No More Learning

Although bilateral relations have cooled since Chavez’s death, the business and consumer crackdown follows on the heels of Venezuelan President Maduro’s “new economic order” against the “parasitic bourgeoisie” as he attempts to consolidate political power and tackle 55 percent inflation on meager 1. 5 percent GDP growth. The exchange rate regime will be run by a single authority following 45 percent devaluation for non-essential goods to 11. 5 to the dollar, around one-sixth the unofficial rate. Domestic oil prices will stay heavily subsidized as state monopoly PDVSA returns to active local and foreign bond issuance under preliminary Finance Ministry guidance. Foreign reserves are held disproportionately in gold, and commercial transactions with dollar-based Ecuador have shifted to the virtual “sucre” instituted also with Bolivia and Nicaragua in 2010. Unlike the globally-known bitcoin the arrangement is overseen by central banks and Ecuadorean companies used $750 million equivalent through the third quarter of last year. According to executives, payment approval is faster than through formal channels although the route may be tapped regularly for money laundering.

Brazil on the other hand was at the bottom of the securities pack as it heads into its own election season and soccer World Cup with President Rousseff still the favorite, despite poor growth and trade figures and real slippage toward 2. 5 to the dollar despite extended interventions. The budget primary surplus was half the 3 percent of GDP target and sovereign ratings downgrade may soon be added to the spoiled recipe.

Latvia’s Splattered Euro Spin
2014 January 9 by admin

Posted in: Europe
Although less than half the population supported entry and the government fell apart just prior to the transition to atone for a tragic building collapse, Latvia officially became the euro’s 18th member in January capping a positive year for Baltic stock markets as Lithuania may be next in the single-currency queue. Remaining lats in the banking system were converted smoothly to EUR 8. 5 billion, but the switch was spoiled by heightened international scrutiny of alleged money laundering by 20 institutions handling mainly non-resident accounts which jumped over 15 percent in early 2013 as Russian and Ukrainian depositors fled Cyprus. The local regulator after a hands-off stance recently imposed a fine for control violations associated with Russia’s Magnitsky case, where former Yukos Oil company funds were funneled out of the country under murky circumstances never clarified with the holiday season pardon and release of jailed ex-CEO Khordokhovsky. Watchdog group Global Witness has also tracked a portion of $10 billion in offshore money to illegal actions in Cote d’Ivoire and Kyrgyzstan, and US authorities have penalized big multinational lenders for infractions, with JP Morgan just suspending Riga correspondent relationships. Officials have told the EU disclosure and tax practices could soon change while maintaining the center’s confidentiality reputation. They are spooked by the prospect of a Cyprus-like panic as almost half of deposits were lost since the crisis there broke a year ago. The surviving biggest bank recorded another loss in the latest quarter with a 50 percent NPL ratio. Spending was cut 10 percent in the new budget with debt/GDP at 125 percent and deep recession predicted indefinitely. Capital controls are still in place with tourism off 3 percent in 2013. Slovenia avoided a similar fate by organizing its own banking rescue through a central asset management agency that will absorb over EUR 3 billion in bad credit, as its 10-year benchmark bond yield dropped to 5. 5 percent on a successful private placement and parliamentary no-confidence motion defeat. The beer monopoly Lasko is on the block and privatization has sparked MSCI frontier interest as equities were up 20 percent last year.

A December IMF study and conference focused on the separate risks from Nordic-Baltic financial sector integration with pronounced oversight gaps from cross-border banking group and stock exchange consolidation. Memoranda of understanding exist but are untested in practice and safety net schemes like deposit insurance “differ widely,” according to the document. Insurance, pension, leasing and securities products are increasingly linked through complex conglomerates and regional banking systems are highly concentrated. Household and mortgage business has expanded rapidly through Baltic universal providers drawing on Scandinavian parent capacity led by Nordea and SEB with their sweeping networks. Nordic ownership of banks in Estonia, Latvia and Lithuania has promoted post-crisis confidence with liquidity and technology infusion but contagion potential as well should a Swedish lender freeze cause skids, the review cautions.

Dubai’s Exponential Revival Reverie
2014 January 9 by admin

Posted in: MENA
UAE shares up 90 percent further dominated the Gulf cohort as Dubai won the host competition for World Expo 2020 on some $50 billion in planned infrastructure outlays by end-decade as the event itself raises GDP an estimated 2 percent. Air terminal expansion is also in view as the Emirates flag carrier recently placed a $55 billion order for Boeing 777 jumbos financed with aid from the US Export-Import Bank. Property prices have rebounded almost 30 percent the past year despite new bank limits and fees, as defaulters from the post-2008 crash remain in jail demanding legal reforms for release. The medium-term debt headache includes $20 billion owed to Abu Dhabi and the central bank next year and $85 billion in maturities through 2017 according to the IMF, as state-owned lender Emirates NDB holds $25 billion in exposure. After acquiring BNP Paribas’ Egypt operations it will also emphasize Islamic and small enterprise credit there, as peers push deeper into Africa to service regional and Asian clients mainly from China. Dubai’s trade with the continent rose 25 percent to $30 billion in 2012, as the big four Chinese banks moved into the international financial center for cross-border reach. Export credit along the corridor increased 5 percent in the first half, as global emerging market specialists Barclays and Standard Chartered try to defend their franchises. Sub-Sahara boosters believe that the WTO’s administrative facilitation accord will benefit key countries in light of a comprehensive African Development Bank report citing dozens of filings and procedures for simple customs passage. Private equity investors are also scouring the area for basic financial services plays as evidenced by Abraaj’s buyout of Ghana Home Loan, which may eventually seek an Accra exchange listing.

Saudi Arabia’s capital markets regulator approved UAE cross-listings in November in another modest liberalization step helping to maintain the largest bourse’s annual 20 percent gain. Utilities like the Civil Aviation Authority with a $4 billion placement have accounted for three-quarters of GCC Islamic bonds in 2013, as tiny neighbor Oman facing a $2. 5 billion public wage jump contemplates initial recourse. Debt/GDP is low at just 5 percent, but a likely oil price drop to $90 per barrel could warrant additional revenue options through privatization sales and foreign worker taxes. Over $15 billion in assets are available through sovereign wealth funds, and the government could also slash food and fuel subsidies. Qatar’s gross debt at 35 percent of GDP is the group’s highest and it has introduced fresh borrowing controls with $200 billion in facilities due to be built for the 2022 soccer World Cup. The world’s leading natural gas producer has an investment-grade sovereign rating with the benchmark bond yielding 3. 5 percent, but credit has jumped at triple the pace of 6 percent economic growth. Bahrain has been the performance exception with an 8 percent loss on continued Shia backlash against the ruling family and corruption with the main aluminum company under trial both at home and in London.

