And so the fall in emerging market currencies continues. Over the past month, the third episode of taper tantrum has pushed exchange rates down almost across the board against the dollar, bringing with it the now familiar round of hand-wringing about the vulnerability of emerging economies.
Once again, however, at least as far as currencies are concerned, the latest bout of weakness falls somewhat short of full taper tantrum catastrophe. The depreciation of emerging market exchange rates looks a lot like a subset of the sharp appreciation of the dollar, which has also shot higher against the yen and the euro, than it does a weakness of the entire asset class. Read more
The US dollar surged again on Wednesday against a basket of emerging market (EM) currencies, adding urgency to the question of which EM countries are most vulnerable to a receding “carry trade”, the multitrillion dollar flow that has swollen domestic debt markets since 2009.
A soaring dollar piles pressure onto EM carry trade investors, who typically borrow dollars at low interest rates in order to buy high yielding EM domestic debt. When the dollar surges, they suffer currency losses that offset their interest rate gains, prompting them to sell. Read more
If you want something done, do it yourself. That’s the approach taken by the Nairobi Securities Exchange, which, despite such appeal that it attracts 60 per cent of its value from foreigners, managed not a single IPO last year. That hardly fits with ambitious growth plans for the bourse of 60 or so stocks.
But, at last, the first listing of this year is nigh. And who should it be? The NSE itself. Read more
Can it really be true that liquidity on EM secondary markets is more constrained today than it was in the crisis of 2008-09? That’s what beyondbrics reported recently, to the surprise of some readers.
Our report was based on anecdotal and empirical evidence, mostly concerning local currency bond markets. We’ve had another look and found not only that liquidity on those markets is indeed tighter than it was, but also that tight conditions on EM bond markets pose a serious threat to stability on currency and other markets if – or in the view of many, when – investors start to rush for a very crowded exit. Read more
By Márcio Garcia of PUC-Rio and Tony Volpon of Nomura
Since the “taper tantrum” of May 2013, emerging markets have been under pressure. While not configuring a 1990’s style “sudden stop”, with most EM FX markets doing better since the beginning of this year, the prospects for eventual monetary normalization by the US Federal Reserve nevertheless pose challenges for EM economies. Brazil has had specific problems during this period, showing a marked deterioration in macro fundamentals, with falling growth and rising current account deficits. For many investors, this has earned it an unfortunate place among so-called “fragile” countries.
Brazil’s central bank (BCB) has adopted a unique intervention strategy to face these pressures, which we analyse in a recent working paper. Read more
“Emerging markets are where we can measure the deterioration of trading conditions. They are the warning for the rest of the market.”
So says Hung Tran, executive managing director of the Institute of International Finance. He has powerful data to back up his assertion. According to four key metrics, trading conditions have tightened dramatically over recent years, with especially sharp moves in recent months. Where emerging markets have led, the fear is, other global markets may follow. Read more
Nobody ever said trading in emerging market assets was easy. But over the past few months, conditions have changed in ways that suggest trading could soon become very hard indeed.
Here, beyondbrics looks at the influences that have made investing in EM a riskier proposition than usual and asks, will things ever be the same again? Read more
With a restrained grin, Mihaly Varga, Hungary’s economy minister, pressed the button to open trading at the Budapest Stock Exchange (BSE) on Friday – simultaneously inaugurating the Xetra trading system for the first time in the Hungarian capital. Read more
It has been a dramatic year of structural reforms for Russian markets. Joseph Dayan, head of markets at BCS Financial Group, the largest broker on the Moscow exchange, explains to FT Trading Room editor Philip Stafford the impact for international investors of changes in clearing and settlement.
Chinese government bond futures are back, ending an 18-year halt after an investment scandal shuttered the market. The move is part of efforts to encourage development of the government bond market and offers a hedge against market volatility.
The China Securities Regulatory Commission (CSRC) said on Friday that a proposal to issue government bond futures had been approved by the State Council and that the futures would be publicly traded on the China Financial Futures Exchange (CFFEX) in two months’ time. Read more
Southeast Asian equity markets are on a tear. Ripped on the Fed’s easy money, the markets keep rising and the cash keeps coming in.
Thailand and the Philippines – the two best performing stock markets in the world last year – have continued their rise more or less uninterrupted with the former up 15 per cent so far this year and the latter up an eye-brow raising 24 per cent! And this is in spite of some concerns bubbling up about regional growth rates. Read more
Rain washed out the inaugural anniversary celebration for Taiwan’s president Ma Ying-jeou; forecasts for full-year economic growth are being cut; and two of the country’s fighter jets have crashed during training exercises in the last week.
But there could soon be at least one bright spot in the gloom for Taiwan. Legislators are trying to lighten an unpopular transaction tax that has weighed on the local market since it first passed last year. Read more
By Chiara Francavilla of This is Africa
Morocco is finalising a new securitisation law that will allow the state and companies to issue sukuk, the Islamic equivalent of bonds. Preparations for a corporate and a sovereign sukuk are already underway, according to Islamic finance experts. Read more
When Xiao Gang, the new boss of the China Securities Regulatory Commission, used ‘China dream’ as the theme of his first public speech following his appointment back in March, he was making an obvious echo of president Xi Jinping’s evoctaion of a ‘China dream’. Xiao’s speech was published on CSRC’s website to just before China’s May 4th Youth Day.
However, whether Xiao really is a reformist remains to be seen. He certainly seems willing to continue the reforms started by his predecessor, Guo Shuqing. But progress will require something more practical than dreams. Read more
In the pantheon of financial news, China’s decision to open its interbank bond market to foreign investors may seem a small item. But the announcement, made on Wednesday, is a big one for two reasons.
First, it gives foreign institutions access to a major asset class. Second, its timing signifies that China’s financial reform train is still very much in motion just a few days after the dust finally settled on the country’s leadership reshuffle. Read more
Peru is typically grouped with Mexico, Panama, Colombia and Chile as one of Latin America’s high-growth economies, a darling of international investors. But how easy is it to invest in? Not easy at all, says Luis Miguel Castilla, Peru’s finance minister.
“Our diagnosis is that our own capital market is poorly developed; not deep; scarcely liquid,” he tells beyondbrics. Read more
Argentina has a problem: people save too much.
That, at least, is how the national stock market regulatory body sees things. Argentina is awash with pesos – some 380bn in bank deposits, for example – yet only 8 per cent of even the most educated social classes has ever invested in a market instrument. Read more
A new alliance in the fast-moving world of stock exchange partnerships: the venerable Bombay Stock Exchange (BSE) has teamed up S&P Dow Jones Indices – and is marking the deal by giving its indices the prefix S&P. Read more
Global squabbles over exchange rates have emerged as a key concern for South Korea, as policy makers struggle to battle strong headwinds from Japan’s expansionary monetary policy.
A Bank of Korea report on Monday showed conflicts over currencies listed for the first time among the top five risks facing the country’s financial system, while concerns about China’s economic hard-landing and a delayed recovery in the US economy have subsided. Read more
Korea Housing Finance Corp will hit the road this week to sell a benchmark-sized international covered bond. It’s not the first such deal in this nascent market, but it’s certainly the most confusing. Read more