It sometimes feels that nothing is as volatile or confusing as exchange rates. This sensation has, of course, been exacerbated by the extraordinary monetary policies pursued over the past seven years. The world’s four largest central banks have expanded their balance sheets by an approximate $8tn since the global financial crisis. That is more than the combined GDP of Germany, France and Italy.
The conventional wisdom is that monetary stimulus is good for financial asset growth and, indirectly, for economic growth, while it has a negative impact on currencies as the increased money supply leads to capital outflows as interest rates are pushed lower. Well, that may still be true in the short term but it is difficult to square it with the medium term development. Read more
“Obama’s three day visit will mark a historic moment in Kenya’s 52 year history as it is the first time a sitting US President will be visiting the country… this is the perfect time to stock your cellars with Premium American wines and celebrate the madness…” – from the monthly online newsletter of The Wine Shop in Nairobi, Kenya.
If you’re at all interested in how the president’s trip to the homeland of his father will impact commerce between the two countries, or even, for that matter, Obama’s Africa legacy, this will be a fascinating few days indeed.
Once the “madness” and excitement accompanying the events subsides, the Obama visit will set the stage for the next phase of the belated US commercial engagement on the continent. Read more
Formerly a darling of emerging market investors, Turkey has come under a lot of scrutiny in recent months, as the political and economic environments have deteriorated. Turkey’s stock market has underperformed emerging markets by 12.4 per cent this year, and valuations for the market are cheap on both an absolute basis, with single-digit P/E ratios, and a relative basis, where the P/E is at a substantial 25 per cent discount to EM.
Despite this, there are several reasons why now is not a good time to buy Turkish equities. Read more
By Asha Mehta, Acadian Asset Management LLC
There is no doubt that frontier equity markets are appealing as a concept. They are seen as future growth engines in the world economy, available at an entry point that may be similar to the opportunity offered by emerging markets twenty years ago.
A $100 sum invested in a broad emerging markets index in 2001 would be worth about $285 today, versus $154 for the same amount invested in developed global markets*.
So, why are investors generally not investing in frontier markets, which may offer a similar upside? Here are five probable reasons why, along with a reasoned assessment of each. Read more
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Are governments prepared to invest in the world’s poorest women and girls? A resounding “yes “ according to panel after panel at last week’s UN Financing for Development Conference in Addis Ababa. At this, the first of three UN summits aimed at eliminating absolute poverty by 2030, it was clear that gender has moved from side meetings to centre stage, from a women’s issue to one supported by male leaders. The World Bank President and the UN Secretary General both described how they overcame their conservative Korean upbringing to become women’s rights advocates. Swedish Prime Minister Stefan Lofven declared, “Gender equality is not only morally right. It is also an extremely potent development and growth booster.”
But women’s groups, while grateful for the rhetoric, were critical of the lack of quantifiable commitments in the action plan that emerged from Addis. Will the trio of UN summits provide any help to women like Birtukan, a widow with four children from Ethiopa’s Amhara region, who spoke up at an FfD side meeting on how uncertain rains make feeding her family difficult? Read more
After months of negotiations and missed deadlines, Bernardino León, the UN envoy to Libya, finally secured the support of a broad range of political actors for his plans for a national unity government, a ceasefire and a new political framework in Libya. And yet, due to factors beyond his control, his timing was slightly off. He missed his declared deadline of the start of Ramadan by more than three weeks. More crucially, by choosing to put the ink to the deal on July 11 – the same weekend that negotiations with Iran were culminating in Vienna and European governments were trying reach a last minute agreement on a Greek bailout – he ensured that the Libya pact got even less traction in the international media than it did on the ground. This lack of international attention may turn out to be a key failing if it presages reluctance in the international community to step up to the plate and support the national unity government in a concrete way.