The Caribbean’s Seasonal Jubilee Jumble
2014 January 6 by admin

Posted in: Latin America/Caribbean
Debt forgiveness pleas by religious and social activists, initially aimed at official and commercial lenders during Grenada’s second workout, turned more vocal during the holiday “jubilee” period as the relief spirit of the HIPC program a decade ago was recalled to slash the Caribbean’s average 70 percent public debt and 20 percent current account deficit to GDP levels. A half dozen states have restructured since 2010, and Barbados is now scrambling to avoid IMF resort after a $500 million 10-year failed bond sale on government debt/GDP at 95 percent with a currency peg and recession. Flat tourism and a “sharp” private capital inflow drop have left reserves below half a billion dollars, according to the Fund’s December Article IV report. The opposition party tabled a no-confidence motion against the Finance Minister, who is trying to cut civil service employment and wages under an improvised austerity program. The checkup criticized the lack of a “comprehensive, strategic approach” to ailing public accounts as it urged greater customs and tax compliance and oversight of state holdings. It recommended reversal of central bank buying of Treasury bills and stricter supervision of bank and insurance asset and collateral positions. A rescue precedent was set by Jamaica early in 2013 when it garnered $2 billion in bilateral and multilateral support after completing another domestic debt rescheduling. The latest installment of its $1 billion Extended Fund Facility was granted with budget execution “broadly on track” on Q3 economic growth of 1 percent and 10 percent inflation reflecting local dollar depreciation. International reserves are back to three months import cover, and a fiscal rule will soon take effect targeting a 60 percent public/debt GDP ratio in 2025, versus over 140 percent today. Securities dealers took portfolio losses from principal reduction and maturity extension and repo squeezes and revamping their regulatory framework is also a priority under the arrangement. Despite the progress ratings agencies have not upgraded the outlook from “high probability” additional default, and rampant crime and on-line scams continue to deter visitors.

In Haiti on the eve of the fourth earthquake anniversary the Fund estimated growth and inflation each around 4 percent the past fiscal year, but decried large electricity and other “costly” subsidies in the face of lower foreign assistance. They divert needed infrastructure spending and prevent the buildup of “buffers” for weather and related emergencies. President Martelly faces internal and external outcry over continued election delays and his desire to reconstitute the army disbanded two decades ago. UN security forces were found culpable in originating the cholera epidemic and the President cites national pride for the project while acknowledging the protective capacity of 10000 trained police. He claims no outside enemy, but is mired in a diplomatic spat with the Dominican Republic on the joint island over stripped citizen rights for thousands of Haitians long working and residing there. Regional association Caricom denounced the move as debt service naturalization also remained elusive.

Debt Funds’ Jumbled Jingle
2014 January 6 by admin

Posted in: General Emerging Markets
Retail-driven bond outflows continued into year-end at around $50 billion according to EPFR although the 2013 sum was $10 billion positive in contrast to equities on “sticky” institutional allocation still underweight traditional benchmarks. The total was just one-tenth 2012’s record and embraced local over hard currency in reverse preference, as individual investor flight the past six months outlasted the post-crisis 2008-09 period and reflected both Fed tapering and political headline risk aversion. Strategic mandates were steady at a $2-billion plus monthly pace, as US pension funds hold under 5 percent in emerging market fixed-income with an unchanged position since boom times, a recent IMF survey reveals. Foreign accounts are only one-quarter domestic institutions’ over $1 trillion in exposure, while North American, European and Japanese retail vehicles own $350 billion. More liquid sovereigns have suffered $40 billion in outflows since mid-year with corporates down less than $2 billion. ETFs which could have aggravated withdrawal are small at around 5 percent of the universe compared with the 25 percent concentration for stocks. The post-May exit coincided with strong primary market recovery as modest central bank Treasury buying pullback was delayed until December. Near $50 billion in official and $150 billion in company issuance was absorbed, with the latter setting another annual mark at $350 billion. The second half featured African placements from Gabon and Nigeria as regional activity topped $8 billion, with Kenya’s debut set for early 2014. On the EMBI the average yield was over 6 percent as the gauge plummeted by the same amount as a poor-performing asset class. In Q3 trading volume was off 20 percent to $1. 25 trillion according to industry monitor EMTA reflecting the temporary corporate pause in particular. Local instruments were two-thirds of volume at $825 billion led by the BRICS, while in Eurobonds the sovereign-business split was 60-40. Active international targets included Brazil, Venezuela, Russia, and Ukraine while India and Turkey ranked also in domestic frequency.

Ukraine teetered between Brussels and Moscow rescues until Russian President Putin won the bidding with a pledge to purchase $15 billion in government bonds and reduce gas import prices. Kiev demonstrators continued to clash with police as the first $3 billion installment was received and the central bank defended the exchange rate peg despite forward depreciation expectations. The stock market remained at the bottom of the MSCI frontier pack with flat GDP growth and farm and metal exports predicted for 2014. Nearby Turkey experienced another crisis bout as non-residents dumped the currency and securities as key ministers resigned in a project corruption probe which may mask a wider Islamic party power struggle between Prime Minister Erdogan and disciples of the Gulen movement. The central bank dipped into reserves again to support the lira at 2/dollar, as Erdogan’s camp decried an “attempted coup” after a previous military and judicial purge dashing EU aspirations recently hailed in spirit.



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Mongolia’s Invidious Anti-Invasion Force
2014 January 2 by admin

Posted in: Asia
Mongolian bonds followed sputtering stocks on late-year Samurai issuance guaranteed by Japan’s International Cooperation Agency which technically breaches the 40 percent of GDP public debt ceiling contained in fiscal responsibility legislation also routinely missed with deficit outcomes. GDP growth was again 12 percent in the first half on 50 percent breakneck credit expansion, one-quarter sourced from the central bank, prompting a Fitch Ratings outlook downgrade as it called for “stringent controls. ” Both FDI and the currency are off double digits this year amid stalemate over the $5 billion second phase of the strategic OT copper mine 51 percent owned by London-based Rio Tinto, whose fate was a central campaign issue in recent elections won by pragmatists vowing to “turn the corner” at an October investment conference. Over $6. 5 billion has gone into the open pit project which began production at mid-year as the government seeks new terms on funding and royalties as well as export and environmental policies. In other commodities a 15 percent coal price drop has eroded China shipments and delayed exchange listing of another mine, and the bilateral currency swap line was doubled in response. Fiscal and monetary stimulus and tugrik depreciation, currently the world’s fastest outside war zones, have revived 10 percent inflation hurting living standards, according to the Asian Development Bank’s annual review. Stubborn poverty and foreign investor backlash have combined to foster extremist political groups including Nazi sympathizers and “eco-terrorists” who have attacked international operators. Local anger has also erupted in fresh frontier market Myanmar, where office space in the capital is Asia’s most expensive at $100 a square meter, and family plots have been bulldozed to make way for offices and factories. The Thilawa zone on Yangon’s fringe has attracted Japanese interest but residents refuse to budge without major compensation and the military thus far has refrained from previous seizure practice. Dozens of multinational oil groups entered the auction for offshore blocks to be developed as joint ventures as existing relationships have frayed as illustrated by the headline clash between Singapore’s Fraser and Neave and its army counterpart over the biggest brewery. Agreements now allow international arbitration but in the past legal recourse was not an option with the junta responsible for enforcing provisions.

Communal and religious violence is another deterrent and invited widespread external condemnation following Buddhist moves against Muslims and discrimination against citizens from smaller states that led periodic insurgencies. The Rohingya minority in Rakhine province originated mostly from Bangladesh, which has been mired in its own civil strife with the two main political parties at loggerheads and trading strike action going into elections. Stocks are flat on the MSCI Index with limited economic shifts expected as textile exports remain under pressure from new labor and minimum wage standards. An Islamic party figure was hanged in December for his historic role in fomenting clashes which repeat throughout the sub-region.

