No More Learning

The Government Pension Plan is expected to expand emerging market debt allocation reflecting parallel retail investor interest especially in Latin American and European offerings. A breakthrough was attempted on the Trans-Pacific Partnership negotiations during President Obama’s Tokyo visit and could still materialize to enable a treaty draft to reach parliaments by September, according to observers who note that the US Congress could still delay ratification without the Executive’s cudgel of one-time vote promotion authority.

The Indonesian result will be challenged to be as decisive as India’s where prime minister Modi was sworn in with a compelling BJP majority in the lower house as the long-dominant Congress Party led by the Gandhis suffered historic defeat. Equity market capitalization is $1. 5 billion on torrid foreign inflows despite P/E ratios over 15, and even into battered banks with admitted bad loans at one-tenth of portfolios on the slowest federal growth in decades defying Gujarat-type rebirth.

The IMF’s Small State Large Stakes
2014 June 6 by admin

Posted in: Latin America/Caribbean
The IMF after mixed results from combined commercial debt restructuring and official lending programs in St. Kitts and Nevis and Grenada presented policy guidance for small island state engagement in the Caribbean and Pacific with clear investor and government leader direction. It is intended for the forty members with populations from 200,000 to 1. 5 million that recently gathered in regional conferences in the Bahamas and Vanuatu. They lack economies of scale and with narrow export and production bases show greater external shock tendency. Foreign ownership is high in most sectors and GDP growth lags behind other developing countries with more advanced infrastructure and technical capacity. Public debt levels are steep and Caribbean middle-income status excluded bilateral and multilateral cancellation. Financial systems are shallow and banks and non-banks often are too government-reliant which poses additional obstacles to strict oversight. Global capital market interaction is limited hampering liquidity and dollar exchange rate pegs dictate monetary policy and can hurt industry competitiveness. Growth and job creation have been slow due to private sector weakness and labor market rigidities, according to the paper. Migration and remittances act as lifelines particularly at times of natural disaster which can aggravate fiscal deficits in the absence of binding balance rules. Donor-supported catastrophe insurance is now available but has proved expensive and offers only “marginal” climate risk and energy-transport cost mitigation, the Fund believes. Regional trade and cooperation offer advantages but Pacific islands are too remote to benefit, and bond defaults should be avoided with workouts facilitated by collective action clauses. The East Caribbean common central bank and securities market could be a model for micro-states but has not prevented chronic over-borrowing and exchange rate pressure. In the past decade the Fund’s rapid response facility has been tapped twenty times for weather and geological emergencies, and structural reform conditions have not been priorities but are vital to medium-term recovery and sustainability. St. Kitts and Nevis completed a 2012 50 percent net present value reduction with full domestic and external creditor participation and interest and principal haircuts. New instruments were partially guaranteed by the Caribbean Development Bank and a special purpose vehicle backed by land was included. Tourism accounts for half of exports and depends mainly on US visitors, but the 50,000 inhabitants have diversified into other services and overseas markets. With VAT introduction debt-GDP should soon come down to 100 percent and sugar has been abandoned as uneconomical despite its historic importance.

Grenada on the other hand went off its Fund program a year ago after missing targets and insisting on further commercial bond concessions still in the process of negotiation. GDP growth was stagnant with a lingering primary fiscal gap and 40 percent of benchmarks “never achieved. ” Business climate changes remain elusive with local institutional and professional capacity constraints as Prime Minister Mitchell has been unconstrained in his criticism of bondholder behavior to raise the pain threshold.

Colombia’s Guerilla Tactic Retreats
2014 June 2 by admin

Posted in: Latin America/Caribbean
Colombian stocks paused as the presidential race went to a second round between the incumbent Santos and his main challenger Zuluaga, a protégé of his predecessor Uribe who has assailed an outline peace deal with FARC rebels after lengthy negotiations in Havana. Commodity and construction-related 5 percent GDP growth caused the central bank to raise interest rates slightly as it also resumed dollar buying with an estimated $3 billion in local bond inflows following reweighting in JP Morgan’s benchmark index. Inflation is on its long-term 3 percent target and the 3. 5 percent of GDP current account deficit is overbalanced by foreign direct and portfolio investment. The feuding between the Santos and Uribe camps has alienated voters according to opinion surveys which show consideration for the Green Alliance candidate Penalosa, a former Bogota mayor and technocrat. The talks in Cuba have dragged on for months with few points agreed between the guerillas and government, which still envisions an end-year accord. Demobilization funds and possible drug trade normalization are outstanding issues and officials hope to draw private sector financial backing for solutions following the mixed record on infrastructure development with $25 billion in road projects planned for the coming years. In Chile returning President Bachelet immediately went to work on hiking the corporate tax and eliminating write-offs to pay for wider university access, a move she claimed would affect only the richest corporations although it will contribute to reduced 2. 5 percent GDP growth on inflation at double that number on currency weakness. Listed companies have announced spending cutbacks as banks are unsettled by slower credit growth under tighter prudential monitoring. With the accumulation of private domestic and foreign debt the country has appeared alongside the “fragile five” in vulnerability tables although many analysts argue the trend is manageable. The private pension framework may also be revamped under the new administration as US houses have acquired two funds anticipating evolution. Taxes have also been imposed on unhealthy consumer products to raise revenue and encourage lifestyle changes, and the President has vowed to replace the Pincochet-era constitution with outsize military influence including its automatic claim on state copper miner proceeds.

Mexico’s energy reform slog, which along with lackluster 2 percent growth has fostered an MSCI share loss so far, may demonstrate the complexity of charter revision as the Pena Nieto team tries to win congressional support for its Pemex private opening terms. The initial proposal mandates 25 percent local content over a decade period and a royalty regime tied to oil type and price. A presidential ally was elected to lead the ruling PRI as the assembly debates a raft of enabling law changes in telecoms and political conduct as well. Citigroup’s Mexican unit has come under fraud investigation as commercial lending has increased just 5 percent annually and the peso has been a popular short as momentum recedes.

Corporate Bonds’ Unsung Universal Strains
2014 June 2 by admin

Posted in: General Emerging Markets
Corporate bond spreads widened against sovereigns, which dipped below 300 basis points over US Treasuries in May on resumed retail fund inflows, with the former benchmark at half the EMBI advance, despite $150 billion in oversubscribed gross issuance predominantly from top-rated names in Asia and Latin America. Under ratcheting sanctions Russian borrowers accounting for 12 percent of the CEMBI have been absent slashing Europe’s share to just 10 percent of the total. In Asia and the Middle East local banks and institutional investors have overwhelmingly absorbed the placements, and Latin American companies have tended to tap only sophisticated private buyers and switch to euro-denominated instruments. Prominent defaults this year include a small Ukrainian bank in trouble months before the Crimea escalation, and Mexico’s Oceanographia which pulled down Citigroup executives accused of collusion with it. Other big sponsors have spurred anxiety: Petrobras has become a presidential campaign headache with accusations of overpayment for foreign acquisitions; Chinese property developers have postponed operations on mixed real estate readings and leverage concerns; and Venezuela’s PDVSA has hit the market with a $5 billion program to mobilize scarce dollars after earlier renouncing 2014 entry. According to specialists the asset class has avoided selloffs due to limited liquidity and dealer inventory and the presence of cross-over bids from the saturated US high-grade and high-yield markets. Emerging economy constituents are a tiny portion of their benchmarks and ratings are relatively firm although downgrades now outstrip upgrades. Debuts that represented one-quarter of activity in 2013 have been rarer and financials have resumed popularity to meet Basel III capital standards, especially through subordinated structures with equity conversion features. Gross leverage has hit new peaks in Asia and Latin America, but 2014 rollover needs are manageable at $80 billion overall, particularly with syndicated loans also reviving post-Eurozone crisis as $75 billion was arranged in March according to industry figures. Unrated and speculative portions have come back in line with their 30 percent historic asset class average, but Europe’s regional one will be meager as the Russia-Ukraine and Turkey respective geopolitical and political sagas continue to unfold, analysts believe. A Kazakh bank in the category has already restructured, and Ukrainian private issuers could soon conduct distressed exchanges.

