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 »
Predicting what the Hungarian central bank is going to do is becoming something of a fools game. Last month, the bank cut rates for the 18th time in a row. So far, so predictable – except the bank changed from 20 basis point cuts (as it had used five times previously) to 15bp.
On Tuesday, the bank cut again – a 19th consecutive cut – but confounded most analysts who had predicted that the weakened currency would give the MPC reason to reduce by a smaller margin. No chance – the bank stuck to its new 15bp reduction, dropping rates from 2.85 per cent to 2.7 per cent. Where will it end? Continue reading »
It’s been a difficult week for the Turkish lira, which hit multiple record lows against the US dollar. It closed on Friday down 1.39 per cent on the day at 2.3242 to the dollar. Turkey’s central bank mounted a spirited defence of the currency on Thursday but only succeeded burning through around $3bn of its $40bn reserves.
The bank does, however, have other tools. On Tuesday, it said that despite keeping its three main interest rates unchanged it would, through what it refers to as additional monetary tightening, occasionally raise the overnight rate from 7.75 per cent to 9 per cent. But what exactly is additional monetary tightening and how does it work? Continue reading »
New year, new cut: Hungary’s central bank trimmed its base rate by 15 basis points to 2.85 per cent on Tuesday, a move that surprised analysts only by its size – being the first of its kind after the monetary council turned to 20 basis point cuts in the second half of last year. It brings Hungary’s policy rate to yet another all-time low, down from 7 per cent when the bank starting cutting in August 2012, as inflation stays under control and growth remains a concern. Continue reading »
So, Turkey’s central bank has passed up a chance to affirm its independence and, apparently, bowed to political pressure by keeping its policy interest rates unchanged.
Or has it? In a statement on its website, the bank said that while its three main interest rates would remain unchanged, one of them, the overnight lending rate, would be raised from the current 7.75 per cent to 9 per cent on “exceptional tightening days”. Continue reading »
The Turkish lira hit the latest in a series of all-time lows against the dollar on Monday when it fell to TL2.2502, on a day when the country’s new economy minister said a further slide would not be a problem and called on the central bank not to increase interest rates.
An interest rate rise might in normal circumstances be expected at the bank’s monetary policy committee meeting on Tuesday.
But this is Turkey. Continue reading »
Hungary’s central bank made it 17 out of 17 on Tuesday when it trimmed its policy interest rate by 20 basis points to 3 per cent, completing a 4 percentage point reduction since the bank began cutting in August 2012.
There may still be more cuts to come. Continue reading »
Serbia’s national bank has delivered an early Christmas present to borrowers with another interest rate cut, its third in succession.
The move comes as talk of a snap election next year intensifies, raising concerns about the short-term economic outlook and the future of the government’s promised austerity measures. Continue reading »
India’s November inflation – the Wholesale Price Index version – is out and, once again, the news is worse than expected.
Year-on-year prices were up 7.52 per cent, compared with the 7 per cent forecast by Bloomberg and clocked in the previous month. Along with the Consumer Price Index (CPI) data released last week, it suggests the Reserve Bank of India (RBI) will indeed hike the repo lending rate on Wednesday. Continue reading »
Has the Bank of Thailand blinked in the face of the country’s escalating protests? In a surprise move, the bank cut its policy interest rate on Wednesday by 25 basis points to 2.25 per cent a year, highlighting weaker than expected growth in the third quarter and the “ongoing political situation”.
Indeed, growth is expected to be weaker towards the end of 2013 and through 2014. But has the bank made the wrong call? Continue reading »
Wasn’t the talk in some corners of Lima that the Peruvian economy was already pointing upwards? It seems for policy makers it needed yet another push.
Surprising analysts, the central bank has cut its policy interest rate, which has been fixed at 4.25 per cent a year since June 2011, to 4 per cent. Continue reading »
For the second month running and the third time this year, the Bank of Mexico has cut its key interest rate, bringing it to a new historic low of 3.5 per cent in a widely-expected move aimed at giving a boost to economic growth.
The 25 point cut followed a surprise cut of the same size on September 6 after the economy shrank in the second quarter for the first time in four years. The bank also cut by 50 basis points in March. Continue reading »
A landmark deal with Kosovo, a $3bn loan package from a new Emirati ally, a high-profile anti-corruption drive: Serbia has been filled with a new boldness in recent times.
It continued on Friday as the National Bank of Serbia cut its policy interest rate by half a point to 10.5 per cent, more than the expected quarter-point cut. The bank had held steady for the previous three months following reductions totalling 75 bp in May and June, as inflation fell from double figures. Continue reading »
Sri Lanka watched nervously as India’s rupee plunged, not least because it too suffers from the high current account and fiscal deficit mixture that turned investors sour on its larger neighbour.
Now India’s currency is recovering, and Sri Lanka seems emboldened too, as its central bank today shunned IMF advice and surprised forecasters by cutting rates by half a percentage point. But is it a cut too far? Continue reading »
Indonesia’s central bank held its policy interest rate unchanged on Tuesday, ending an aggressive tightening cycle that saw the rate rise from 5.75 per cent a year in May to 7.25 per cent at the bank’s previous policy meeting last month.
The decision was widely expected: 17 out of 18 economists surveyed by Bloomberg predicted no change. But was the decision the right one? Several analysts say Bank Indonesia has left the job unfinished.
Continue reading »