And yet, despite these flaws, the Libyan deal represent a significant achievement. As in the Iranian case, the deal is littered with flaws and fudges, but they are certainly more than counterbalanced by its good points. As with Iran, a mediated settlement was the only way to prevent further military escalation. Read more
By David Daokui Li, Tsinghua University
For most economies in the world, a 30 per cent drop in the stock index within a span of three weeks would certainly be considered a crisis. Certainly, the Chinese stock free fall (32 per cent at its peak) is a significant concern in China.
In fact, I was told the occupants of China’s Zongnanhai (the equivalent of the U.S. White House) endured the ensuing weekend with no rest, relentlessly laboring over rescue measures. In the final analysis, however, this was not a real “crisis” but a scary and revealing fire drill. Most likely, the stock market will be stabilized before long. Read more
On Wednesday July 15, Juan Carlos Zepeda, the president of Mexico’s National Hydrocarbons Commission (CNH), announced the results of bidding for exploration contracts in 14 shallow water blocks in the Gulf of Mexico, the first time in over 75 years that production-sharing contracts have been awarded in the country. The results were eagerly awaited by energy industry analysts the world over. As the envelopes began to be opened, the president’s office and the CNH tweeted an inforgraphic stating that the process would be deemed a success if four to seven contracts were successfully awarded. Read more
Investing by acronym is popular. It is a trend that has been around for a long time, but the creation of the Brics acronym in 2001 was a milestone. Since then, new themes have mushroomed, from the Mints to the Next 11. However, this one-size-fits-all approach does not make sense for investors, who should concentrate on analysing the entire universe on a fundamental basis.
The countries within these groupings are diverse, yet retail and institutional investors continue to look at emerging markets as a homogeneous asset class. Historical, geographical and cultural differences have always existed, and economic developments across regions and countries have been vastly different. South Korea and Rwanda are both considered emerging markets, but the former has become a highly industrialised country over the past few decades with one of the highest average incomes, while the latter has one of the lowest. Read more
Mobile internet adoption in Africa is taking place at almost double the global rate, a trend that has sparked debate among development and tech enthusiasts as to whether this marks a radical shift in the way the internet of the future will be used and accessed. Has the range of innovative services currently available on mobile devices come about purely as a result of necessity, or through a deliberate decision to focus on the mobile solution by forward looking African companies and entrepreneurs?
Some recent examples of the level of digital sophistication evident in Nigeria, and in Africa’s technology industry as a whole, can shed some light on this. In February this year, the BBC website announced with fanfare that RBS and Natwest, two UK banks, would be pioneering the use of Touch ID on the iPhone as a security enhancement for their mobile banking applications. What the BBC didn’t know was that Touch ID was already going live across mobile banking networks, with some Nigerian banks incorporating the feature before their UK counterparts. Read more
That export performance of the Brics has been disappointing in recent years is well known. What hasn’t been appreciated is the extraordinary lengths the governments of Brazil, Russia, India, China and South Africa have gone to boost their exports. Indeed, once such initiatives are taken into account, recent export performance is cast in a worse light, raising the question—is the Brics competitiveness problem worse than previously thought?
At the end of May 2015, the OECD published data on the first quarter’s exports and imports of leading trading nations, including those for Brics. This data showed that in US dollar terms the total value of each Brics nation’s exports was falling. Worse, the exports of Brazil, India, Russia, and South Africa have essentially stagnated over the past four years or deteriorated significantly. China’s exports appear to have plateaued at the end of 2014 (see Figure 1). Read more
The leaders of the Brics – Brazil, Russia, India, China and South Africa – held their seventh annual summit amid deep scepticism about their once-promising growth story. While Russia may have been the host of the show, the real engine behind the summit, and the changes taking place across the emerging world, is China.
