profit. An astonishing two thirds of these people live in the Brics economies of Brazil, Russia, India and China, with 14m people living in slavery in India alone.
The International Labour Organisation estimates that $150bn of illegal profits are generated each year by the use of modern slavery worldwide. One third is made through forced labour. The reality is that slavery exists in the supply chains of many of the products that we consume. This means consumer pressure has a major role to play in defeating this terrible crime. Read more
** FT News **
* Fed rate rise is overdue, says Bullard | Central bank risks holding fire too long given economic recovery, says head of St Louis Fed
* Knock-off Apple Watches on sale in China | Suspiciously affordable versions of the devices are already on offer on Chinese websites Read more
By Dr Abdul Halim
The last decade has been transformative for Islamic banking. While the practices involved in Sharia-compliant finance have been around for over a thousand years, it is only recently that the wider world has opened up and Islamic finance has ‘gone global’.
Last year, non-Muslim majority countries as diverse as South Africa, the UK, Hong Kong and Luxembourg issued debut Islamic bonds, or ‘sukuks’, while Goldman Sachs issued $500m worth of shariah-compliant bonds. Already a $2.1tn industry, it is estimated that the Islamic economy has further potential to reach a value of $6.7tn, with Islamic banking and the sukuk market accounting for 95 per cent of the industry’s assets worldwide.
With the industry going from strength to strength, it is incumbent upon us, as Islamic financiers, to consider how the industry can evolve to provide a wider range of products and services, while remaining true to a central pillar of Islamic finance, and Islam itself: charitable giving. Read more
** FT News **
* Optimists see end for Brazil currency woe | Hopes pinned on technocrat finance minister Joaquim Levy pushing through austerity budget
* Gold surrenders gains for the year | Speculation about usage in Apple Watch Edition fails to lift price Read more
By Riccardo Puliti of the European Bank for Reconstruction and Development
With energy security once again a paramount geopolitical concern, the rich energy resources of the Caspian are coming into focus.
In its newly published Energy Union Package, outlining the industry’s biggest shake-up in half a century, the European Union is looking hard at the Caspian region as a diversified source to meet the bloc’s energy requirements. Read more
** FT News **
* Juncker calls for creation of EU army | European Commission president says collective force will help counter threats to ‘European values’
* Two men charged over Nemtsov murder | Chechen leader comes to defence of suspect Read more