In Asia in contrast election outcomes in India and Indonesia should be positive for their state and family-owned credits while China preference is for giant government enterprises versus caution on second-tier banks and aggressive property firms. Dubai conventional and sukuk varieties continue to enjoy Gulf-wide support, while Venezuela’s oil company paper should be snapped up by both state and private buyers in desperate need of foreign exchange despite the recent re-launch of the SICAD trading scheme. President Maduro however has spurned the same common ground in reaching out to peaceful and violent opponents as he invited dialogue surrounded by arrest and military assault strains.

The African Development Bank’s Relocation Rub
2014 May 29 by admin

Posted in: Africa
The African Development Bank formally re-established its headquarters in Abidjan after a dozen years in Tunis as civil strife switched bases ahead of the annual meeting in Rwanda accompanied by a breakthrough local currency bond and upbeat 6 percent sub-Saharan GDP growth forecast. The IFC placed the first of a Rwandan franc series up to $300 million equivalent at a 12 percent yield with mainly domestic banks and institutional investors, under an East Africa-wide program. The exchange lists just one government bond and equities are geared to cross-trading with neighbors. The effort followed international commemoration of the genocide 20th anniversary and praise for President Kagame’s tribal reconciliation and economic modernization push despite the lack of political challenge. Output there should expand 7 percent as the continent’s medium-term projection is for levels preceding the 2009 crisis, according to the latest update authored with the OECD and UN. The agencies also expect lower inflation with reduced energy and food prices and “prudent” fiscal policy allowing scope for interest rate cuts. They warn however of precarious security in places like the Central African Republic and Mali, adverse weather conditions, infrastructure project delays, and lingering poverty and social tensions as pervasive risks. External financial flows have quadrupled the past 15 years to $200 billion with foreign direct and portfolio investment at $80 billion, above both remittances and official aid. Private capital is increasingly diversified from raw materials into manufacturing and services, as African export growth outpaces other regions although it represents less than 5 percent of the global total. Value chain integration rivals other geographies, but quality and costs remain obstacles and “social upgrading through greater jobs and skills has been limited, according to the analysis. Host countries often impose onerous local content requirements or lose revenue through too generous tax incentives, and lack the organized business associations to engage with multinational executives. By sub-region Central Africa will see 2 percent contraction in oil-producer Equatorial Guinea, while Chad will grow over 10 percent at the opposite extreme. The former will also have the biggest budget deficit, while Congo expects a 10 percent surplus.

In the East, Ethiopia, which just received a sovereign rating in preparation for a maiden bond, is on track for 7. 5 percent growth as textile manufacturers pool efforts for foreign partnership, as Somalia and South Sudan are unpredictable amid repeated conflict. In the South Angola will expand at triple South Africa’s 2. 5 percent “depressing” clip, the AfDB comments. Labor unrest and global slowdown have contributed to the “modest” outlook as President Zuma’s convincing 60 percent-plus re-election could herald another area departure with more business-friendly policies according to meeting participants with miners also ready to settle. The currency, bond and stock markets reflected cautious optimism that his second term would aim to overshadow personal scandal with professional competence in the shadow of post-apartheid’s 20th anniversary and President Mandela’s posthumous legacy.

The Gulf’s Gritty Graduation Gradients
2014 May 29 by admin

Posted in: MENA
Gulf stock markets braced for the May MSCI reshuffling with the UAE and Qatar in the core and Kuwait a residual frontier heavyweight, as Bahrain and Oman anticipated increased attention from both dedicated regional and global investors. Hydrocarbon and private sector-driven GDP growth will average 4 percent on inflation around the same level mainly due to housing costs. Fiscal and current account surpluses will continue in double-digits as a share of output as net foreign assets held in sovereign wealth funds and accounts reach $2. 5 trillion. Bank credit should again expand over 10 percent on loose monetary policy reflecting the US dollar pegs, and value added taxes may be considered to raise revenue, according to a recent IIF forecast. With high unemployment in the GCC foreign worker participation will fade over the medium-term as migrants are sent home and discouraged at the same time nationals are recruited for skilled positions and trained for productivity gains. In 2013 $2. 5 billion in IPOs went ahead after a prolonged lull and in February dual London-listed Gulf Marine completed a $300 million deal. The UAE has led the pack with a near 40 percent increase through April, although merger talks have been shelved indefinitely between the constituent Abu Dhabi and Dubai exchanges, and capital inflow momentum has slowed with relative calm in Arab Spring neighbors. After Dubai World’s recent $20 billion refinancing from the main emirate, another government-linked company offered unprecedented balance sheet disclosure to support a sukuk. Property prices have roughly returned to post-crash ranges, but mortgage loan limits and transaction taxes have pre-empted another bubble. The world’s tallest tower has become a big tourist draw despite early skepticism and Expo 2020 is shaping up as a future milestone with officials thus far confident of crowds and infrastructure funding. Saudi Arabia’s 20 percent advance was behind, as it remains closed to foreign portfolio investors who can enter through promissory note programs sponsored by global houses like HSBC. Riyadh is a construction hub with citizen residences, a new airport terminal, subway and financial center going up as part of $1 trillion in planned projects. The state has stepped in with multiple mortgage sources to fill the gap left by commercial banks, and mortgage-backed securities may soon be launched. Labor force “Saudization” has resulted in the exit of hundreds of thousands of expatriate workers and may raise wage pressure as the fiscal blueprint assumes a breakeven oil price of $90/barrel.

Qatar will again be the GDP growth leader at 6 percent but breakneck World Cup spending has forced controls on future borrowing as gas production falls short of targets. Kuwait’s 2 percent showing in contrast has been due to political standoff which eased after parliamentary elections a year ago. Electricity shortages have hurt business and angered the small population, and after serial debt restructurings Kuwait Finance House may have passed its post-crisis test.

Europe’s Inescapable Smaller Economy Grind
2014 May 27 by admin

Posted in: Europe
The EBRD halved this year’s regional growth forecast to 1. 5 percent on “unusually high” uncertainty from Russia-Ukraine fallout, which could bring recession there and throughout transition countries under a negative scenario. The lender noted that Croatia was already in that predicament and was placed under the EU’s excess deficit procedure with public debt at 60 percent of GDP, as the banking system has a 15 percent NPL ratio. The Slovak Republic in comparison will show 2 percent growth on domestic and German demand redeeming its decision to join the euro, which all the Baltic members have embraced with Lithuania due soon to be the last of the three to enter despite 20 percent Russian export dependence. The Southeast faces “big challenges” on fiscal, financial sector, and structural reform issues as FDI continues to lag the pre-crisis average. Albania has turned to the IMF with weak bank and corporate balance sheets exacerbated by Greece’s and Italy’s woes as immigrants return. Among the smaller states of the former Yugoslavia Bosnia and Herzegovina has extended its Fund program through 2015 but political stalemate has stunted investment and deterred remittances with the decentralization model an unconvincing precedent for current application to Ukraine. FYR Macedonia has been a business community favorite with its incentives and multilateral contingency line qualification, while Montenegro has an outsized 15 percent of GDP current account deficit that may be difficult to bridge with Russian tourism loss and it recently had to rescue an aluminum company. Kosovo remains the poorest with mass unemployment and poverty even with its addition to development bodies with independent recognition. In the Caucuses Armenia’s economy had “steep construction contraction” and a judicial ruling on pension changes could further dent private investor confidence against the precarious security backdrop. Azerbaijan will grow at half 2013’s 6 percent clip on oil production decline, although the sovereign wealth fund has ample assets bolstered by an inaugural external bond issue. Belarus’ growth is flat on 15 percent inflation, with foreign reserves critical at less than two months imports as President Lukashenko considers another term in 2015.