Right now, the Brics face serious cyclical and structural challenges and India seems to be the only bright spot in the club. Russia, Brazil and South Africa are either in recession or dangerously close to it. China is struggling to maintain its growth momentum as it tries to rebalance its economy. All need to implement deep and difficult structural reforms if they want to increase their long term growth potential and live up to the Brics dream as it was envisioned in the early 2000s. Read more
A few weeks ago I wrote a piece for beyondbrics about what milk can tell us about the fair valuation of African currencies. While the methodology has its drawbacks, it is a basis for debating where African currencies should be relative to where they are today. The chart below shows the year-to-date performance of selected currencies against their over/undervaluation based on the price of a gallon of milk.
- Sources: S&P Capital IQ, Atria Africa Research
The good news is that Russian and Donbas separatist leaders have called an end to the “New Russia” project, which had targeted eight Russian-speaking regions of eastern and southern Ukraine for separatist agitation and union with Russia. The bad news is that while it always was a mistake to assume Ukraine’s Russian-speakers were fans of president Vladimir Putin, Ukraine’s political vacuum and its selective “de-oligarchisation” are allowing diehards from the former ruling Party of Regions grouped in the Opposition Bloc and funded by Ukraine’s powerful gas lobby to retain influence in eastern and southern Ukraine. Read more
The 2014 Ukraine crisis reinforced the EU’s quest for security of gas supply. The European Commission released an Energy Union Communication in February, calling for intensified work on the Southern Gas Corridor (SGC) and for the establishment of a new strategic energy partnership with Turkey.
Click to enlarge
March 28 this year was a date for the history books. It marked the first time the Nigerian presidential election had been contested peacefully between two political parties, rather than between personalities in the same party. It was also the first time that the opposition had come to power in a presidential contest in the history of Africa’s most populous country.
The result might have been better news for Muhammadu Buhari, elected as president, than for his rival, Goodluck Jonathan, whose People’s Democratic Party had been in power since 1999, but in so far as it was peaceful and accepted by the defeated party, it marked the maturing of Nigeria’s democracy. Read more
Major structural change is under way in China’s passenger car market. New car sales grew just 1.2 per cent in May, as the country develops a used car market for the first time in its history. Buyers in the world’s largest auto market now have much more choice when it comes to buying a car, and are no longer forced to buy a new car.
If you think launching a start up in Silicon Valley is hard, try it in Sierra Leone, Surinam or Senegal. Emerging market entrepreneurs face extraordinary challenges to growth, including access to finance, access to markets and access to talent. Of these, talent is the most critical. Over the past few years, I have become increasingly convinced that the lack of quality managers in emerging markets is the lynchpin to unlocking the prosperity-creating potential of small and growing businesses. Yet we have seen little movement on the talent issue. And the time has come to change that.
Having qualified management teams is fundamental to receiving growth capital. Successful private equity investors look first at the team – and then consider the business plan and implementation strategy. Banks may look at financial statements first, but even a solid balance sheet is not enough if lenders are not comfortable with the management team. Read more
By Spencer Lake, HSBC
Chinese companies have been stepping up their global investment spree in the past 12 months. Mergers and acquisitions by private Chinese investors are becoming the key drivers of the country’s outbound direct investment.
In what has been called the ‘Third Wave’ of China outbound direct investment (ODI), the focus of investment has been on companies in the developed economies in high-tech and services. Previous ‘waves’ have focused on supporting developing economies and investing in commodities and extraction industries. Read more
By Christopher de Bellaigue, Trusted Sources
The prospects for an Iranian economic revival and new opportunities for foreign investors hinge on a final agreement at the end of this month on the nuclear deal and United Nations verification – probably at the start of 2016 – of Iranian compliance, after which sanctions will begin to be lifted.
But even before being finalised, the nuclear deal is already proving economically beneficial since the prospect of the deal is facilitating the Iranian government’s efforts at fiscal adjustment essential for longer-term macroeconomic stability.
Political risk is well contained and will be further reduced by the most tangible dividends of the lifting of sanctions: Iran’s gaining access to $100-120bn in frozen assets (as soon as sanctions are lifted) and its readmission to the SWIFT mechanism of electronic money transfers. Read more