No More Learning

The gloom overshadowed launch of a long-planned small business tier of the Nairobi Exchange for companies with at least $1 million in assets and 100 shareholders intent on mutual reward.

China’s New Year Blast Bleats
2013 February 18 by admin

Posted in: Asia
Chinese shares entered the new year period in bullish spirit up 20 percent from last year’s low, as official GDP growth and PMI indicators returned to the respective 8 percent and 50 percent-plus ranges despite the record central bank cash injections to meet personal holiday and lingering system liquidity demand. In December banks provided only one-quarter of financing now half-controlled on an annual basis by alternative bond, trust and wealth management channels. The big 4 share of the former which may reach the trillion yuan mark in 2013 has in turn dropped to 40 percent, as second-tier lenders have moved aggressively into high-yield and local government business. 20 provinces again set fixed investment growth targets above 20 percent according to reports as central authorities following the recent leadership reshuffle try to tilt toward consumption support. The central bank has warned of a short-term debt hump equivalent to 50 percent of GDP stemming from the post-crisis stimulus programs along with a maturity mismatch for longer-range infrastructure and housing projects through “shadow” sources in particular. Although declared non-performing assets amount to only 1 percent, total on and off balance sheet exposure could come to several times economic output, analysts calculate. The IMF estimates trust industry size at 5 trillion yuan through a combination of licensed and unmonitored institutions often offering products analogous to the “toxic” collateralized debt obligations which precipitated the 2008 US crash. Banks have packaged such instruments at a multiple of that amount to evade general quotas and specific property company prohibitions. Separate non-payment episodes at trust Three Gorges and Huaxia Bank have highlighted dangers, and brokerages have in turn received almost RMB 2 trillion in accounts from the originators for an additional layer of fiduciary complexity. Local governments have tapped this capacity in hiking 2012 bond activity 150 percent to RMB 650 billion as overall debt topped RMB 9 trillion by private and public tallies. One-third of interest and principal due may have been rolled over as three-quarters of facilities were rescheduled with stricter future guidelines at Beijing’s urging, according to international media.

Corporate bond data trackers classify 75 percent of issuers as government-backed to some degree, and foreign investors prefer these names although they returned to mainland and Hong Kong high-yield real estate developers in January with $3. 5 billion through ten placements. Global funds put $550 million in Chinese bonds for the month, half the total for all of 2012. 10-year yields for top-rated firms are near 5. 5 percent, and small companies continue to account for less than one-tenth of volume. Without the public guarantee, creditor wariness persists in view of the recent workout experience which imposed large haircuts as in the case of fraud-ridden Sino Forest. In the trust sector, participants with long memories may recall the comparable GITIC saga during the Asia financial crisis which created its own fireworks burning extended hands.

Latvia’s Guarded Peg Protectors
2013 February 18 by admin

Posted in: Europe
Baltic markets stretched their winning streak as restored investment grade borrower Latvia repaid the IMF’s 2008 crisis lifeline early with proceeds from a December dollar bond, and Russian depositors transferred accounts from Cyprus now in the process of seeking its own rescue. GDP growth last year at 5. 5 percent was the EU’s best, on “remarkable” export performance in the Fund’s view on new market and product forays. Unemployment dipped below 15 percent but is still long-term structural in nature with a large informal economy and skill gaps. Consumer price inflation which spurted on tax increases subsided to 1. 5 percent, and the fiscal deficit is below the 3 percent Maastricht criterion with euro entry on track by mid-decade. Banks’ return on equity was 10 percent through the last quarter with NPLs at 12 percent concentrated in the household sector. After the liquidation of two institutions overall credit is contracting as Scandinavian parents continue to pare subsidiary lines. The loan-deposit ratio fell 85 percent from its peak to 175 percent, and non-resident now exceeds private resident deposit size with recent 20 percent “historic” expansion from CIS relocation away from “stressed” centers. Although capital adequacy is double the Basel 8 percent minimum, the regulator recently found deficiencies in a mid-size offshore money specialist. The economy, which shrank 25 percent over 2009-10, will slow modestly on a current account gap of 3. 5 percent of GDP this year, according to the organization. FDI should advance, but high external debt remains a “significant” risk. Single-currency adoption could begin in 2014 and erase the chance of a speculative attack as spread throughout Central Europe five years ago. The benchmark interest rate could fall further from the current 3 percent as banks gain access to ECB liquidity. International reserves at EUR 5. 5 billion satisfy import cover but a heavy medium-term external repayment schedule requires over half that amount. The Fund advocates “vigilance” in light of 2008’s 40 percent reserve depletion when Russian accountholders fled. It also cites vulnerability from “reputation risk” associated with anti-money laundering weakness, and regulators have promised to address these issues while strengthening foreign-directed prudential norms generally.