Georgia went to war with Moscow previously but will sign an EU association agreement in June after a presidential transition increased consumer confidence, the EBRD reports. The accord will ease agricultural trade barriers to allow 4 percent growth offset by diminished Russian visitor volume. Moldova is now in the revanchist geopolitical crosshairs in the Transneister strip as it presses Brussels for visa-free labor mobility with parliamentary polls approaching. In Central Asia, the Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan are also highly reliant on remittances. Kyrgyz currency depreciation caused 5 percent inflation in Q1, and Tajik banks have steep NPL levels. Turkmenistan’s and Uzbekistan’s commodity exports have diversified to China and enabled double-digit GDP increases, as authoritarian rulers have embarked on showcase infrastructure projects that may “grind to a halt” in the Bank’s phrase with further CIS shudders.

Central America’s Central Bank Swerve
2014 May 27 by admin

Posted in: Latin America/Caribbean
With the Dominican Republic just reissuing a global bond before the President eyes re-election and Costa Rica’s new team debating fiscal and monetary policy changes the IMF in a research paper expressed reservations about regional central bank finances “negative in cash flow terms” as they try to support inflation and economic stability goals. Further balance sheet reinforcement is needed under benign conditions and shocks could pose operating and solvency risks in view of the historical record, the analysis comments. The five countries including Guatemala, Honduras and Nicaragua regularly intervened in commercial banks in past decades causing losses and since have moved to exchange rate-dependent inflation-targeting. Legal reforms conferred autonomy through the early 2000s but now are “stalled” in relation to appointments and terms and other standard practices adopted long ago by bigger Latin American economies, despite upgrades in oversight, lender of last-resort and payment functions. Recapitalization instruments typically carry below-market interest rates at maturities up to 50 years far beyond normal yield curves. Where legislation mandates budget transfers, implementation has been spotty with proceeds diverted for “more pressing” purposes, according to the document. Income positions have improved in recent years but no central bank is in the black, and foreign assets are up on reduced external debt especially after Nicaragua’s official cancellation. Securities outstanding are 7 percent of GDP and 80 percent are in local currency. Public sector claims are down the last decade to 10 percent of output, but aggravate negative capital value if international accounting norms were applied. Unremunerated reserve requirements help offset this weakness but reinforce financial system distortions. Over the longer-term lower inflation at home and higher returns on foreign reserves would contribute to health, but natural disasters and other setbacks could foster a “prolonged period” of inadequate resources, the Fund concludes. It finds across-the-board lags in qualitative and quantitative measures versus smaller hemispheric peers like Colombia and Peru, but omits reference to the Eastern Caribbean common central bank experience as a possible alternative. Latin America’s broader group has able technocrats in charge who have taken aggressive steps outside the wishes of nominal political masters, as in Colombia’s April interest rate hike amid national elections. They are also net creditors without need for sovereign borrowing abroad from private or bilateral-multilateral sources, with Panama the only isthmus example tied to the Federal Reserve with dollar use.

A Caribbean comparison could be more apt among the larger islands where predicaments could be relatively worse with near-defaults in Jamaica and Barbados. The former has won praise for finally sticking with its IMF program after a voluntary local bond restructuring to meet fiscal benchmarks, as growth turned positive reflected in MSCI stock market gains. With debt-GDP at 95 percent, Barbados’ government shed thousands of employees in a last-ditch move to avoid its own Fund resort, as dollar-denominated paper outperformed the EMBI through April in a bittersweet punch.

Thailand’s Clinging Colorful Shirts
2014 May 20 by admin

Posted in: Asia
Thai shares tried to stay positive as martial law was declared after Prime Minister Yingluck resigned after the powerful constitutional court found her guilty of abusing office with an advisor replacement three years ago, as she still faces criminal charges for alleged violations during the costly rice subsidy scheme. New elections remain set for end-July under threat of opposition boycott as the former commerce minister took the interim government reins and was promptly met with another round of yellow-red shirt street battles in Bangkok. A slight current account surplus has been maintained on import shrinkage and tourism has not cratered as in the past, but domestic consumption has suffered on poor sentiment and banks pulling retail lines. The ailing king has not pronounced on the impasse and the military has been restrained although it has hinted at pre-emptive action with civil war risk. Portfolio accounts have begun to reflect local institutional investor weariness of the saga with net outflows as the rest of the region features greater returns and stability. Attention has turned to the hundreds of companies in Vietnam starting with the state airline again to be “equitized” through minority foreign private stakes, but there too plans have been sidetracked by political infighting as well as offshore oil fighting with the Chinese navy which erased a chunk of 2014 MSCI frontier gains. Premier Dung has been on the defensive since the collapse of the Vinashin shipping conglomerate which defaulted on external debt, but he has failed to win backing for faster restructuring or an ASEAN common maritime approach toward Beijing which claims historic and natural resource-rich sea lanes. Korea has been in a longtime currency and trade spat with its former enemy as it also prepares for more missile tests from Pyongyang according to defense reports. The central bank has been on interest and exchange rate holds on 4 percent GDP growth driven by good high-tech export and household demand performance. However stocks have struggled with lackluster earnings and corporate governance with $2. 5 billion going to dedicated short funds authorized in 2013. On the free trade front, Japan’s desired entry into the Trans-Pacific Partnership with the US could erode volume from a previous bilateral accord completed in the first Obama term, but Tokyo’s auto and agricultural objections have yet to be overcome.

Japanese FDI into East Asia has been a major post-Abenomics theme with banks expanding their branch and acquisition presence and leading project and syndicated loan tables. Offshore relocation has left a record trade deficit and raised neighbors’ competitive profile, but Japanese retail investors continue to prefer EM currency Uridashi bonds from other regions. Europe and Latin America were the most popular, with the Brazilian, Mexican, Hungarian and Turkish units preferred as the Russian and South African ones were spurned after a torrid run. Indonesia’s rupiah and India’s rupee were only 1 percent of the total but their election breakthroughs could alter the team garb.