Africa’s Rough Banked Diamonds
2014 January 2 by admin

Posted in: Africa
Ex-Barclays CEO Diamond touted an African return in his post-scandal reinvention through a private equity joint venture with a continental family-owned group. Initial targets could include cross-border franchises like Ecobank and larger markets like Nigeria and South Africa, where Barclays-Absa previously expanded with $100 billion in assets. International commercial and investment banks have also followed clients into a half-dozen countries where FDI and sovereign bonds are a focus as three-quarters of the population is “unbanked” and only 5 percent have a credit card according to industry consultant McKinsey. Returns on equity over 20 percent are double developed economies, and related financial services like insurance and pensions are often nascent. However recent moves into lower-end and consumer lending may have been overdone, with South Africa’s central bank calling annual 30 percent unsecured growth “unsustainable” as it passed one-tenth of outstanding credit. The pace has halved since mid-year as institutions took large retail losses and a specialist house saw its shares plunge on the Johannesburg exchange. Regulators have tried to moderate consumer debt which has been a mainstay of domestic demand while reiterating that it does not pose systemic risk to the well-capitalized system. Mobile operations have been launched to attract poorer individuals and households as in pioneer Kenya, but have not been as successful and mainstream competitors have reduced commitments under the weight of a 5 percent NPL burden in the first half. Electronic banking in contrast has taken off in Nigeria through all-purpose remote cards and Visa and Mastercard are boosting their franchises with new technology and anti-fraud features. In global insurance the Sub-Sahara represent less than 0. 5 percent of premiums even as the nonlife segment increased 7 percent annually the past decade, according to giant Swiss Re, mainly due to mandatory car and liability coverage. Life has been up at the same pace concentrated in energy producers like Angola and the UK’s Prudential intends to establish a regional presence through acquisitions after a Ghana deal.

African M&A at $40 billion through Q3 has risen 60 percent and along with natural resources consumer goods is a popular sector with Dubai’s Abraaj just buying Ghana’s Fan Milk, a big Accra bourse listing, with its extensive Anglophone and Francophone West Africa network. The Middle East connection extends to Islamic finance, with Nigeria and Senegal offering external sukuks and states in the former also using the no-interest structure. The Islamic Development Bank provides shariah-compliant infrastructure funding and several central banks participate in the Malaysia-based International Islamic Liquidity Facility. Kenya has established the legal foundation as it joins the early 2014 inaugural sovereign bond queue after this year’s record issuance, the latest a sequel from Gabon after its rating was affirmed. Foreign investor diversification and yield hunger support capital flows as well as prospects for “disorderly” interest rate jumps, the World Bank concluded in polishing its regular economic outlook.

Asia’s Peak Housing Precipice
2013 December 27 by admin

Posted in: Asia
The IMF’s latest global house price reference showed Asian markets still leading the post-2008 surge, with credit-GDP ratios in many countries at multiples of the region’s financial crash 15 years ago. China and Hong Kong top the worry list, with three-quarters of mainland investors surveyed pointing to “unsustainability” after major cities reported a 20 percent annual jump through November despite minimum down payment restrictions and local government additional land supply. Non-bank and provincial lenders have joined the main state banks as funding sources with ICBC publicly warning of a non-performing asset spike across the array of property and associated categories. In Hong Kong values have doubled the past five years, with the residential component up 25 percent in 2012. By mid-decade experts predict a 30-50 percent correction similar to the post-Asia crisis, as stamp duty increases and tighter mortgage limits since 2010 have proved ineffective. Bank credit to GDP has almost tripled to 300 percent as real estate speculation is stoked by formal and informal cross-border channels evading Beijing’s cooling attempts. Rival offshore center Singapore ranks just behind in expense with a 40 percent climb since 2009 in the face of capital gains tax and specific borrower debt to income deterrents. The Monetary Authority just cautioned that higher global interest rates could send the portion of overleveraged households to 15 percent, with many also buying in nearby Malaysia, where prices in the capital have soared 60 percent over the period. Rater S&P recently downgraded the outlook on major banks due to the outsize consumer debt burden as the latest budget doubled the minimum non-resident purchase requirement. Home and credit card lines are also at 80 percent of GDP in Thailand, and the Yingluck government was just forced to call new elections as farm and auto credit incentives are under criticism for hiking public debt. In Indonesia and the Philippines personal lending has also spurted at a double-digit annual pace from a low base. In the former the central bank has raised interest rates heading into 2014 elections, and in the latter it imposed a 20 percent real estate exposure limit which is widely circumvented with remittance-based transactions.

In Korea with household debt nearing 300 percent of GDP authorities have focused on administrative measures and the new Administration’s first budget fulfilled a campaign pledge of temporary payment relief. In India bank and housing finance facilities are at one-tenth of output as the Finance Ministry prepares to recapitalize state-owned units and open the sector to greater domestic and foreign competition. With inflation again at 10 percent monetary policy will tighten and although opposition candidate Modi is the election favorite in early soundings his commercial and residential building approaches are unclear but would involve reduced bureaucracy. In developed Asia Australia was criticized both by the IMF and OECD for 20 percent overvaluation while media “bubble” citations have also burst the record set during the last decade’s mania.



China’s Giddy IPO Guidelines
2013 December 27 by admin

Posted in: Asia
Chinese stocks held their MSCI index momentum into the year-end economic work meeting, with GDP growth on track at 7. 5 percent on good industrial country export and retail sales figures, as the securities regulator detailed instructions for forthcoming Shanghai exchange IPOs after an extended moratorium. Over 750 companies have been waiting for approval which will remain tough to obtain but assign increased responsibility to underwriters and advisers for pricing and timing. Previously officials controlled the entire process and after-market performance lagged with the limited arranger stake. To avoid immediate losses, major share-holders will be subject to a 2-year lockup period and must buy back the offering if disclosures are unsatisfactory. The latter provision spooked investors on the high-growth Chi Next, where P/E ratios at 50 are five times the main board. Several dozen listings could be added in January diverting attention from Hong Kong where bank placements have been particularly active culminating in the Cinda bad asset management arm deal with 10 international cornerstone participants including US distressed debt firms. Capital inflows have boosted the local dollar to the upper intervention range three decades after the peg was launched, and renimbi deposits have also rebounded with reopening of the dim sum bond market and steady property prices despite prudential dampening. Smaller family run banks uncertain about their future are in alliance and merger talks with mainland partners, as the latter also tap wider outward liberalization channels. Domestic outlets have also opened with provincial banks allowed to unload bad loans nationwide, and negotiable CDs now authorized for the interbank market. Beijing’s audit agency has yet to release the formal tally of local government borrowing which may equal the $3. 5 trillion in foreign reserves, but the new leadership claims it is “under control” as further municipal bond pilots are planned in 2014.

Total social financing growth is under the recent 20 percent clip as authorities experiment with short-term rate and wealth management product squeezes and consider phased deposit insurance introduction. Corporate bond yields have also jumped on declining state enterprise profitability and rumors that selective defaults may finally occur with an estimate $450 billion coming due next year. Shipbuilder and textile producer collapses were forestalled with rescues during the leadership transition, and a solar firm was recently saved after external bond interruption. Big city property prices continue their ascent as the economic gathering mulls a comprehensive tax regime. Geopolitics may however overwhelm the debate as air patrols are positioned over disputed islands with Japan rerouting civilian traffic and drawing an admonition from the US to pursue peaceful diplomacy instead. Beijing has its own tiffs with Washington on currency and trade issues which have coalesced around the final push for a Trans-Pacific Accord with Asian neighbors said to represent the Obama Administration’s “pivot” strategy, as the Treasury Department pivoted from previous findings of large undervaluation in its regular report to Congress.