On the restructuring front sales for Citadele and the Mortgage and Land Bank have been attempted and assets recovered from Krajbanka. State development units will be merged and the successor institution will not compete commercially. Pension and tax reforms will phase out toward 2015 and must be modified longer-range, and family and transport subsidies should be better targeted, the agency believes. A fiscal discipline law enshrined in the constitution is a top priority, and double-taxation treaties await clarification. Work incentives are lacking in the labor market, and insolvency court “abuse” is a problem in the absence of a cash flow test. Central governance and reporting for state-owned firms despite intentions must be established with a legislative peg, the report adds.

EU Insurers’ Long-Term Lurch
2013 February 11 by admin

Posted in: Europe
As net inflows briefly resume to EU peripheral bonds, an institutional investor council chaired by insurance giant Swiss Re under the auspices of the IIF with $20 trillion in combined assets issued a plea to redress longer-range post-crisis allocation obstacles. Financial repression steering funds to governments has been encouraged by Basel and Solvency directives and can act as a tax with negative real interest rates. One-third of treasury securities are now held on public balance sheets in advanced economies hindering proper price discovery. Regulatory reforms have created perverse incentives though a shift from equity to “safer” fixed-income and portfolio diversion to less-monitored and capital-tied alternative channels. Bank, insurer, and pension fund treatment still occur in uncoordinated “silos” which promote extra-territorial and competitive overreach, the group asserts. The new Solvency II mandated higher set-asides for infrastructure and private sector bonds than may reflect default experience and worsens the term asset shortage and duration mismatches. Current capacity is estimated by experts at 20 percent under future investment needs. EU energy, transport, and information technology projects will demand EUR 2 trillion over the next decade at a time of traditional sponsor deleveraging. A dedicated bond market as described in a recent European Commission report could be launched with supporting performance indices and tax exemptions to meet the challenge. Aging populations both in the industrial and emerging world could be trapped in an indefinite low-yield environment eroding household and retirement system values. The financial transaction tax due to go into effect in 2014 will raise around EUR 40 billion but also shave regional GDP by half a point. Liquidity will disappear especially for derivatives and the ultimate cost will be reflected in even lower real returns. The unilateral nature of the decision by officials without consulting stakeholders follows a pattern already experienced with Greece’s sovereign debt restructuring with back-dated collective action clauses. Good-faith negotiations should honor the principles contained in the IIF’s decade-old code of conduct and the IMF should fully consider the input of private creditors in conducting the signature sustainability analysis.

The workout saga has now spread to Cyprus with insolvent banks post-haircut as deposit growth was flat in 2012. The EUR 15 billion-plus rescue request is close to total GDP and approval has been postponed until after February presidential elections. EU Monetary Affairs Commissioner Rehn has downplayed the delay and the risk of euro exit as German chancellor Merkel’s party reeling from a recent state defeat questions the island’s anti-corruption and money laundering credentials. Gulf offshore haven Dubai in contrast overcame debt burden worries with a 10-year dozen times oversubscribed sukuk yielding below 4 percent. 40 percent of investors were from Europe, and non-bank funds took one-third the tranche. The emirate hailed the success as “a long way since 2009’s tough period” despite short-term repayment humps.