Uruguay’s Refreshing River Run
2014 May 20 by admin

Posted in: Latin America/Caribbean
Uruguayan President Mujica, an octogenarian former guerilla, visited Washington ahead of October elections to review bilateral trade and investment agreements and broader South American direction especially with partners Argentina and Brazil. His ruling coalition is favored in the upcoming poll on 3 percent GDP growth, despite inflation above the 6 percent upper target range and a current account gap at 5 percent of output mainly covered by mining FDI. Foreign reserves at over $15 billion are several times short-term external debt and international holders of investment-grade rated local instruments are kept in place by special set-asides and yields are negative. The peso has retraced 25 percent from last year’s level and the country has top governance and transparency rankings in contrast with its River Plate neighbor as Argentines seek financial and property havens from stagflation and capital controls. Despite the administration’s leftist rhetoric business policies have been pragmatic and the leadership represents continuity unlike alternatives like Panama, where the opposition just defeated the incumbent’s designated successor in a major surprise. Under President Martinelli, a wealthy grocery executive the offshore banking and construction sectors boomed but he was also linked to bribery allegations around Canal contracts and provoked resentment when his wife was named the recent ticket’s vice-presidential candidate. The winner Varela intends to maintain public outlays for 7 percent annual growth but envisions more social spending and food price curbs to address popular complaints. Canal expansion has been delayed by worker strikes over unresolved pay and safety issues, and he also wants to strengthen judicial powers of independent investigation which may reopen his predecessor’s abuse case.

Argentina’s bonds are up almost 50 percent the past year to cap the EMBI as $5 billion in paper for the Repsol expropriation settlement was easily offloaded with the sovereign still barred from US access by pending Supreme Court actions. Justices have heard the first dispute on asset collection efforts, and the second will treat the pari passu New York tribunal interpretation seizing existing bondholder payments for creditor claims. The GDP warrants from that exchange will not be triggered this year with the economy in recession, and the state statistical agency will not print annual inflation readings until 2015 under its new methodology developed with the IMF. Private estimates of around 35 percent are complicated by widespread controls and subsidies for the consumer basket which officials pledge to phase out over time. International reserve loss has been staunched with peso depreciation and new bank dollar position rules, despite a narrower trade surplus on energy imports. President Fernandez will exit in 2015 after two terms as her Brazilian counterpart attempts the same feat with her lead fading in opinion surveys. President Rousseff is now just 10 points ahead of PSDB standard-bearer Neves, a senator who recruited former central bank chief Fraga as an adviser. Socialist party entrant Campos has united with environmentalist Silva who ran previously to clean up Amazonian corruption scale.



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The EBRD’s Convoluted Conversion Convocation
2014 May 19 by admin

Posted in: Europe
The EBRD annual meeting in Poland approached its 25th anniversary under the cloud of the Ukraine crisis eroding post-Soviet Union regional economic momentum as new client Egypt also appeared to badly backtrack on the eve of elections enshrining military rule in democratic guise. Companies in host Warsaw reported lower exports with its neighbors’ troubles as forecast 3 percent GDP growth this year will depend on consumption and retail credit with the central bank’s rate stance on hold. The stock market was flat in MSCI terms through April as BNP’s local unit floated shares while government bonds remained overbid with auctions to fade in the coming months on private pension fund takeover. The zloty firmed at 4 to the euro as joining the single-currency bloc again appeared on the agenda for diplomatic and monetary benefits, with an end-decade target tabled. Hungarian equities were down almost 10 percent on another 10 basis point benchmark dip to 2. 5 percent as deflation loomed after Prime Minister Orban sauntered to repeat victory with the far-right Jobbick party a strong runner-up. European monitors slammed the process as unfair in district and media coverage while actual voting was conducted without incident. Fidesz’s two-thirds parliamentary control could bolster longtime stands against foreign business which have slashed investment to post-World War II levels as allies are appointed to the constitutional council and central bank. International relations could be further roiled by revanchist tendencies toward a “greater Hungary” including nearby minority populations as unchecked power invites comparisons with Russian President Putin’s westward push. Czech stocks have led the trio as the exchange rate floor policy was indefinitely extended with the 2 percent inflation goal in sight and the central budget in surplus. Both Euro-zone exports and domestic demand have picked up to lift GDP growth toward 3 percent and the Finance Minister has pledged long-overdue capital markets reforms including cross-border integration.

Romania has been a draw as a sovereign bond meeting 2014 needs was oversubscribed at a record 3. 5 percent yield on the back of ratings upgrades and compliance with EU fiscal deficit criteria. Banks have increased local currency loans 5 percent and Templeton has renewed its contract as a state asset fund manager with further stakes due for divestment under the precautionary IMF arrangement. Serbian securities were also boosted as Prime Minister Vucic won elections decisively and will appoint a technocrat cabinet with a mandate to resurrect Fund ties and redress huge budget and current account imbalances and double-digit unemployment. Exchange rate intervention will likely be discouraged under the program, as Egypt’s 7 to the dollar informal peg also bent in advance of its presidential poll with presumptive victor and former general Al-Sisi declaring no place for the Muslim Brotherhood or radical subsidy removal. Gulf countries have not signaled their subsequent assistance intentions as a policy wall stays in place with other development sponsors.

Nigeria’s Harrowing Hostage Hosting
2014 May 19 by admin

Posted in: Africa
Nigerian stocks struggled to overcome double-digit decline as the World Economic Forum-Africa opened in the capital against the backdrop of Boko Haram’s snatching of hundreds of schoolgirls and a travel ban imposed on former central bank chief Sanusi as his allegations of billions of dollars in missing oil funds are investigated. Finance Minister Okonjo-Iweala has hired Price Waterhouse to conduct a forensic audit as she announced wealthy executive Dangote would finance his own search for the kidnap victims along with the state security services aided by international teams. The WEF originally was slated to trumpet ascension to the continent’s largest economy with output over $500 billion after data recalculation, despite per capita income half of South Africa’s and entrenched poverty which has hurt profits at consumer good listings betting on expansion. Heavyweight Dangote Cement for its part has stressed cross-border entry as a common West African tariff under ECOWAS goes into effect, even as it added power assets to the group portfolio and expressed confidence that the upcoming presidential transition will be smooth pending the incumbent Jonathan’s decision on a second term. Foreign investors have returned to local bonds on reserves nearing $40 billion and the naira at 160/dollar, particularly with the need to diversify from Europe’s geopolitical predicament within EMEA allocation. Fiscal and monetary policy have offered support, with the excess crude account up one-third to over $3 billion and the new central bank governor spurning devaluation as inflation stays in single digits. Despite 6 percent predicted economic growth the budget deficit will continue as the rebasing underscores poor tax collections at just 5 percent of GDP. The terrorist campaign in the North has claimed thousands of lives in recent years and officials have targeted aid initiatives and a more visible military presence in an effort to counter Boko Haram’s disgruntled Muslim youth appeal and capture its elusive leadership. Banks have been asked to pursue corporate and retail customers but are cautious in view of the physical threat and tighter capital adequacy and margin rules. With post-2008 consolidation many have turned to external bond markets to maintain competitiveness and size and forge potential relationships abroad in anticipation of an EU-ECOWAS free trade pact.

Kenya too was hit by an alleged Somali militant bus bombing as the MSCI Index remained positive with the 8. 5 percent benchmark interest rate on hold. A sovereign bond road show has been organized to bridge chronic fiscal and current account deficits which could improve this year on public wage restraint and better agricultural and tourism performance and oil discoveries. Ghana still plans a $1 billion Eurobond as it considers IMF program renewal, and in the franc zone petroleum powerhouse Cameroon will debut despite a recent Fund Article IV visit criticizing wasteful subsidies which have helped keep President Biya in power for thirty years with the opposition hostage to spending and police shutdowns.



