By Saurabh Mukherjea of Ambit Capital.
Why has wage inflation, especially at the bottom of the labour pyramid, kept surging ahead even as India has suffered its sharpest economic downturn in the last 15 years? This puzzle has flummoxed most Indian economists.
A rural wedding 300km from Mumbai offered me some clues to resolve this conundrum. It appears that sharp improvements in transport and communications have contributed to a situation of “labour scarcity” in rural India which is propelling wages at the bottom of the pyramid higher by 15 to 20 per cent per year. Continue reading »
By Sharon Fay of AllianceBernstein
Stock markets in emerging markets have gotten off to a rough start this year after a challenging 2013. Valuations have fallen and volatility remains high. So should investors add exposure to emerging markets—or is it better to steer clear?
In our view, it’s probably too early for a large tactical shift towards emerging markets. But we do think the time is right for investors who are underweight EMs—or who lack exposure altogether—to start rebalancing towards their strategic targets in developing-world stocks. While short-term caution is appropriate, we think EM stocks continue to provide a good long-term opportunity—especially for active managers. Continue reading »
By Christopher Granville, Director of Russia Research, Trusted Sources
For investors exposed to Russia and the wider market fall-out from Russia’s military move in the Crimea, it may be helpful to recall the lessons of a previous shock that threatened to undermine the investment case for Russia. The analogy I have in mind is the Yukos affair.
Then, as now, President Putin perceived a paramount interest that he decided to pursue regardless of the high costs to business and financial market confidence. Continue reading »
By Marcelo Etchebarne Mihanovich of Cabanellas Etchebarne Kelly
Two cases pending in US federal courts show how sovereign and sub-sovereign borrowers in distress can get very different treatment.
Detroit, with declared debts of approximately $18bn, filed for bankruptcy in July 2013. On December 3, it was declared eligible for protection under Chapter 9 of the US Bankruptcy Code. Judge Stephen Rhodes of the US Bankruptcy Court noted that Detroit had negotiated in bad faith with its more than 100,000 creditors; however, he also expressed the view that negotiation was impracticable. Continue reading »
By Ulrich Schmid of the University of St Gallen
Is Ukraine breaking apart? There is a clichéd view of a Europe-oriented west Ukraine and a pro-Russian east Ukraine. However, this view is too simple. Donetsk has a direct rivalry with neighbouring Dnepropetrovsk, while the “enemy” Lviv is far away. The eastern Ukrainians suffered alongside western Ukrainians from the import restrictions imposed on Ukraine by Russia last November. This put a damper on any enthusiasm for Russia in the east of the country. Continue reading »
By Liang Xiaozhong of the China Banking Regulatory Commission
Internet Finance is a term drawing massive attention from cities to villages across China. By broad definition, internet finance – which includes Peer-to-Peer (P2P) lending and crowd funding – includes any organisation that extends their financial applications to the public over internet or any other IP network. Heated discussion surrounds the question of whether internet finance may replace conventional banking in China, unlike in many countries where it has undergone an evolution alongside conventional banking.
To see the future of this competition, we first need to understand the fundamental differences between them. Continue reading »
By David Clark of the Russia Foundation
As this week’s sabre-rattling shows, Vladimir Putin is seething. The Winter Olympics he prepared as a showcase for Russia’s new confidence and power turned out instead to be the backdrop to a humiliating reversal of its geopolitical fortune as the people of Ukraine responded to the recent pro-Moscow turn of their government by overthrowing it.
The timing of this rebuff will not have been lost on the Russian president. Continue reading »
By Shaomin Li and Seung Ho Park
China has produced a class of successful entrepreneurs whose wealth rivals the “old money” of the west. Their success has created a novel phenomenon in China: “fu-er-dai” or “2Rich,” – the second generation of the rich. While their parents earned their money through their own hard work and thus respect in society, the 2Rich have a reputation of spending lavishly and driving expensive sports cars.