Mexico’s Fair Maiden Fixes
2013 February 11 by admin

Posted in: Latin America/Caribbean
Mexican shares continued their honeymoon with the new Pena Nieto administration as tycoon Carlos Slim moved to list the Sanborns cafeteria chain for close to $1 billion despite anti-trust actions against his empire seeking more media and telecoms competition. The central bank at its latest gathering also turned dovish after holding rates for an extended period, as foreign investors slightly trimmed 35 percent local bond ownership. Both growth and inflation should be around 3. 5 percent this year, and after registering the first trade surplus since 2000 on record car exports FDI is expected to pick up above 3 percent of GDP. Wage and productivity equality with China and middle-class demand will attract manufacturing and services interest and greater private opening for Pemex could bring traditional and alternative energy providers. Peso strength should maintain a near-term 12 to the dollar range on a minimal intervention stance compared with neighbors. The PRI President has tapped ministers from other parties after leaders signed a 95-principle reform pact upon inauguration. It builds on more flexible labor rules initiated by his predecessor and envisions further fiscal and structural changes to solidify the revenue and human resource base. The anti-drug effort has returned to the Interior Ministry fold and emphasizes social development along with security approaches. A clean government pledge has translation into formal asset disclosures although specific personal item and property values are not assigned. One of the first groups targeted for modernization is the teachers’ union with historic sway over the ruling party, which will test the efficiency orientation contained in the basic campaign platform drawing from the incumbent’s record as Mexico state governor.

The new team circulated at the World Economic Forum in Davos where participants were quick to contrast policies with former darling Brazil’s. Growth and inflation continue to miss targets, and currency direction is unclear although the Finance Minister insists on “avoiding meltdown” through operations at the 2 real/dollar boundary. The current account deficit at $8. 5 billion was the highest ever in December, as both foreign direct and portfolio inflows ebb. The President again ordered lower electricity costs as state banks account for almost half of loans to maintain a double-digit pace supporting the consumer and strategic enterprises. The development institution BNDES’ book rose 12 percent last year to $75 billion, an “historic precedent” according to the annual report. It offers funds at 5 percent, below the benchmark rate, as the system default ratio stands at 6 percent of the total. Private sector banks, whose shares have been pummeled on the exchange, have cut personal and corporate lines and tried to squeeze profitability from reduced overhead. As the government vows to deliver 4 percent GDP growth before next year’s presidential election harsher measures could be in store than the verbal exhortations to help borrowers to date including fixed formulas.

Thailand’s Tentative Tie-Up Traits
2013 February 6 by admin

Posted in: Asia
Thai capital markets continued their Indochina outreach with operations in Laos and Myanmar as the Asean cross-listing platform was also launched and the Bangkok exchange chief previewed a busy IPO backlog. The government in Vientiane plans a baht-denominated issue in the coming months to cover Mekong River power project costs after regulators made non-investment grade sovereigns eligible. Bilateral cooperation already extends to the stock-market with two listings there and to Myanmar’s dormant one, where the Japanese are also assisting with technology needs. At a donor meeting the World Bank agreed on debt arrears clearance as the Asian Development Bank focusing on financial sector modernization resumed lending after decades of absence. Mobile banking may be introduced and mortgage and commercial credit maturity restrictions are due to be lifted. Foreign phone companies have been invited to bid for new licenses as a previous minister responsible for the industry was accused of corruption. The central bank could get autonomy under so-called “stage two” transition changes contained in the aid conference document. The Asean exchanges link will first group 30 stocks in Malaysia and Singapore before Indonesia, the Philippines and Vietnam later join. The full integration deadline is 2015, and index providers have begun to offer regional benchmark products. The trio’s order systems are tied electronically and regulatory harmonization will follow in a later stage. For the Singapore bourse the initiative helped deflect attention from near-recession at home last year on poor construction and manufacturing data. The monetary authority imposed additional property demand measures in an effort to assuage bubble and inflation concerns as the latter cooled to the 2 percent range. Island firms have matched Chinese counterparts in steering FDI to fresh locations including Cambodia, which got $1. 5 billion in 2012 beyond the usual garments pillar. The US President recently visited despite the suspension of multilateral support over land grabs and longstanding criticism of the regime’s human rights record.

Former Thai Prime Minister Abisit is under investigation for his alleged abuses during bloody clashes which closed the capital several years ago as domestic demand further improved in Q4 with record car sales on a solid current account surplus. Infrastructure builders and suppliers are to benefit from a $20 billion fixed investment program, with heavyweight Siam Cement a favorite. P/E ratios are at the core universe average, with dividend yields at 3. 5 percent. Banks are available in New York through ADRs and ETFs, but double-digit annual jumps in consumer lending have drawn caution with local interest rates on hold and supervisors considering targeted curbs. As a fraction of GDP growth in the segment has been the fastest in the area since 2011, aided by the Yingluck Administration’s immediate household transfer and tax cut spree. Non-personal credit in contrast is sluggish despite post-flood reconstruction requests on soiled portfolio exposure from the disaster.