Bank Conditions’ Crude Unrelenting Cry
2014 May 15 by admin

Posted in: General Emerging Markets, Global Banking
The IIF’s Q1 bank officer sentiment index drawn from 150 responses showed another point and a half drop to 48 as demand and supply deteriorated in Europe and Latin America in particular, and trade finance became more difficult. Consumer and housing loans were off on tighter global standards despite stability in external funding as NPL levels are due to rise, although Central Europe suffered from geopolitical jitters affecting company lines as well despite investment recovery. Asia was battered by high personal debt levels while the Middle East and Africa were not as damaged given their lower credit bases. However these two regions depend on cross-border export facilities that have become scarcer and more costly without the domestic backstops available elsewhere and they may have to tap outside official help to relieve a persistent crunch. In the Vienna Initiative countries figures from 2013’s last quarter reflected sizable reductions to Bulgaria, Hungary and Slovenia as well as Russia before the onset of the Ukraine crisis.
The area’s average loan-deposit ratio was down to 110 percent as consumers deleveraged since 2008, but face a new budget and inflation threat with the potential cutoff of Russian energy, although Poland and Slovakia have reserve stockpiles and other neighbors can access alternatives. Eurozone peripheral members could likewise face renewed pressure on this front causing another accumulation of ECB Target 2 imbalances which improved 50 percent under IMF-EU adjustment programs in the final stages. Greece and Portugal now run prudent budgets and current account surpluses and have successfully returned to commercial bond markets without seeking additional bilateral or multilateral support. Hungary’s central bank has tightened foreign exchange exposure limits and ended overseas holding of the two-week Treasury bill in an effort to re-establish domestic lender dominance following the path charted in the Orban administration’s first term. Fitch Ratings assigned a stable outlook for Slovenia despite likely reshuffling of the top political leadership as bad assets were transferred to a central management agency and all 2014 external debt needs were met at low yields. The economy remains in recession and pension reform and privatization are erratic but talk of emergency rescue which crested post-Cyprus has quieted. Even with capital controls still in place the island has resumed voluntary private bond placement with a 6-year 6. 5 percent London Stock Exchange listing.

The hard currency EMBI and CEMBI benchmarks have outperformed as retail fund inflows resume according to EPFR and monthly positive portfolio inflows are heavily weighted to bonds as calculated by the IIF’s 30-country tracker. Through April sovereigns have raised $50 billion and corporates $125 billion about half the full-year forecasts by major houses notwithstanding the disappearance of Russian borrowers shunned by creeping sanctions. Investment-grade governments like Romania and Turkey were oversubscribed and junk paper from Pakistan, Sri Lanka, Lebanon and Zambia also recently mixed in the contrasting immutable mania.

Multinationals’ Mirrored Merger Mania
2014 May 15 by admin

Posted in: General Emerging Markets
So-called “Southern” multinational firms in developing and transitional economies have overtaken industrial world competitors in the global M&A sweepstakes and now account for 55 percent of the total, according to new research by Geneva-based UNCTAD. Last year deals were up 5 percent overall to $350 billion, as developed country investors retreated from natural resources and manufacturing and focused on services and telecoms. Emerging market rivals in comparison went heavily into the consumer and financial sectors, with two-thirds of takeovers in other EMs where “Northern” affiliates were often divested. Companies from China, Thailand, India and Mexico were the most active and banking was also an attractive cross-border target in Latin America and the Middle East. Developing economies were the source of 40 percent of total FDI outflows at $450 billion versus $850 billion for advanced ones, as levels there “continued to stagnate” and have fallen 50 percent since the 2008 crisis. The EU’s amount rose 5 percent, but individual contributions from transnational firms in France, Germany and the UK all fell. Japan’s activity jumped 10 percent to a record $125 billion as auto and electronics outsourcing accelerated. Emerging Asian outward investment was one-fifth the global sum with big Chinese transactions like the $20 billion CNOOC-Nexen and $5 billion Shuanghai-Smithfield Foods tie-ups in Canada and the US respectively. Indian activity slumped to decade-ago levels, while Africa’s climbed 60 percent on South African and Nigerian company appetite. Central and South American allocation was off one-third while Caribbean offshore domiciles slightly increased commitments. Transition countries almost doubled their outbound footprint to $100 billion with projects from Russia and Kazakhstan led by the TNK-BP/Rosneft venture now the indirect target of Western sanctions for Moscow’s Ukraine maneuverings. The Asian Development Bank’s May annual meeting opens in the Kazakh political capital Astana after it approved $20 billion in financing to the public and private sectors with an emphasis on education, healthcare and infrastructure. Over 1. 5 billion people in the region remain in poverty and the institution recently prepared a revised multi-pronged strategy to tackle the problem and related woes like environmental degradation.

Host President Nazarbaev after 22 years in power is watching the Russia-Ukraine confrontation warily as he also encounters pipeline delays in the giant Kashagan field that may endanger the 5 percent GDP growth prediction. Under his vision to achieve world-ranking status by 2050, the “stan” in the country’s name considered negative would be dropped, and per-capita income would top $50,000 after WTO admission. Partial privatization IPOs will continue through the stock exchange, with the MSCI index down marginally through April, and the central bank after a big devaluation has pledged exchange rate stability as it tries to complete banking system cleanup. State-run BTA and Kazkommertsbank are to merge as they grapple with a 30 percent NPL legacy which briefly provoked a run at smaller banks in the wake of the currency adjustment as deposits headed for safer outlets.

Ukraine’s Value Valley Validations
2014 May 13 by admin

Posted in: Europe
Ukrainian stocks and bonds were abandoned by the hardiest investors as the industrial East contributing half of output continued to verge on civil war after Crimea’s Moscow defection, despite transfer of an initial $3 billion for budget coverage under the IMF’s $17 billion program. Templeton Funds in particular came under fire as its global bond portfolio with large positions took redemptions as equity head Mobius admitted holdings were “trapped” without buyers. The $15 billion exchange was still up 4 percent through April as EPFR reported $20 million in foreign outflows. After end-May presidential elections, where a well-known oligarch is favored, the June coupon for last December’s $3 billion Treasury infusion under the Yanukovych-Putin agreement is due, with Kiev likely to refuse under the “odious debt” doctrine which last applied in post-Saddam Iraq. The sovereign rating is already at CCC near-default as S&P confirmed that further territory loss would probably spark that outcome, and the IMF speculated that such a scenario would reorient the entire envelope of international community support. This year the same $3 billion is owed the Fund from the prior lapsed arrangement as Q1 reserves were down to $15 billion or two months’ imports. The economy is predicted to shrink at least 5 percent on 15 percent inflation as the fiscal deficit doubles to 12 percent of GDP, one-third from gas shipment costs. The current account gap will be of similar magnitude with the hyrvnia off 30 percent so far against the euro as free-market theorists revive post-communist calls for a strict currency board. Banks are under a trading ban with exchange controls imposed under the previous government still in place. The US $1 billion Eurobond guarantee which passed Congress after it was detached from a 4-year old IMF appropriations request is unlikely to instill confidence in tackling the debt morass as members urge tougher Russian banking and energy sanctions to aggravate the confrontation. Company and individual targets have yet to reach core names on the benchmark CEMBI, although the Treasury Department has warned fund managers of the prospect as senior Obama Administration officials dissuade top business executives from attending the annual St. Petersburg investment forum.

Corporate bond sales into April were less than $5 billion, an estimated half the monthly rollover requirement and only one-fifth of issuance during the same 2013 period, although ratings agencies believe many firms can draw on cash or tap refinancing alternatives though year-end. Fund exit is over $500 million according to EPFR as heavily foreign-controlled equities are also off 20 percent at the bottom of the main MSCI universe. Stagflation was evident before the Ukraine standoff, as budget and current account deficits could soon loom. Capital outflows in the first quarter may have exceeded 2013’s $65 billion total, and domestic bond auctions fail regularly on high yield demands as retail depositors shift out of rubles on post-Soviet era panic parallels.