While mature economies go through slow wealth transfer over multiple generations, wealthy first-generation entrepreneurs and their descendants are entirely new in fast-growing emerging economies like China. These entrepreneurs are now in their 50s and 60s and beginning to look at retirement and the question of leadership succession in their family-run businesses. Will they hand the reign over to non-family professional managers or their children? Would the 2Rich be willing and ready to continue the family tradition? Continue reading »
By Brian Mefford
The Ukrainian people, against all the odds, have won their freedom from tyranny. However, if concrete actions are not taken immediately, these new freedoms will dissipate as fast as support did for the disgraced former president, Viktor Yanukovich. Now is the time for the Parliament of Ukraine to take four forward steps to ensure that the country moves into Europe instead of sliding back into infighting and gridlock, as happened after the 2004 Orange Revolution. To avoid these mistakes, the ability of average Ukrainians to influence the process must be retained and these four forward steps accomplish that: Continue reading »
By Marcin Zaborowski of the Polish Institute of International Affairs
Developments over the last few days in Ukraine make it clear that Ukrainians want to live in a modern European state that enjoys the same standards as their western neighbours. It is almost forgotten today that the people who took to the streets of Kiev in November 2013 did so to protest against their government’s decision to ditch an Association Agreement with the European Union. The protest was sustained for three months, most of the time in freezing cold weather and with the protesters being exposed to the brutal use of force by security services and government-paid groups of criminals. There is no other country in Europe where people put so much passion and are prepared to sacrifice their lives for the sake of the European idea. Continue reading »
By Francis Bassolino of Alaris Consulting
“In a market that is so large, why can’t we win our share?” So runs the familiar question at many a multinational struggling to turn a hefty investment into China into a growing profit stream.
This year, as the Year of the Horse gets underway, such habitual grumbles are sharpened by recent incidents involving some high-profile corporate names. The corruption scandal at GSK, the UK pharmaceuticals company, a write-down of US$580m on a China acquisition by Caterpillar, the US machinery giant, and the retreat from the China market of Revlon Inc, the cosmetics company, have all served to reinforce questions over whether global managers should devote more resources to China. Continue reading »
By Timonthy Ash of Standard Bank
With the dramatic events in Kiev and beyond, investors are asking what contagion risks are likely from events unfolding in Ukraine to countries in the region, and perhaps global emerging markets.
On the issue of contagion to global EM, the total stock of Ukrainian eurobonds is only around $30bn or so (half the stock of foreign holdings in the Russian devaluation/default of 1998), or a small part of the EM bond stock, and overall investments in Ukraine are a similarly small part of the EM asset class. The asset class should hence be able to ride through a Ukrainian devaluation/default, albeit looking out for concentrated ownership patterns which might create some knock-on impacts in specific countries. That said, the worsening situation in Ukraine adds to the overall perception of heightened risks across EM with political instability now playing out in Ukraine, Turkey, Thailand, and Venezuela. It just adds to the negative mood music. Continue reading »
By Eric Farnsworth of the Council of the Americas
In office barely a year, Mexico’s president Enrique Peña Nieto is pursuing aggressive reforms for breakout growth through greater competitiveness. Washington should do all it can to help him succeed, because Mexico’s expansion is good for the US.
Already our second largest export market after Canada, US imports from Mexico contain some 40 per cent of US content (from China it’s 4 per cent). In many industries, joint production and supply chains have developed to such an extent that we don’t just trade things together, now we design and make things together, in high value-added products like aerospace, automobiles, and sophisticated medical equipment. Production in Mexico and a growing middle class creates good jobs in the US and vice versa, increasing economies of scale and building North American competitiveness in the face of continued competition from China and elsewhere. Continue reading »
By Michael Power of Investec Asset Management
The Brics acronym has captured investors’ imagination like few others. But has it really helped us understand the intrinsic nature of the risks and rewards in the emerging market (EM) asset class, thereby allowing us to profit from investing in it? I have long had my doubts and recent turmoil in the asset class has only confirmed them. So is there a better way of understanding this asset class? My conclusion is that we should move away from the prism of Brics – and indeed some of the other acronyms now flavouring this alphabet soup – and instead think of EMs in terms of blocs.
There is a pressing need to do this: the paradox of investing in EMs is that whilst the structural case for doing so is overwhelming, it remains an asset class that is still both cyclically risky and very volatile. This suggests the right question to ask is no longer “whether” to invest in EMs, but “how”. And in answering this “how”, we must above all acknowledge that not all EMs were born alike. Continue reading »
By Liviu Voinea, Minister Delegate for Budget, Romania
The recent turmoil in some emerging markets sharpens a focus on economic fundamentals. And the capacity of an economy to implement a proper policy response to an adverse shock is itself becoming a new macroeconomic fundamental.
Emerging economies from the EU have implemented internal adjustments and by doing so they have managed to contain their public finances and debt – but at a cost. Europe is now confronted with a demand gap. The first step in addressing the demand gap is to acknowledge it. Emerging economies in the EU are facing a familiar set of problems: very low, even negative core inflation and a declining or negative current account balance. Continue reading »