Green Finance’s Kaleidoscopic Calculations
2013 February 6 by admin

Posted in: General Emerging Markets
The World Economic Forum’s Green Action Group, under the leadership of former Mexican President Calderon, urged a heightened private finance push to meet global infrastructure and climate adaptation needs amounting to over $5 trillion annually through 2020 in a report issued at the Davos summit. Clean energy investment has increased at two and a half times the pace in developing as in industrial countries the past five years starting from a lower base. In 2011 renewables allocation was up 15 percent to $250 billion. Government support as a major contributor is now in danger from the US and Europe fiscal crisis and fossil fuel subsidies remain in place as disincentives. Hydrocarbon “fracking” technology discourages alternatives, as emission reduction targets and environmental funding pledges continue to lag original actions. Non-OECD progress outside big emerging economies and projects other than solar and wind are absent. The public-private leverage ratio of 1:3 is under potential, and the World Bank has just estimated the world temperature rise could be worse at 4 degrees Celsius over the next two decades for a population of 9 billion. Power, infrastructure, agricultural and industrial capacity must all be modernized to meet the challenge. The International Energy Agency puts coal, oil and gas conversion cost alone at $750 billion per year, and forest maintenance at the other end of the spectrum comes to $40 billion. To bridge the money gap official and commercial allocation must jump to the respective $125 billion and $575 billion immediate ranges. Risk mitigation across the political, macroeconomic, operational and regulatory landscape should be a focus of bilateral and multilateral efforts as with World Bank MIGA and US OPIC insurance. The document cites successful case studies in Asia, the Middle East and Latin America, and notes that development finance institutions have also been involved through loans, mezzanine debt, green bonds, equity, and dedicated investment vehicles. HSBC calculates the broad climate bond market at $175 billion, with project instruments a specific subset that appeals to conventional asset managers. Pension funds have signed on to a UN initiative to boost share positions in renewable companies, and the Global Environment Facility has provided $10 billion in grants which has seeded thousands of enterprises in hundreds of countries since its 1990s launch.

The work has assumed greater urgency with the phase-out of the carbon emission rights trading scheme authorized under the Kyoto Protocol which has encountered controversy over alleged fraud and lack of transparency as volume dwindled post- financial crisis. The EBRD and African Development Bank have been active catalysts and sponsors in their regions, and a $125 million solar water heater project has been a breakthrough in Tunisia despite the past two years of struggle there. A Green Growth declaration from the 2012 G-20 meeting reiterated the importance of new trade and finance mechanisms for a “sustainable pathway” which still must clear ample underbrush, the panel concludes.

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The IIF’s Salutary Cyclical Salute
2013 February 4 by admin

Posted in: Fund Flows
Under new leadership the Institute for International Finance offered its first capital flow cut for 2013 which despite “greater cyclicality” should modestly bump last year’s almost $1. 1 trillion result. A main risk is rate reversal in the industrial world upending the push as in the Fed’s sudden tightening two decades ago which presaged the Mexican crisis. Among individual contributors, FDI was distinct in a lower forecast to $515 billion, while portfolio equity will jump one-quarter to $100 billion with the $500 billion bank loan and bond category constant. Official lines will increase $20 billion to $55 billion with North Africa programs, which as in Egypt’s case so far are more frequently underwritten by other emerging economies. The latter’s GDP growth should average 5 percent which will favor share allocation also not as subject to anti-speculative controls as currency and fixed-income. Outward Chinese direct and portfolio investment doubled in 2012 to over $250 billion despite slower reserve accumulation as mainland bank foreign assets neared $500 billion. In the former, natural resources diversification is apparent with business and financial services acquisitions, while geographically Hong Kong takes half, with Latin America and Africa also popular as the pace into developing now exceeds developed regions. Emerging Asia as a destination gets 45 percent of private capital into the thirty countries followed by the publication, as India, Indonesia and Korea take share from China. However with European banks in retreat cross-border lending is 25 percent off recent annual levels. Asian reserve buildup has fallen three-quarters to under $150 billion as Indonesia’s current account joins India’s in deficit. In Europe net quarterly inflows were up 50 percent from recent trends, with Russian and Turkish borrowers particularly active. Bank repayment continued in the Czech Republic, Hungary, Poland and Romania while Ukraine lost access pending a possible fresh IMF agreement. Russian ruble debt will experience a spike with non-resident opening, while Turkey alone on the continent will have higher foreign capital demands with its chronic balance of payments gap.