China’s Africa Drift Drudgery
2014 May 13 by admin

Posted in: Africa, Asia
Amid the hype over Africa’s commodity and debt entanglement with China expressed in a number of best-selling books and animating fresh Western trade and diplomatic pushes as with the US AGOA program, a Brookings Institute study describes continuing “policy inertia” with minor economic and strategic stakes and bureaucratic clashes. It notes that commerce and investment are only 5 percent of the global total and that the region is low on the foreign affairs agenda. Beijing’s relevant ministries are at odds over aid and business interests, particularly when private firm actions and contracts are in question. Officials do not conduct systematic political risk assessment to guide engagement, and they no longer need to block Taiwan recognition since Chad, Niger and Malawi switched sides. As the biggest bilateral partner imports and exports are $200 billion annually with a $30 billion mainly oil-based deficit, as outward direct investment of around $5 billion may be understated given the use of offshore conduits in Hong Kong and the Caribbean. Security is often an issue with attacks on executives and workers that drives military and police assistance. Ideology is also a factor insofar as the Chinese model eschewing democratic capitalism is embraced by the Sub-Sahara, even in authoritarian regimes like Sudan and Zimbabwe. However for international relations the continent is “peripheral” despite nods to developing world solidarity, although the opposite holds true for Ghana, the DRC and other recipients of billions in loans from the China Development Bank equivalent to big chunks of GDP. Field and headquarters personnel at the Foreign Affairs, Commerce and Finance Ministries vie for decision-making control, and aid projects can enlist specialist health and other expertise. Export-Import Bank funding is agreed jointly between the management and these bodies, and umbrella facilities are often used to catalyze greater state-run company involvement. The review comments that senior-level politburo scrutiny is rare and that provincial governments are joining the central one in promotion efforts. Independent entrepreneurs are outside these categories and may have the worst labor and environmental track records as they focus solely on profit.

They tend to ignore the Millennium Development Goals which approach the 2015 deadline with many already met or on track although Africa is lagging, according to a World Bank update. Extreme poverty defined as daily income under $1. 25 has been halved to 20 percent and primary school completion is at 90 percent despite literacy and numeracy doubts. Gender enrollment is almost equal and child mortality has halved the past two decades. Water access has improved but rural sanitation remains poor with 2. 5 billion people without a toilet. Among diseases HIV-AIDS has been reversed but malaria and tuberculosis are stubborn. Official development assistance at just 0. 3 percent versus the O. 7 percent of GDP goal and continues to decline in real terms, but debt relief to 35 poor economies has cut the Sub-Saharan debt service-export ratio to under 5 percent overcoming previous stasis.

Global Sukuks’ Stretched Stakes
2014 May 7 by admin

Posted in: General Emerging Markets
Malaysia’s Islamic Finance Center reported a 15 percent quarterly global bond drop to $30 billion in April although that pace has been about the average since 2012 as annual issuance should again top $100 billion with sovereign debuts from Hong Kong and South Africa already in course. In Q1 the Islamic Development Bank and Liquidity Management Corporation were benchmark short and long-term sponsors and the Maldives completed a pilot. Malaysia continued to source two-thirds of instruments with Asian and GCC names increasingly tapping the ringitt market. In the Gulf number two space UAE and Saudi volume slipped while the central banks in Bahrain and Qatar increased their supply of Shariah-compliant paper. Sovereigns and quasi-sovereigns represent 80 percent of the total at $25 billion as corporate sukuks were down by half to $5 billion due largely to the US Fed’s post-tapering yield spike. By sector financial services dominate with a 25 percent share as banks try to meet Basel III capital ratios, followed by the energy industry’s 10 percent. By currency the dollar ranks second but Indonesia’s rupiah is close behind at 8 percent of placements. The global amount outstanding is now $275 billion, with the Gulf portion at $85 billion, according to the tracker. Performance was “heterogeneous” in the first three months as yields came down less than 100 basis points in Malaysia and the GCC but rose 75 basis points for Turkey’s 2014 offering. For the reminder of the year, Mauritania, Senegal and Tunisia are slated to enter as non-Muslim economies like Luxembourg and the UK also join the “fast growing segment,” the MIFC predicts.

Egypt had planned this route to tap Middle East investors but instead received $12 billion in aid the past six months, half in grants and oil, following the ouster of Muslim Brotherhood President Morsi, who remains on trial after hundreds of supporters rounded up were recently sentenced to death. The junta’s head, General Al-Sisi declared his candidacy for the May elections and so far is only opposed by veteran activist Sabahi who came in third in 2012. Foreign reserves have held at $17 billion and the pound at 7/dollar with local T-bill yields still in double digits. The fiscal deficit was at 7 percent of GDP with the outside infusion as the government will raise selected fuel prices as it tries to pay $5 billion in arrears to foreign suppliers. On the heels of pre-poll stimulus programs the Finance Minister admitted the gap could hit 15-20 percent without reforms, especially as tourism revenue was off 40 percent to $1. 5 billion in the first quarter after an attack in Taba raised security warnings. Despite debt/GDP at 75 percent and human rights and democratic reservations, dedicated investors in a Reuters survey had a large overweight after a 15 percent stock market gain through April. The UAE after a higher surge was seen as overvalued as it is promoted to the core universe and attempts quantitative and qualitative compliance.

Haiti’s Petulant Petro Caribe Pillar
2014 May 7 by admin

Posted in: Latin America/Caribbean
The IMF was reticent about Haiti’s future 4 years after the earthquake as the original loan will soon expire, as it acknowledged criteria observance as well as new vulnerabilities from political infighting and potential cutbacks in Venezuela’s Caribbean-wide discounted oil program. As donor post-calamity aid fades more generally the housing shortage is still severe and many government ministries are in ruins. The President and parliament agreed to hold long-delayed elections after passage of an updated law which should also facilitate budget passage. The main target breach involved deficit borrowing from the central bank through repos as T-bill issuance was delayed. GDP growth was 4. 5 percent the last fiscal year on good construction and textile export performance, on the same inflation level propelled by marginal currency weakness. The current account gap was 6. 5 percent of output covered mostly by remittances and Venezuelan funding as Western assistance declined. The fiscal shortfall was of similar magnitude with a fuel price freeze and continued state electricity company support, and the central bank tightened monetary policy with reserve requirement hikes and dollar intervention. Private sector credit was up 15 percent, but bank capital adequacy and NPL ratios averaged 12 percent and 3 percent respectively. The Fund warned of rising external debt from tapping Caracas’ “concessional resources” for public investment as customs and tax revenues lag with the risk of a “sudden stop. ” Central government banking system deposits will be drawn down to cover next year’s deficit aggravated by promised civil servant salary raises as short-maturity T-bills must be rolled over. Despite bilateral and multilateral cancellations after the tragedy, debt sustainability is in doubt with the slim export and revenue bases, according to the review, with Petro Caribe inflows potentially “in jeopardy. ” It urged exchange rate smoothing restraint with reserves only meeting five months’ imports and establishment of an electronic trading platform. Financial system commercial loan concentration is high and micro-providers should be better regulated. If a follow-up facility is negotiated in the coming months power industry and tax administration reforms must accelerate, the update added.