The BIS’ Statistical Blip Blasts
2013 December 19 by admin

Posted in: General Emerging Markets
The Bank for International Settlements’ Q2 data showed an unaccustomed slowdown in global credit flows to most emerging as well as developed market regions, in particular to larger and Latin American destinations. The 2 percent quarterly drop affected both banks and non-banks, as US dollar liabilities to Brazil and India doubled since 2009 and also jumped to Korea and Turkey. The BRICS’ fall was greatest in line with capital outflows associated with Federal Reserve moves, but Mexico Chile and other countries also contracted 4 percent for the worst performance to date. US bank claims in the area were almost $150 billion early in the year and their high concentration experienced abrupt reversal as the central bank signaled lower Treasury and mortgage security buying. By contrast Asia, Europe and the Middle East-Africa were “relatively stable” as commitments to China grew and Poland ones slipped, while interest remained in lesser-known locations like Angola, Morocco and Gabon. The organization pointed out that greater local office exposure often offset the cross-border cutback in major developing economies despite domestic currency depreciation against the greenback. Through end-September EM currency-denominated international bond issuance at $110 billion roughly equaled the corresponding 2012 period, mainly in the Mexican peso, Brazilian real and Chinese renimbi. One-third came from companies based in developing markets outside the unit’s home, including affiliates and offshore centers. With better credit ratings since 2010, the non-dollar and euro-share has averaged around 10 percent of the total, helping to reduce balance sheet mismatches. The euro has lost ground since the continent’s debt crisis as its EM portion including in Central and Eastern Europe is now below one-tenth.

A dozen countries reporting on OTC derivatives tallied the worldwide amount at almost $700 trillion through Q3 for a 10 percent rise since last January. Interest rate instruments were 80 percent of the sum, with the remainder foreign exchange-related, and the growth segments were swaps, forward rate agreements and options. Credit default swap volume was down $25 trillion through the half-year, although sovereign activity improved 10 percent. Gross market value was off 15 percent to $725 billion, a post-crisis low as centrally-cleared transactions were still less than 20 percent for multiple name contracts. The EM turnover leaders in local and international trading include the Turkish lira and Russian ruble and for thirty main jurisdictions the net-net count is over $1 trillion or 4 percent of GDP, with near 15 percent recent expansion outpacing advanced economies. Exchange rate products are over half of daily dealing, with equity and interest rate ones each around one-fifth, according to regular BIS survey. OTC markets take almost 60 percent of business and reflect increased foreign portfolio investor hedging and speculative demand. Asia, especially Hong Kong and Singapore are interest rate derivative hubs, and the region dominates FX as well, followed by Europe and Latin America with roughly equal 20 percent-plus contributions with the UK and US also hosting the craze.

Venezuela’s War Footing Stumbles
2013 December 19 by admin

Posted in: Latin America/Caribbean
Venezuela’s socialist party-dominated assembly granted special “economic war” decree powers to President Maduro prior to December local elections, as business profit margins were capped and executives jailed for “gouging” and a new currency control body was established. Despite 50 percent inflation, price cuts were ordered for consumer appliances and staples ahead of the Christmas shopping season, and the state oil company offered a $4. 5 billion dollar bond to divert demand from the black market bolivar at ten times the official 6. 3 rate. The opposition political leader decried the move from a “Cuban puppet regime” as the military was deployed to stores to enforce reductions and order. With the per barrel oil export value down from $100 reported reserves have fallen one-third to $20 billion, and are mainly in illiquid gold as the Chavez legacy against hard currency “imperialism. ” The sum may be double with Chinese loan for natural resource facilities and off-budget accounts which enable import and debt service coverage, but capital flight continues through loopholes such as overseas air ticket purchase as fuel and food subsidies harden the 10 percent of GDP fiscal deficit. Foreign director investors hanging in like Toyota have suspended operations on funding and equipment shortages while bond houses have cut previous overweight positions on new administration risk despite the double-digit yield.

Andean MSCI stock markets have likewise underperformed on slower GDP and personal credit growth despite support from domestic private pension funds and the three-way Chile, Colombia and Peru exchange alliance. Colombian President Santos announced his re-election bid for next year as a peace deal with the rebel FARC remains elusive despite anti-poverty and party formation agreements. An eventual accord could be put to a referendum around the same time as the polls, but critics such as presidential predecessor Uribe highlight the lingering security threat posed by a recent assassination plot and the drop in rural incomes from commodity and free trade pressures coinciding with the conflict which drew angry farmer protests. Economic growth fell to 2 percent in Q3 on weak manufacturing and retail data with unemployment over 9 percent. The central bank kept the benchmark rate at 3. 25 percent on a better 2. 5 percent inflation reading as Moody’s assigned a stable banking sector outlook on credit moderation despite reservations about corporate conglomerate ties and Central America expansion. Peru went ahead with a rate cut as both growth and the current account deficit as a share of GDP come in around 5 percent this year with the Finance Minister conceding an “end to the commodities supercycle. ” Additional copper projects are set for launch as President Humala tries to balance environmental and community demands and increases infrastructure spending. Capital market, labor and bureaucratic reforms are on the agenda as the government tries to bolster business confidence to offset household loan retrenchment. The currency is off slightly against the dollar on intervention but the foreign 50 percent ownership of local debt remains on solid footing.

India’s Bank Multiplier Divisions
2013 December 18 by admin

Posted in: Asia
Indian shares were still negative on the MSCI index despite decent 5 percent GDP growth for the latest quarter and Fitch sovereign ratings affirmation, as central bank chief Rajan revived previous recommendations for a “competitive multiplier” from banking sector private domestic and foreign opening. State lenders control three-quarters of assets and must target priority industries and hold large government securities portfolios with the real level of NPLs estimated in double-digits as SBI and other listings trade at low valuations assuming recapitalization needs. Family conglomerates have filed applications and international banks will gain expanded entry upon establishing subsidiaries. Mobile services may be emphasized for the huge unbanked population as micro-finance regulation was strengthened in recent years following scandals. CPI inflation is again at 10 percent despite monetary tightening, as the currency has recovered to 62 to the dollar on a better current account 3 percent of GDP hole with depreciation-aided exports and gold import curbs. Trade officials are promoting rupee use with key partners and may reconsider “food security” provisions to reach a WTO pact at December’s Bali gathering. The fiscal deficit will again come in around 5 percent of GDP as pre-election spending looms, but infrastructure project approval has also been accelerated in response to investor complaints as house prices continue to rise in major cities to sway middle-class voters. The opposition BJP has tapped former Gujarat governor Modi as its candidate, but despite his free-market policies praised by the business community he has been accused of fostering ethnic and religious intolerance. Six months out the ruling coalition has yet to coalesce around a potential successor although another Gandhi, Rahul is in the mix with limited political experience as his ailing mother prepares to exit.

Asia’s worst core performer Indonesia with a 25 percent loss is also approaching first-round elections as popular Jakarta mayor Jokowi may get the nod from Megawati’s PDI-P party to continue his anti-corruption and infrastructure-building campaign. GDP growth there too has dropped to 5 percent as FDI was off at $7 billion in Q3 for the first time in years. The central bank again hiked for a cumulative 2 percent rise since June on inflation over 8 percent and a rupiah plunge toward 12000/dollar on t structural balance of payments weakness. Chinese commodities appetite has waned amid a slump in coal and palm oil values.
At home consumption is subdued on stricter auto and scooter loan norms for big banks with LTD ratios at 85 percent. While retail deposits provide stable funding, executives are monitoring currency and sector exposures as household debt at 85 percent of GDP has drawn bank downgrades in next-door Malaysia. Authorities have imposed personal and mortgage borrowing restraints as a watchdog estimates that half of younger takers are in “serious trouble. ” Public obligations at over 50 percent of output likewise sparked a recent outlook revision and bond selloff, as re-elected Prime Minister Najib tried to reconcile pro-Malay and anti-subsidy affirmative action.