Brazil, Chile and Mexico have likewise become large investment exporters as the control regime in the first has been relaxed within the context of an informal 2 real/dollar band. Peru has leaned against currency appreciation with regular intervention and stricter reserve requirements, and Uruguay imposed a holding period on high-yield notes. Mexican public debt is owned one-third abroad, while Argentina still faces capital flight from its “policy radicalization” and holdout creditor clash. Middle East transition nations have received bilateral assistance from the Gulf and South African bonds brought in a record $10 billion-plus last year following entry into standard world indices. That “technical” move will ease in the coming months as bad mining and rand direction also exact a price. Nigeria in contrast may continue to benefit from index inclusion as well as power and petroleum industry reforms. Enthusiasm will depend on eventual fiscal terms for international oil companies that could be “too onerous,” the group cautions going into heavier fog.

Poland’s Flabby Flexed Muscle
2013 February 4 by admin

Posted in: Europe
Polish shares tried to regain January footing following a GDP growth pause to the 1 percent range and the sudden departure of the Warsaw Exchange boss, who had pushed sub-regional hub ambitions, in a film financing scandal targeting listed companies. Sentiment improved after the government sold another chunk of PKO bank for $1. 5 billion and tapped external bond markets at meager yields, alongside an application to renew and expand the IMF’s flexible credit line for $35 billion over two years. The Fund urged extension of the original 2008 crisis facility in light of Euro area trade and banking “shock vulnerability. ” Manufacturing is “heavily integrated” into the German supply network and two-thirds the financial system and one-third of local debt are foreign-owned. Disorderly deleveraging and global risk appetite retreat remain risks, and to supplement the multilateral backstop the central bank entered a bilateral currency swap with its Swiss counterpart. The regulator has stiffened standards for mortgages and FX loans, and medium-term sustainability within the constitutional 55 percent of GDP debt limit should be enhanced by pension higher retirement age eligibility. Private sector annual credit growth is off two-thirds to 5 percent, and confidence, industrial and retail figures have fallen sharply as official unemployment heads toward 15 percent. Core inflation below 2 percent has allowed a cycle of monetary easing and last year’s fiscal deficit was 3. 5 percent of national income. Bank capital adequacy is 15 percent but NPLs are close to double-digits and parents have slashed support by $15 billion the past year. The statutory debt ceiling could be breached in 2013 with a new small business guarantee program, and supervisors may soon relax household curbs in response to the sluggish economy. The current account imbalance has been covered by direct and portfolio investment and along with the exchange rate is “consistent with fundamentals,” according to the Fund Board submission. The FCL is still needed for international reserve reinforcement, especially as deep and liquid securities markets facilitate Central Europe’s greatest volatility reading. An adverse scenario contemplates large banking outflows leaving a $35 billion funding hole for both 2013 and 2014. The “very strong” policy record again justifies excess quota access, with the successor arrangement to go into place upon the current one’s Q1 expiry, it urges.

The loan-deposit ratio has increased slightly to the 100 percent level as neighbors’ measure has continued to decline from a steeper base. The BIS’ most recent tally shows cross-border withdrawal above 5 percent of GDP in Bulgaria, Croatia, Hungary and Slovenia. Kazakhstan and Ukraine slashed their exposure 50 percent since 2008 and in the Baltics credit availability shrank last year. Domestic deposit expansion has resulted from deleveraging and Basel III rules not only in Poland, but also Belarus, the Czech Republic, Romania and Turkey in a perverse show of strength.

