Daily Archives: February 8, 2010

Capital flows are unpredictable. Overseas investors bought up Japanese equities at the fastest pace in three years in January as global asset managers rebalanced portfolios towards the country’s equity market from underweight positions.

Foreign investors bought a net Y1,543bn ($17.3bn) of Japanese equities last month, the most since February 2007, according to Ministry of Finance data published yesterday. Separate data from Nomura show that Japan has seen net inflows from mutual funds so far this year, while markets including the US, China and Hong Kong have experienced net outflows. (more from Lindsay Whipp).

By Peter Garnham

Traders and hedge funds have bet nearly $8bn against the euro, amassing the biggest short position in the single currency since its launch on fears of a eurozone debt crisis. Read more

Hungarians will be borrowing more forints and less euros under one of several new initiatives planned by the country’s central bank.

Interest rates are typically higher on forint-denominated mortgages than, for instance, their euro counterparts. But spreads have been narrowing and the central bank plans to reduce them further. The Magyar Nemzeti Bank will buy forint-denominated mortgage notes up to a maximum face value of 100bn forint ($500m). Read more

Ralph Atkins

If nothing else, a positive aspect of Greece’s plight has been the wave of ideas on how the eurozone could operate more effectively in the future.

A big shortcoming identified by many has been the lack of proper “crisis management” procedures, which have arguably exacerbated Greece’s difficulties. Now – just in time for the EU leaders’ summit in Brussels this week – comes an ingenious solution for a European Monetary Fund, put forward by Daniel Gros, director of the Brussels-based Centre for European Policy Studies, and Thomas Mayer, chief economist at Deutsche Bank.

Their idea is for a sort of eurozone version of the International Monetary Fund, which could provide emergency loans to struggling countries or ensure a default was orderly, with minimum effect for other eurozone countries. It would be funded by contributions from countries in the weakest financial position, calculated according to how grievous was their abuse of the EU’s fiscal rules as set out in its ”stability and growth pact”. Read more

If Greece needs a bail-out, it would be far better for it to seek one from the International Monetary Fund than from other euro-zone countries, Otmar Issing told the NYT.

Mr Issing is a former top official of the German and European central banks. “I don’t think that the EU can impose the kind of sanctions that would be needed, and it would make Brussels too unpopular,” said Mr. Issing. “A better way is for Greece to approach the IMF. It is the only institution that can impose strict enough conditions.” Bailing out Greece would involve “a more or less disguised transfer of taxpayer money,” he added, “and I don’t see any support for that from the people in Germany or elsewhere.”

Three strongboxes of diamonds, weighing 29kg, have been taken from the central bank by police, violating orders from the country’s Supreme Court.

The removal is the latest in a long-running dispute between mines minister Obert Mpofu and British-registered mining company, African Consolidated Resources, over ownership of Chiadzwa claims. Chiadzwa is considered the world’s biggest diamond discovery in a century and could yield more than $1bn annually. In 2006, ACR was forced from its property at gunpoint; the courts later ruled this illegal. Read more

The central bank of Kuwait has cut the discount rate by 50 basis points to 2.5 per cent and its repo rate 25bp to 1.5 per cent. Yesterday’s reduction, the sixth since October 2008, was aimed at stimulating non-oil sectors. Kuwait has been diversifying its activities from oil towards financial services. Bank governor Sheikh Salem Abdulaziz Al-Sabah said indicators showed inflation pressure has continued to ease.

Kuwait is one of five Gulf states planning a single currency, so diverging interest rates between the states could have spelt difficulties ahead. However, the other four states have similarly low and stable rates (NB. all Gulf states except Kuwait peg to the dollar). Saudi Arabia recently stated there was ‘no chance of a rate increase’; Bahrain’s repo rate is steady at 2.25 per cent; Qatar’s is stable at 5.55 per cent; the repo rate of Oman – not joining in the first phase – has been steady at 2 per cent. Read more