Iran’s Suspended Sanctions Believers
2013 December 18 by admin

Posted in: MENA
The Tehran Stock Exchange extended its post-Rouhani election advance and the currency firmed from 30,000 to the dollar on a six-month nuclear development for sanctions freeze agreed in Geneva with Western, Russian and Chinese representatives. It will partially lift bank account, oil sales and gold trade blockages to release an estimated $7 billion, while curbs still in place forego quadruple that amount in revenue. Non-petroleum activity through Dubai down one-third should benefit, and officials may use the proceeds to tighten subsidy and monetary policies which produced budget deficits and 40 percent inflation in the outgoing administration as GDP contracts 5 percent and youth unemployment stands at 30 percent. Banks are reluctant to lend amid rising small-business defaults, while big industries from energy to construction remain controlled by the Revolutionary Guards with reported $100 billion annual income and regular privatization wins. The unit and its preferred network of private business executives strongly oppose rapprochement with the US 35 years after the hostage crisis, but their contracts abroad have been hit by the global boycott regime. The EU has stepped up pressure on hundreds of companies and individuals since 2010 and targeted strategic shipping lines. Oil giant Total was one of the last foreign joint ventures before the break and may consider an eventual return should the previous buyback arrangement requiring full advance payment change. Tourism from Europe and the Middle East has already spiked with the presidential transition as one million visitors entered in recent months unlike in next door Iraq, where security is precarious after the US military pullout. The Baghdad local index is ahead slightly after the landmark Asiacell IPO, and foreign banks like Citigroup and Standard Chartered intend to open branches soon as custody services are established. Listed banks have completed rights issues and family-run conglomerates may go public in the near future, according to fund managers.

The UAE due to join the core MSCI universe reinforced its 50 percent surge with the diplomatic breakthrough, as the two constituent bourses also revisit merger plans. Dubai government-linked firms owing $85 billion in medium-term debt by IMF calculation have unloaded trophy assets including the Atlantis resort as the emirate vies to host the 2020 World Expo. Moody’s upgraded the banking sector outlook to stable with the borrower sales and new central bank rules limiting state company exposure beyond high-quality instruments and first-time home loans. It also will launch a domestic debt market for fiscal and monetary operations and Islamic and conventional bonds listed overseas may be added to the local exchanges. Saudi Arabia was also solidly positive on the accord struck with a longtime religious and geopolitical adversary, after authorities expelled expatriate workers in an effort to recruit Saudis into middle-wage jobs. The exchange unveiled a cross-listing framework with Gulf neighbors and tougher broker capitalization standards as bank profits were steady on the meager blast from the new mortgage law.

South Africa’s Explosive Mine Misery
2013 December 13 by admin

Posted in: Africa
South African stocks and bonds reeled with paltry Q3 GDP growth at 0. 7 percent due to auto and mining strikes and soft consumption with unsecured credit pullback, as Eskom power outages reappeared and the ruling ANC party suffered further union and political splits as President Zuma prepares a re-election bid. A coalition wing is promoting a more business friendly candidate as the metal workers leader associated with the main labor federation is an avowed Marxist. Early polls show the opposition paring the margin to 60 percent with inflation and unemployment respectively at 5 percent and 25 percent a multiple of anemic 2 percent economic expansion. Collective wage settlements after initial demands for double-digit annual increases were moderated but rand depreciation at a 20 percent pace against the dollar hurts costs. The fiscal and current account deficits are both in the 5 percent of GDP range through next year, and short-term debt/reserves is steep at 65 percent. Capital outflows resumed in November with the Johannesburg exchange off 10 percent and ratings agencies signaling a possible downgrade early in 2014 compromising benchmark world index inclusion. The central bank has resisted calls for currency intervention but diversified holdings into Chinese renimbi to reflect closer trade and financial ties. The budget in turn envisions restraint in generous official perks as corruption scandals proliferate among the government and its allies heading into two decades post-apartheid and the release of a new Mandela global film tribute.

Nigeria in comparison has outperformed both on the MSCI frontier and JP Morgan local bond index, with foreign ownership up fivefold since it joined the latter a year ago. Treasury bills are also popular, with total portfolio inflows at $10 billion through Q3 on GDP growth near 7 percent. Central bank head Sanusi has kept the benchmark policy rate at 12 percent and tightened FX rules prior to departure as he stressed the importance of paring inflation to single-deficits and pre-election spending into the 2015 contest, with the PDP leadership already showing succession fissures. The excess crude account has dropped below $5 billion as a 2 percent of GDP budget deficit on $75 per barrel oil is forecast for 2014. Power utility privatization has completed a first phase with $3. 5 billion in sales including to the biggest exchange listing Dangote, but the petroleum industry bill remains stuck in legislative limbo with future taxation a major sticking point. The $1 billion sovereign wealth fund began operation and several banks accompanied the sovereign in issuing external debt. Private pension plans are diversifying into equities as the AMCON central resolution agency floats paper to handle another bank cleanup round. Boko Haram terror attacks continue in the North, but within the ECOWAS regional group star status has been gained at Ghana’s expense, with a recent Fitch downgrade to “B” on domestic and foreign liability minefields also detected by the Mahama administration.

Russia’s Master Plan Muddle
2013 December 13 by admin

Posted in: Europe
Russian shares struggled to stay positive on anemic 1. 5 percent GDP growth and the closure of 75th ranked Master Bank for alleged money laundering and other infractions resulting in a $900 million deposit insurance payout. A cousin of President Putin was associated with the institution and its accounts were transferred to state giant Sberbank after the central bank warned of “overheating” in consumer loans which jumped 35 percent through the third quarter. Sberbank’s CEO also cited a “bubble” in slashing housing credit approvals and raising provisions as it prepares $1. 5 billion in medium-term subordinated debt issuance to meet Basel III standards. With 6 percent inflation, price freezes were imposed for energy and transport to also boost government monopoly efficiency, as competitive scenarios underscore indefinite stagflation from oil export and structural reform drift. The current account surplus is projected at only 1 percent of GDP through mid-decade and continues to be offset by capital flight estimated at over $50 billion this year. The ruble has continued to soften toward the automatic intervention zone as interest rates remain on hold with the economy expecting an early 2014 boost from the Sochi Winter Olympics and additional infrastructure projects. Along with petroleum other commodity producers are suffering from cycle reversals as steelmaker Severstal restructures debt and potash firms are caught in a cross-border business and legal struggles. The regional fallout has exacerbated tension with the EU over partnership for CIS members, as Georgia went ahead with a deal at the November summit in Lithuania while Ukraine refused at the final hour provoking large demonstrations in Kiev against Moscow’s influence. Officials partially blamed IMF resistance to renewing a standby arrangement for the turnaround with over $10 billion in external repayment due by end-2014, and reserves already down one-third to $20 billion in October to defend the 8 to the dollar currency peg and cover the 9 percent of GDP current account gap.

The Kremlin may offer gas import and bilateral loan relief but sovereign ratings downgrades are set to continue into the pre-2015 presidential election period as recession and fiscal weakness persist. Foreign investors have shunned both debt and equity with devaluation widely foreseen and President Yanukovych trying to maintain his grip by keeping opposition head Tymoshenko in jail and harassing the party of former boxing champion Klitschko which is close in opinion surveys. Amid the continental rivalry China has surfaced in credit for natural resources and US gas producers have signed facilities. Agriculture has begun to suffer from heavy rains and inflation may again rise to 5 percent next year on food and depreciation pressures. In contrast both prices and the budget deficit were on target in host Lithuania for euro adoption with GDP growth also strong at 3. 5 percent. Exports to core Europe and Baltic neighbors were up 10 percent through September following partial mastery of post-crisis internal adjustments.