The World Bank’s Nervous Capital Bouts
2013 January 30 by admin

Posted in: General Emerging Markets
In its first developing country prospects publication for the year the World Bank cited improvement in financial market “nerves” with risk price decline although translation to the real economy remains “modest. ” CDS spreads are down on average 115 basis points the past six months with high-yielding Romania, Ukraine and Venezuela shrinking the most and the benchmark EMBI has come in 175 basis points since January 2012. Almost thirty sovereign ratings were upgraded and stock markets advanced double digits. Syndicated lending hit a post-crisis record of near $65 billion in the last quarter as “acute” European and foreign bank deleveraging may be over, particularly in heavily reliant Emerging Europe. FDI numbers were mixed with drops in India, Russia and South Africa offset by Latin America gains as the overall private capital inflow total last year was just shy of $1 trillion for a 10 percent annual slide while outflows in contrast jumped 15 percent. Monetary easing both in industrial and emerging economies contributed to the result and 2013 should see a return to $1. 1 trillion despite a falloff in bond activity. Developing world GDP growth should rise marginally to 5. 5 percent, on better industrial output with the exception of the MENA region from domestic and external demand. China-dominated East Asia will again lead at 7. 5 percent, with Sub-Sahara Africa ex-South Africa second at 6 percent. Global trade expansion halved in 2012 to an estimated 3 percent but Southern hemisphere import and export figures averaged 5 percent. Agricultural, energy and metal commodities values should stay stable but low maize and wheat supplies may create shocks.

A downside Euro-zone scenario would hurt remittances and tourism, and US “fiscal policy uncertainty” could dent emerging market budget and current account balances. A fall in Chinese fixed investment to 35 percent is needed for sustainability and GDP growth in Asian neighbors Thailand and Vietnam would then be shaved half a point. The subsequent drag on raw material prices would harm oil and mining exporters in the Persian Gulf and Latin America. The developing country agenda should again focus on supply-side structural reforms, particularly with high unemployment in several regions. Half the universe runs fiscal deficits of at least 3 percent of GDP, but 80 percent have inflation under 6 percent. In external accounts twenty nations have less than minimal three months’ import cover, and in addition to trade weakness reserves dropped in India and Indonesia due to currency intervention. Productivity gains through liberalization, institutional strengthening, labor and infrastructure upgrades would bring “potentially large” benefits, the report comments. BRIC quasi-sovereign issuers continue to be over-represented in bonds, and equity ipo volume was lackluster last year. Africa followed by Europe has been most exposed to trade finance cutbacks, and prime name borrowing preference will be reinforced by Basel III guidelines. The overseas development assistance outlook is also “gloomy,” below the agreed UN target of 0. 7 percent of GDP, as richer nation providers encounter taxpayer anxiety.

Israel’s Unsettled Future Fits
2013 January 30 by admin

Posted in: MENA
Israeli bonds and stocks held their ground on the surprise second place showing by the new Our Future party founded by a media personality on a populist economic platform, as Prime Minister Netanyahu saw his majority shaved despite a similar promise to cut housing prices. His run-up to a third term was dogged by political missteps as he entered a coalition with a minister later indicted for corruption and angered US transplants by siding with Republican candidate and former consulting firm colleague Romney in the November presidential contest. He endorsed West Bank settlement building in the sensitive E-1 area as two-state talks with the Palestinians remain suspended following a brief armed skirmish and attempts to obtain separate UN diplomatic recognition. Iran policy, often influencing markets in 2012, did not feature heavily in the campaign that focused on pocketbook issues including unemployment and public spending on religious causes. Government debt is high at 70 percent of GDP as S&P affirmed its “A” rating assuming future fiscal prudence after the 3 percent deficit goal was missed last year. Inflation is within the target range as the central bank imposed loan-to-value mortgage curbs before the early election was called. The currency has been stable against the dollar but foreign investors have shunned local Makam bonds since withholding tax was applied. The $100 billion stock market has been buffeted by the mandatory breakup over time of family-run conglomerates otherwise experiencing a cash squeeze. The Dankner group controls IDB bank, insurer Clal, and defense and telecoms companies and the listing is down 75 percent and may no longer be a “going concern’’ according to a filing with the regulator who is also investigating fraud charges. Bondholders are in restructuring negotiations, as a $200 million pilot debt securitization is tried in the West Bank/Gaza coinciding with an urgent donor appeal. The Palestine Stock Exchange worth $3 billion has drawn Gulf and frontier buyer interest as well with low single-digit valuations. The Jordanian dinar circulating there has taken a beating as the Muslim Brotherhood boycotts a new round of parliamentary polls, after the King rescinded subsidy cuts needed to honor the IMF program.
The military budget is still secret and exempt from cuts to maintain security force support, as the ruling family’s coffers have also come under criticism for overseas travel.