Cuba is also reassessing its Caracas connections as the parliament there adopted a new foreign investment law designed to attract the same $2. 5 billion as in annual remittances including from expatriates. It modernizes a two-decade old statute with lengthy tax holidays provided the state employment agency supplies labor. Miami-based firms remain subject to the embargo, with potential loosening now entangled in clashes over Washington’s human rights and social media advocacy in Havana. President Castro’s opening will still prohibit small proprietors from accessing foreign capital, even as he moves to resolve $15 billion in old debt due the Paris Club which has a special working group excluding the US. The island seeks further relief and may consider equity swaps, but Western creditors have demanded more details of national accounts treated as state secrets to unlock strained relations.

The IMF’s Africa Conflict Tear
2014 May 6 by admin

Posted in: Africa
The IMF upped this year’s Africa GDP growth projection to 5. 5 percent despite “shifting global forces” on the heels of “marked acceleration” in fragile states like the Democratic Republic of Congo and Mali and infrastructure and mining investment elsewhere, as it roundly criticized “unsustainable spending” in Ghana and Zambia preparing international bond repeats. The Seychelles which completed commercial bond restructuring was also singled out for high debt and neighbors to the Central African Republic and South Sudan are at risk of security spillovers. Currency depreciation in Malawi and South Africa should be met with tighter money, and portfolio flow reversal could prompt capital controls as another line of defense, according to the report. Regional integration as in the East African Community’s recent 10-year protocol is a long-term proposition and viewed with mixed feelings in view of the Eurozone experience, but members could opt for immediate observance of debt, inflation and reserve criteria. The existing CFA Franc zones must also adapt their rationale at a time when local interests are critical of Paris’ mandatory deposits imposed for decades and current public finance profligacy affecting ties. Current account deficits will not improve on FDI-related import demand and commodity export slowdown especially to the BRICs now taking one-third the non-oil total. Petroleum producers have boosted growth despite lower volume in Chad and Equatorial Guinea and widespread theft in Nigeria. Fuel prices should rise 3 percent, at metals moderate and cocoa and coffee increase as well. Natural resource “greenfield” projects could be postponed, as sovereign debt spreads also worsen on ratings downgrades and higher borrowing costs at home and abroad. As it marked 20 years since the genocide, Rwanda’s franc has joined the group most vulnerable to devaluation with its big current account gap covered by donor infusions. Regional CPI will rise 6 percent but salary hikes in Tanzania and rapid credit expansion in Mozambique will aggravate their levels. Debt-GDP ratios spiked in 30 countries but they are mostly benign with exceptions like Angola, where revenue has dropped. In Zambia wage and subsidy outlays alone jumped 45 percent last year with “adverse” sustainability implications although its latest bond placement was snapped up, the Fund cautioned.

South Africa after raising benchmark rates on 6 percent inflation at the top of the target range is now the keen investor focus with President Zuma confident of another outsize ANC win despite months of mining and power strikes and the central bank’s own financial stability warning due to the chronic balance of payments deficit. Bills introduced that would give the government a 20 percent stake in future oil ventures and mandate majority local ownership in private security outfits have upset the business community but may be pre-poll posturing designed to outflank in particular the new Economic Freedom Fighters party led by firebrand Malema. The opposition too may be split after a unification effort sputtered along with the seasonal electricity supply.

The US’ Global Development Daydreams
2014 May 6 by admin

Posted in: Africa, General Emerging Markets
Years after its formation and member appointments, the US Global Development Council established as an outside advisory body to the State and Treasury Departments and specialist agencies held its inaugural meeting and presented a broad outline of conceptual and detailed work priorities. The document appeared as numerous think tanks convened events and research around the UN’s post-2015 poor country agenda to be debated among heads of state later this year with input from civil society and business interests. The Secretary-General envisions extreme poverty eradication by 2030 with a large private sector role, as a recent Brookings paper notes that one-third of low-income economy external funding is from these sources, and that both profit and sustainability criteria increasingly guide company investment and operations. For natural resources the Extractive Industries Initiative offers a model for voluntary reporting of revenue and contract terms, and it can generate spinoff small business supplier and local community education and health relationships. The blueprints urge better use of bilateral and multilateral risk-mitigation tools with debt-equity hybrids and guarantees as many providers lack capacity and the culture to act as “one-stop shops” for commercial deals. Early stage patient capital in the $20 million range is a particular gap, with different decision and measurement norms on both sides. OPIC’s inability to take equity for its own account although it participates with venture capital firms is routinely cited as an obstacle, and both the President’s panel and activist groups urged removal of the restriction as well as possible merger into an umbrella Development Finance Institution alongside AID, Ex-Im Bank and other efforts. The Brookings report acknowledges such consolidation may be too ambitious and that alignment of personnel and procedures may be more realistic as Congress could reprogram $50 million for share stakes and technical assistance. President Obama could host a major conference to consider these steps as the second quadrennial diplomatic and development strategy is charted at the State Department. The original approach under Secretary Clinton championed “economic statecraft” promoting trade and investment with aid, but multinational giants were often favored over average competitors and credit outside micro-finance was overlooked. Secretary Kerry is due to appoint his own chief economist soon to facilitate deliberations, as Treasury rebuilds its international affairs wing following the departure of senior officials.

The Office of Foreign Assets Control remains busy with sanctions now extended to Russia in addition to enforcing longstanding ones as in a recent action against Zimbabwe. The stock market there has tumbled on a 30 percent consumer sales drop, as President Mugabe threatens to reintroduce the local dollar resuscitating the specter of hyperinflation. However his administration has retreated from possible confiscation to comply with the 51 percent indigenization law as elections in next-door South Africa may cut the vital remittance and employment lifeline as the ANC to preserve power has campaigned on harsher immigrant and security visions.

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The Treasury Department’s Manipulated Currency Crescendo
2014 May 1 by admin

Posted in: Currency Markets
The Treasury Department’s International Affairs office again found no outright manipulation in its semi-annual update on main trading partner exchange rate practice under 25-year old legislation, although it cited “inadequate” global demand rebalancing and increased intervention and reserve accumulation toward the end of 2013. The lack of adjustment undermines the recent G-20 commitment to boost GDP growth 2 percent over the next five years, and Germany and China in particular must change their models, the report urged. Germany’s current account surplus is over 7 percent of GDP as the rest of the Euro-zone also exhibits positive external accounts often due to weak internal purchasing power. Last year the Chinese renimbi appreciated 3 percent but in the first quarter swung the same amount in the opposite direction as the daily fluctuation band doubled to 2 percent. Market determination remains “incomplete” in light of last year’s $450 billion in balance of payments inflows bringing reserves to $4 trillion and productivity gains suggesting undervaluation. While the intent may be to inject two-way volatility “serious concerns” include the absence of intervention and reserve data under the IMF’s SDDS standard as a big emerging economy outlier. Officials have hinted that depreciation against the dollar may continue as they gradually deflate credit and property bubbles while preserving 7. 5 percent output expansion. A new mini-stimulus program was ruled out as Q1 social financing figures show a sharp dip in trusts and corporate bonds. The central bank has imposed tougher rules on the former and the latter was shaken by a handful of defaults. Real estate developers are already highly-leveraged and face currency strains from borrowing abroad as sales slow noticeably outside major cities. They have been battered on the Shanghai and Hong Kong exchanges as the two launched individual investor cross-trading in an attempt to lift sentiment. The Treasury survey also profiled Taiwan which had its biggest current account surplus since the 1980s the past year and maintains capital account restrictions. The managed float regime has been uneven and its $415 billion in reserves are “excessive by any metric. ” Unlike other major developing markets the main portfolio outflow source with curbs since the Federal Reserve’s tapering signal last May was not foreign investors but local life insurers allocating overseas.