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Mexico’s Nagging NAFTA Nostrums
2013 December 9 by admin

Posted in: Latin America/Caribbean
Mexican shares while down for the year continued to lead the region and foreign investors kept their 35 percent long-term bond position despite sluggish 1. 5 percent GDP growth and the leftist PRD party’s break from the post-election “pact” on Pemex private energy opening differences. North American capitals also focused on the 20th anniversary of their free-trade agreement as officials try to boost manufacturing and technology exports with increased skill and wage competitiveness, especially against China. The US, Canada and Mexico are now in the final stages of the larger Trans-Pacific partnership with a dozen countries, and a political reform bill should soon pass to pave the way for the landmark oil monopoly debate, with the ruling PRI considering output as well as profit-sharing to satisfy center-right PAN demands. With the benchmark 3. 5 percent likely to stay into next year the peso has been relatively solid versus the dollar and could settle around 12. 5, despite the fall in President Pena Nieto’s popular approval to 50 percent. His fiscal policy was criticized for targeting unhealthy food and drink for tax rises instead of closing VAT and income loopholes, and the deficit will rise in 2014 on infrastructure spending. Drug violence was again in the headlines as security forces were ordered into a port city, as the administration has yet to broach possible partial legalization as a solution. Bilateral ties with Washington are also caught in the Obama administration’s immigration change agenda, which is stuck in the Republican-led House of Representatives as remittance flows ease in any case on diminished employment prospects. Among the major hemisphere economies growth still compares favorably with Brazil, where the Q3 result was negative, while FDI outreach is at the opposite extreme of Argentina, which just compensated Spain’s Repsol $5 billion for YPF’s nationalization.

With the NAFTA events Central America’s later CAFTA likewise drew reflection amid a busy election calendar beginning with Honduras, where the socialists did not return to power months after an inaugural sovereign bond as the ex-President’s wife finished second. Costa Rica and El Salvador go to the polls in February, with the ruling party standard-bearer far ahead in the former despite the likely loss of investment-grade status on the public debt jump to 55 percent of GDP on heavy borrowing and spending. The wide current account deficit will keep the currency below 500/dollar on growth and inflation both around 5 percent. El Salvador’s close race is set to advance to a second round with the rightist ARENA looking to come back on flat growth and remittance numbers and lagging exports due to the dollarized system. Panama’s contest comes in May with green back use popular on 7 percent economic expansion from its banking and tourism services boom combined with Canal and construction revenues. Cargo tonnage through the passage is down pending enlargement scheduled for completion in 2015, as Nicaragua touts a rival grandiose Chinese-built vision.

Egypt’s Counterintuitive Counterrevolutionary Count
2013 December 9 by admin

Posted in: MENA
Egyptian stocks moved toward positive as S&P raised the sovereign rating to B after nonstop post-Mubarak downgrades in recognition of Gulf “sufficient foreign currency funding” for the budget and balance of payments, with Saudi Arabia adding another $5 billon to the pile in December as new constitutional articles were approved. Rerun parliamentary and presidential elections could be scheduled in early 2014 and the Salafists could eclipse the Muslim Brotherhood as the main Islamic party should it refuse to participate despite a legal ban, especially as ousted President Morsi is soon to go on trial. The GCC’s $12 billion lifeline to date has stabilized the reserve position at $18 billion and the pound just below 7 to the dollar, but domestic debt repayment continues to absorb one-third of revenue, and the government has maintained relations with the IMF should the original $5 billion program be revisited as a backstop. GDP growth at 2 percent and a fiscal deficit at 10 percent of output will be repeated next year covered by double-digit bond yields although bank portfolios are near the danger zone as a portion of assets. The benchmark rate otherwise is on hold as corporate and retail loans rise slightly, aided by a recent $3 billion infrastructure and wage stimulus package designed to alleviate 15 percent unemployment. FDI received a rare boost with the signature of offshore oil exploration contracts but worker remittances remain the crucial offset to the 2 percent of GDP current account hole. The so-called “road map” presented by the military to restore civilian rule has been grudgingly accepted in Western capitals, as the US has hedged its position by suspending defense but not economic assistance. Israel overcame initial resistance after Cairo ordered security forces into the Sinai to block smuggler and terrorist passage. The Tel Aviv stock exchange advanced 20 percent after a positive ratings outlook, appointment of a new central bank head, and lower than projected fiscal gap at 3 percent of GDP. The shekel continues firm against the dollar, and macro-prudential rules were introduced to cool the housing market. The hardline foreign minister returned to the coalition after court rejection of corruption charges, but has pledged to resume dialogue with Palestinian representatives as the US and other powers urge another peace push.

Jordan’s MSCI frontier component was off 10 percent at end-November despite a combination of strong US, Gulf and IMF support. A $1. 25 billion Eurobond issue was guaranteed and the Fund agreed to relax deficit and state electricity company targets in its latest review to facilitate release of a second $1 billion tranche. Morocco was demoted to that index with a 7 percent weighting and may end flat for the year on Eurozone recovery and low valuations. Fuel subsidy reform is underway and tourist arrivals rose 10 percent through Q3 as pan-African bank BMCE followed the sovereign in dangling debt wares.

The Philippines’ Storm-Tossed Straits
2013 December 3 by admin

Posted in: Asia
Philippines President Aquino’s economic management reputation which resulted in unanimous sovereign investment-grade promotion was dented by the initial detached and slow response to the record typhoon Haiyan devastation in the Visayas islands which was the region’s worst since the Indian Ocean tsunami a decade ago. Rebuilding and damage costs in the $10 billion range will shave estimated GDP growth to 7 percent and raise inflation to 3 percent with coconut and rice price squeezes. The 2 percent of output fiscal deficit target should stay intact, but the trade gap will reach 5 percent on emergency construction imports with pre-Christmas remittances rising before the disaster to offset it and keep the peso around 45 to the dollar. Half the country’s provinces suffered electricity and phone outages and thousands were killed just after a severe earthquake as officials declared a “state of calamity” dispatching the military to aid with cleanup and security. The Robinsons mall in Leyte was looted just after the family-owned retail operator listed on the stock exchange for $625 million to support a slight index gain. The benchmark interest rate remained at 3. 5 percent at the last central bank meeting, and bonds may be issued to fund rebuilding with short-term debt/reserves at only 10 percent. In October Moody’s assigned a Baa3 rating with a positive outlook praising “structurally higher growth and budget improvement” after Presidential allies won legislative control six months earlier. Sin taxes were hiked and over $15 billion in public-private infrastructure investment was planned before the upgrade, which also cited anti-corruption strides including new asset disclosure norms.

In Thailand in contrast a bill to offer former prime minister Thaksin and others amnesty for financial and political offenses provoked a firestorm as demonstrators again clashed in Bangkok and sent consumer confidence to a 2-year low, reflected in mere 1 percent Q3 GDP expansion after a flat previous quarter. Tourism was up 25 percent, but household spending dropped as a car-buying incentive ended although a rice subsidy scheme criticized by the IMF continues. A 25 basis point benchmark rate cut has not translated into bank lending as terms stiffen on NPL expectations. Government debt at 45 percent of GDP after a wave of populist credit and infrastructure project outlays has invited foreign investor caution with stock performance likewise turning negative. Shrimp exports were hurt by a disease outbreak, and gold import demand ranks just behind China and India in Asia to possibly enshrine a current account deficit propelling the baht toward 35 to the dollar. Elsewhere in ASEAN Vietnam’s MSCI frontier result was lifted by portfolio and trade liberalization hopes as the equity access cap may be bumped and state enterprises are restructured and divested under provisions of the US-led Trans-Pacific Partnership in the final negotiations stage. A “bad bank” with modest capital has begun operation to rehabilitate the sector, but human rights according to Washington are also due to cloud the imminent TPP debate.

The EBRD’s Stuck Transition Travails
2013 December 3 by admin

Posted in: Europe
The EBRD’s annual transition report, which now covers the Mediterranean and Middle East in addition to the former socialist economies, lamented decade long economic reform “stagnation” as an anti-capitalist post-crisis backlash resulted in a downgrade wave since 2010. Its long-term forecast for modest 2-4 percent productivity growth implies a convergence “stall” with Western Europe’s income level as only Central Europe and Baltic states will attain 60 percent of the EU-15 average, with the majority falling short due to institutional blockages. Democratization may have reversed the past twenty-five years after an early rise in per-capita living standards while natural-resource exporters have been slow to liberalize. Vested interests have stymied transformation and trade and investment integration with more advanced regional members. Domestic polarization has led to official hesitation, and international backing may have been absent to break the logjam. Education and human capital show a mixed picture, and despite the Eurozone’s return to growth internal consumption and remittances are weak. The three biggest emerging markets Poland, Russia and Turkey have joined global peers in a downturn, and state interference in the energy and financial sectors has undermined previous free-market progress in Hungary, the Slovak Republic and elsewhere. Job and school inequality is pronounced in the Balkans and Central Asia, with the gender divide also gaping in places like Egypt, Morocco and Uzbekistan.

Popular discontent was evident in October’s parliamentary elections in the Czech Republic after successive short-lived governments imploded on corruption scandals. A new party founded by an agribusiness and media billionaire finished second, despite his own checkered history alleging collaboration with the secret police during the communist era. President Zeman from the Social Democrats has also lost support since winning the post and waging a campaign against mining and utility firms as recession endures and another coalition tries to honor the 3 percent of GDP budget deficit target. Amid the political infighting the central bank stunned the FX market by overturning its longstanding no-intervention policy with a Swiss-style “unlimited” commitment to hold the koruna at 27 to the euro. The interest rate is already zero and the change should raise import costs so headline inflation approaches the 2 percent goal. Stocks have been in the negative column along with Hungary and Poland, with Turkey still the core category’s bottom performer. Hungarian banks were ravaged further as they were fined for anti-trust violations for discouraging forint conversion during the Swiss franc lending heyday as another relief scheme is under negotiation prior to upcoming polls. Local giant OTP echoed foreign affiliate outrage and said it would appeal the sanctions in court. Lawmakers passed a bill before that decision removing bank charges for cash withdrawals up to a specific limit. Poland’s cabinet was reshuffled as austerity advocate Finance Minister Rostowski was replaced with a private sector economist who still must fix flailing public accounts.

Brazil’s Rooted Ratings Razz
2013 November 29 by admin

Posted in: Latin America/Caribbean
Brazilian shares continued a 15 percent slump through mid-November as the sovereign paid a premium on an external debt liability management operation with a yield over 4 percent as ratings agencies telegraphed further downgrades ahead of elections a year away. A demotion from S&P would teeter on junk territory as Moody’s also revised the outlook to stable on a 2 percent drop in investment/GDP to 18 percent and low growth under the historical 3 percent average cited by the IMF. World Cup spending in 2014 could bring a result in that range, but inflation is running at near double the pace as the real resumed a 10 percent fall against the dollar despite central bank extension of its swap program from $375 billion in reserves. Public debt/output is at 60 percent, 15 percent above the peer-rated group, as the government continues to shovel money through state banks for consumption, exports and infrastructure with the budget coming in at half the traditional 3 percent primary surplus. Tighter monetary policy, with the benchmark rate toward 10 percent, has advanced without actual independence as attempted in a Senate bill to grant central bank directors fixed terms. The President’s personal approval number rebounded to 60 percent, with the ruling Workers Party still with a commanding lead for next year’s poll as an opposition alliance involving previous environmental activist contender Silva has yet to acquire definition. Political analysts predict the margin will shrink once campaigning officially begins and an economic cabinet reshuffling could also be ahead within the context of policy continuity. Finance Minister Mantega, reacting to recent OECD and private bank criticism, vowed to reduce BNDES development lending 20 percent in the near term without offering specific as the public share of outstanding credit remains at 50 percent. The cutback was in contrast to breakneck 25 percent annual expansion in real estate borrowing through the Caixa Federal, as the IMF warned of “property price correction worsening asset quality” in its Article IV checkup.

According to Moody’s Brazilian homebuilder leverage exceeds Mexican counterparts that already defaulted on obligations earlier this year and housing values are up an average 200 percent since 2008 in Rio and Sao Paulo by industry calculations. Mortgages are only 7 percent of GDP, but rising household debt service has resulted in a wave of contract cancellations. More than two dozen international corporate issues are on negative ratings watch, as the Batista OGX bankruptcy in commodities and shipping is the region’s largest with foreign bondholders organizing for court battle under the byzantine insolvency law. They have already been pre-empted by government creditors in the Group Rede utility firm workout, and FDI reticence was underscored by the lone bidding consortium for Petrobras’ landmark pre-salt offshore auction as the giant already owes $185 billion and must contend with constant rule changes no available derivatives hedge can cover.

Local Corporate Bonds’ Index Indecency
2013 November 29 by admin

Posted in: General Emerging Markets
After months of launch speculation Bank of America Merrill Lunch beat rivals to initiate a local corporate bond index limited to $250 billion in Euroclearable components, about one-twentieth the size of the aggregate Asia-heavy universe. A sub-index at half that amount tracks Islamic-style sukuk, and larger constituents also active in external markets include Mexico’s America Movil, South Africa’s Eskom and Malaysia’s Maybank. The sponsor estimates that dedicated asset class money is only $10 billion currently versus the $80 billion to domestic government debt, but notes a post-2008 tripling in volume mainly in the BRICS. Issuance in 2012, three quarters from Asia’s $2 trillion outstanding and China in particular, was $825 billion according to Dealogic, with Latin America and Europe at a combined $400 billion. China’s market is inaccessible outside the foreign investor quota scheme, and secondary trading is scant with the internal buyer base of long-term institutional investors. Custody, withholding tax and exchange controls are also obstacles, and bank and quasi-sovereign paper is most common with subordinated and convertible instruments featuring unlike in foreign taps. Korean blue-chips have completed cross-border placements in Malaysia and Thailand and swapped them into won. Elsewhere through Q3 Indian and Brazilian firms had raised $15 billion and Mexican and Russian ones $25 billion. Pension and insurance funds at home are the primary targets, with major developing economy holdings for the former at $2 trillion and $3. 5 trillion for the latter, according to industry sources. Asian life insurers have $2. 5 trillion on hand, while private pension takeovers in Hungary and Poland slashed allocation there. In the Czech Republic, Israel, South Africa and Turkey 10-20 percent of the bond portfolio is corporate. Latin America’s retirement vehicles in Chile, Brazil, Colombia, Peru and Mexico have $775 billion available as of end-2012, almost one-fifth of GDP, with half in fixed-income.