Korea was criticized despite its pledge to forgo competitive devaluation as the current account surplus was the highest since the Asian financial crisis with authorities intervening “aggressively” against won strength. Personal consumption has been hampered by household debt, but President Park has unveiled reforms to double per-capita income to $40,000 and shift away from exports dominated by the chaebol groups that again incited public outcry with recent disclosures of top executive compensation packages. Brazil’s $85 billion short dollar position under its swap and spot operations also was highlighted in the brief survey and its hedging and liquidity rationale was given a pass through mid-year in a bow to opinion manipulation.

Asia’s Pivotal Role Reversals
2014 May 1 by admin

Posted in: Asia
US President Obama left for a long-delayed Asian trip designed to highlight a foreign policy “pivot” to overlooked commercial and military allies in Japan, Korea, Malaysia and the Philippines, as he skipped regional stock market leaders India and Indonesia in the middle of election campaigns that may signal their own departures. The four destinations are experiencing export doubts as Abenomics is also under siege with the lack of structural reforms and continued resistance to auto and agricultural opening under the proposed TPP agreement. Malaysia and Korean transportation disasters have diverted attention from the visit, and the Philippines’ slow post-typhoon Haiyan cleanup with many displaced citizens still unable to return home has turned public opinion against the Aquino administration’s initially-lauded management reputation that Washington may again reference. By the same token a previous warm embrace for India soured soon after a state dinner was hosted for Prime Minister Singh and distance has remained since although his likely successor Modi has met with American officials and business executives as $5 billion has poured into equities this year on the assumption of investor-friendly policies as during his Gujarat state tenure. However his pro-Hindu BJP party credo and track record are controversial as their parliamentary grouping could grab almost half the seats in the month-long election to secure control. Many big New York houses maintain overweight recommendations despite the high leverage of family-run listings and continued negative sovereign ratings outlooks by the main agencies. GDP growth is only 5 percent and inflation is running at almost double that level, as the current account deficit may also retrace in the coming months once exceptional gold import restrictions and expatriate deposit facilities are removed. The central bank has not raised rates or intervened with the rupee but the stance will likely change after the poll as food prices stay stubborn and currency strength at 60/dollar erodes export competitiveness. Despite fast-tracking by a high-level government committee many infrastructure projects are still blocked by provincial inaction and political spending will endanger the next fiscal year’s 5 percent of GDP deficit target. Privatization goals are still modest as state-run Oil India borrowed another $1 billion in a debut dollar bond to avoid asking banks struggling with loan impairment. They also have one-third of assets in government securities as foreign investor T-bill buying was temporarily suspended as voting began.

Indonesia’s two-stage legislative and presidential contests got underway at the same time as PDI-P favorite and Jakarta governor Jokowi disappointed in the first round capping the 20-plus percent equity rally. His economic platform is blurry as he struggles to build multi-party support for the top post. The monthly trade account went into surplus on rebuilt international reserves near $80 billion after interest rate hikes and a halt in bond market interference. Further fuel subsidy reduction has been postponed until a new team takes office although candidates regularly pivot away from that unpopular direction.

Global Remittances’ Rearguard Routing
2014 April 29 by admin

Posted in: General Emerging Markets
The World Bank’s developing country remittance tally was $400 billion last year and medium-term 8 percent annual growth is a “strong outlook” despite immigrant and money transfer crackdowns, according to a spring meeting briefing. The flows’ balance of payments importance lagging only FDI is illustrated by comparisons to main export earners as they outstrip India’s IT and Egypt’s Suez Canal revenue, and are big chunks of Bangladesh’s textile and Nigeria’s oil sales. India and China were the biggest absolute recipients followed by Mexico and the Philippines, while as a fraction of GDP workers from Tajikistan and the Kyrgyz Republic in Russia led the pack. All regions with the exception of Latin America and North Africa experienced a 2013 increase, and Asia got $150 billion on both low and high-skilled employee migration. Europe-Central Asia after a $45 billion result faces post-Crimea “uncertainty” over ruble depreciation, the survey cautions. Economic weakness in Europe and US deportations cut lines to Mexico and Peru and in the Gulf Saudi Arabia expelled 350,000 nationals from the Middle East and South Asia. In Sub-Sahara Africa Nigeria took two-thirds the $30 billion total as the continent’s official aid continues to outstrip it. Weighted average cost was 8. 5 percent of the sum sent and additional fees also apply which compromise the G-20 goal of 5 percent expense. Africa’s burden was double Latin America’s and competition has been limited by anti-terror and money laundering controls that have closed operators in conflict zones like Somalia. Nigeria and Trinidad and Tobago are issuing diaspora bonds to direct savings into formal capital markets with the global pool available estimated at half a trillion dollars. US securities registration has been an obstacle and past efforts in Ethiopia, Kenya, Nepal and the Philippines have foundered on government mistrust. South-South remittances have picked up and intra-African corridors should be helped by new cross-border payment systems. European popular sentiment has swung toward anti-immigrant parties in Austria, France, the Netherlands and elsewhere at the same time asylum applications have jumped particularly after Syria’s strife.

The crisis there has been “staggering” and displaced one million refugees into Lebanon alone as international organizations look for secure remittance means. Morocco has become a transit hub and Tunisia and the EU recently forged a Mobility Partnership to facilitate legal movement. Egypt as the Arab Spring country with the biggest inflows saw a 10 percent drop last year as hundreds of thousands of citizens left Saudi Arabia. Nepal, Pakistan and Sri Lanka were also forced to accept returnees, and initiatives are underway to encourage banks to lower charges in response. US and UK legislation has resulted in the severing of correspondent links with money service businesses in Somalia that have diverted relationships through Kenya, with its advanced mobile platform, and Dubai as a world offshore center. South Africa has also come under pressure for ties with sanctioned Zimbabwe institutions stretching the extraterritorial remit, experts added.

Turkey’s Untoward Twittering Classes
2014 April 29 by admin

Posted in: Europe
Turkish officials who have been favored headliners scrambled to reassure investors in a series of meetings and seminars at the spring IMF-World Bank event, following a ratings outlook demotion and Prime Minister Erdogan’s strong party showing in local elections despite popular backlash over corruption reports and attempts to stifle social media coverage. Stocks and bonds went positive as the lira stabilized at just over 2/dollar, with the central bank foreshadowing benchmark interest rate reduction from double-digits after “review” was urged by ruling AKP supporters who intend to tap a successor soon should Erdogan run for President in August. Two-year local debt yields remain at 10 percent as plans for $2 billion in sovereign Eurobond issuance for the rest of 2014 are already in course. According to the latest statistics foreign obligations approach half of GDP, but two-thirds are from private sector banks and companies. The current account gap was the worst among the G-20 last year at 8 percent of output, but has since moderated with a credit expansion squeeze to single digits and lower oil imports. The economic growth target continues at 4 percent and fiscal policy assumes primary surpluses particularly as political spending urgency has abated on incumbent triumph. Geopolitical jitters from Iran and Syria may upset the mix, but diplomatic overtures toward EU membership and Cyprus reunification may offer a counterweight. Russia sanctions may also bite as representatives were shunned during the meetings despite reiterating ruble flexibility and no capital control mantras. Equities are Europe’s bottom performers as Moscow admits to stagflation and another post-2008 crisis challenge after raising rates 150 basis points and currency intervention scope. The IMF unveiled a gloomy forecast at the same time for outright recession if trade and financial boycotts worsen, with capital flight set at $150 billion.