Defaults were prominent the past year, as the second-tier Tongyang chaebol in Korea was one of several country bankruptcies with a high retail investor ownership. The thirty biggest conglomerates with top-notch ratings command the space with about $40 billion in maturities due in 2103. In Europe S&P predicted additional junk issuer difficulties after ten episodes involving almost EUR 10 billion in non-payment through the first half concentrated in peripheral member names. In South Africa’s $50 billion market engineering firm First Tech defaulted on floating rate notes recently as weak reporting and covenants were revealed. In Brazil the new insolvency code, which in smaller cases has involved lengthy delays and complicated securities hierarchy claims will now be tested further by OGX’s record regional collapse. The government despite its status as a large creditor through the state development bank has indicated a rescue is out of the question unlike in 2009, when liquidity and working capital support was provided to exporters aided by an outside US Federal Reserve swap line as the panic index peaked.

Slovenia’s Slovenly Cleanup Clues
2013 November 22 by admin

Posted in: Europe
Slovenian shares tried to preserve MSCI frontier index gains as the new government faced an early confidence vote over the budget and the central bank head contemplated an EU bailout request with bond yields stuck at 7 percent. The European Commission brandished the excess deficit procedure in its latest review with bank recapitalization sending it to 7 percent of GDP next year as recession lingers. The public debt/output ratio is put at 75 percent in 2015 with leading state lender NLB reporting a EUR 300 million loss with rising provisions through the third quarter. Fitch Ratings calculates that needed injections are double the initial EUR 2 billion estimate, as the IMF called for “decisive action” on structural reform and foreign investment opening. The parliament has inserted banking law provisions for bond and equity holders to share the cost which may embed a premium and deter strategic investors targeted in particular from the former Yugoslavia. Croatia’s stock market is off 10 percent after brief excitement when EU partnership was signed as the sovereign was downgraded while refusing to consider an IMF program, while renewal negotiations remain bogged down in Serbia, which has turned to the UAE for balance of payments help. The young Finance Minister in Belgrade has enlisted tarnished former Managing Director Strauss-Kahn to bolster its submission but fresh elections may again scramble the cabinet lineup and economic policy. In Cyprus the post was assigned to a longstanding Fund executive after spring’s EUR 10 billion lifelines, with the next installment on track after a Troika visit emphasizing privatization and bank balance sheet repair with deposits still shrinking under outward capital controls. Household debt/GDP at 135 percent tops the Eurozone as unemployment heads toward 20 percent on a 15 percent output contraction expected through next year. An independent panel on the offshore center’s future recommended a single regulator and blanket deposit insurance, but the president and central bank governor continue instead to blame each other for the island’s predicament.

Original recipient Greece is also under fire to fill a EUR 2 billion budget gap as further Troika releases were suspended despite a projected primary surplus. Ten companies entered the MSCI emerging markets roster as the Athens bourse rallied 30 percent through November on bank buying despite 30 percent NPL levels, according to accountants Price Waterhouse Coopers. After the ban on the far-right New Dawn party and arrests of leaders, the populist Syriza plans additional efforts to out the coalition with only a 4-seat majority. Isolation deepened from the crisis-prone PIIGS as the IMF granted Portugal its $2 billion eligible portion and both Ireland and Spain indicated they will exit soon from emergency operations without seeking an additional backstop from the new ESM. As these county panics ebb France was in the frame following a ratings reversal to AA, which it labeled “inaccurate criticism” as President Hollande’s approval was fixed at a post-World War II chief executive nadir.

Africa’s Untamed Frontier Ferocity
2013 November 22 by admin

Posted in: Africa
After probing the non-commodity turnaround in a half-dozen Sub-Saharan economies due to a combination of policy stability, good aid use, high investment and deeper financial markets, the IMF’s regional outlook turns to lessons from the past three years’ frontier portfolio frenzy with doubled net private inflows to almost 2 percent of GDP. They have held since the mid-year US Federal Reserve tightening signal and MSCI stock exchange components were up 25 percent through November as Kenya, Tanzania and others join the public sovereign bond queue despite a recent Paris Club meeting on the future workout implications of recent rapid commercial debt accumulation with data limitations likely understating the true total. The reference attributes the “muted impact” to illiquidity but noted that currencies in Ghana and Nigeria were ensnared in the second selloff wave and they moved to adjust fiscal and monetary stances. With greater integration exchange rate and balance of payments issues will be affected by both government and corporate actions which may work at cross-purposes and heighten financial system risk, the review stipulates. The 2009 Nigerian banking crisis stemmed from a stock market bubble fueled by foreign borrowing and macro-prudential controls have since been applied there and elsewhere, including capital adequacy supplements and individual institution and industry contingency planning. These measures are preferred to outright capital restrictions which should only be considered in an emergency and may thwart the development need to raise private sector credit and financial services access, the Fund advises. Local-currency bond takeoff is a priority outlined at a 2011 G-20 summit and bilateral and multilateral agencies have since drafted a diagnostic framework for the separate money, government, corporate and derivatives markets. A working group on securities databases is compiling structural information about the yield curve, investor base, foreign participation, benchmark instruments and turnover ratios and bid-ask spreads. The supervisory, clearing and settlement and dealing networks are the subject of qualitative assessments designed to gain official commitment to “upgrade and reform,” according to the manual. The central bank’s open market operations will help guide short-term activity while a medium-term debt management strategy though the main Economic Ministry or dedicated unit will set the primary and secondary parameters and target buyer categories over time through regular auctions and competitor selection.

Retail scope could be minor in early stages and institutional diversification could be hampered by the lack of insurance, mutual and pension funds. Dealers should have their own professional association for standard-setting and discipline and all transactions should be reported to the authorities and pass through a central depository, the guide suggests. Repo and short-selling introduction will facilitate efforts and local credit rating houses can be considered should they be commercially viable and credible. Taxation and the division between over the counter and exchange issuance are important factors in the context of overall sequencing of policy and practical steps, and a detailed checklist is designed to tame building fears.

China’s Fulsome Plenum Pleas
2013 November 19 by admin

Posted in: Asia
Chinese stocks tried to move into the positive column on reform momentum from the central committee plenum, with the 60-point agenda now to advance to December‘s economic work conference for party leaders for possible near-term implementation. Future phasing out of the one-child policy grabbed headlines and reflected the cost burden of old age support with limited official pension schemes already in difficulty. The household registration system will be modernized to hasten urbanization and access to social services and utilities to be more market- priced. Private capital and ownership will be increased in big state-owned enterprises and infrastructure projects, and dividends will be raised 10 percent by end-decade. The declaration vowed faster commercial exchange rate determination and convertibility as several Chinese brokers introduced ETFs in the US for direct participation in “A” shares. Local governments will proceed with pilot bond issuance and formal deposit insurance is under consideration as ICBC was added to the Financial Stability Board’s list of the world’s systemically critical institutions. Its Q3 profit was up only 7. 5 percent on a reported one percent NPL ratio as smaller banks and distressed asset arm Cinda launched Hong Kong IPOs to mixed success. October lending figures were at this year’s low with the regulator insisting on caution toward industrial borrowers with overcapacity and new guidelines for wealth management product exposure. Premier Li urged provinces to curb debt vehicles as Moody’s calculated the amount outstanding at almost RMB 10 trillion, while the national auditor conducts its own updated tally. Although land revenue rose 50 percent through September on an annual basis the rater concluded that just half the universe can meet principal and interest payments without rollovers. Over-leveraged property firms are likewise the main corporate default concern according to S&P as net debt/equity is above 200 percent. Exports and the trade surplus rebounded last month as food-driven inflation topped 3 percent. GDP growth may again be stoked from a 55 percent fixed-investment contribution to 7. 5 percent but officials have signaled likely slowing into 2014 which may alter Plenum priorities.

At the opposite stock market performance end Indonesia with a 20 percent loss acknowledged the lack of an imminent turnaround in coal sales to the mainland and its overall terms of trade with another benchmark interest rate hike.