The Islamic movement was not invited into the power structure as in Morocco, which floated a $1. 5 billion Eurobond and arranged a $6 billion Fund precautionary line several months ago. Despite the Eurozone crash FDI and tourism have been firm as drought slashed overall GDP growth to 3 percent. The CDS spread is 100 basis points inside Tunisia’s, despite the big 9 percent of output current account hole which joins with the energy and food subsidy bill as lingering royal economic pains.

Paraguay’s Distant Hoof Beat Dangle
2013 January 28 by admin

Posted in: Latin America/Caribbean
Paraguay followed Bolivia in a $500 million Latin America Southern Cone sovereign bond appearance after a dozen-year absence, despite recession as an outbreak of cattle disease and drought hit beef and soy exports, and upcoming presidential elections which will decide a definitive successor to the previously impeached head of state. A BB-minus rating was secured in advance of the road show throughout the Western Hemisphere and Europe with Chilean and Peruvian pension funds set to participate alongside New York and London houses. The central bank aims for further placements as agricultural recovery and monetary easing are due to generate double-digit GDP growth in 2013. A liquidity push with banks flush and money pouring in for hydroelectric dam payment could raise inflation to 5 percent while boosting the currency. Credit expansion has halved from the former 40 percent annual rate, and the fiscal surplus fell slightly in 2012 on the low tax ratio under 15 percent of GDP although government debt is also at that modest figure. The current account gap is minimal as terms of trade improvement and FDI inflows increased reserves, which authorities have used for two-way foreign exchange intervention. In the banking sector capital adequacy meets Basel standards and NPLs are just 2 percent, but a new law that has been challenged on constitutional grounds will move official deposits from competitors to a state-owned lender. After a public worker wage increase looser spending is expected around the April elections which could return a candidate from the long-dominant Colorado party. The IMF’s latest Article IV checkup cited possible currency and maturity mismatches and real estate overconcentration in the absence of regulatory data. The current pay-as-you-go defined benefit pension regime is a drain and lacks oversight. On monetary policy inflation-targeting and more currency flexibility should be prepared in tandem with deeper capital and interbank markets, the Fund recommended. It also urged greater personal income and farm taxation to boost collection levels.

In neighboring Brazil, which sends the power project royalties, both energy and taxes have loomed large as investor deterrents into the new year, with the IPO pipeline likewise stalled. After the President ordered electricity price reductions, low reservoir supplies raised the specter of shortage or another blackout as World Cup and Olympics advance teams continue to criticize infrastructure readiness. Power tariffs will not soon return to profitable ranges as potential bidders for transport concessions approach auctions cautiously. To meet its 3 percent of GDP primary surplus goal the authorities resorted to bookkeeping maneuvers including transfers from the sovereign wealth fund, and to reach it next time a back tax call has gone out to major state and private companies listed on the stock exchange like MMX and Petrobras. Their shares are up marginally through January as growth, inflation and currency worries continue to delay fresh listings and stampede BRIC sentiment.



Political Risk’s Taxing Taxonomy
2013 January 28 by admin

Posted in: General Emerging Markets
Political risk specialist Eurasia Group reverted to placing emerging market risks at the top of its annual headline list, with the observation that their abundance is “finished” and instability and volatility will again outpace advanced democracies. It divides the countries into three categories based on government capacity to reach the next economic development stage. Latin America as a region is in good shape with standout leaders in Brazil, Colombia and Mexico, and Asia is next with Korea, Malaysia and the Philippines and Turkey also deserves mention. More “problematic” mainstream markets include Indonesia, Thailand, Egypt, Peru and South Africa, with post-Mandela “steady deterioration. ” Heavyweight China is in this classification as it “doubles down” on its state fixed investment model likely to exclude foreign companies from the fruits. The last “backsliders” comprise Russia, Ukraine, Pakistan, Argentina, Venezuela and oil-rich Algeria and Libya in North Africa. In the Arab world generally Sunni-Shia and civilian-militant splits are an overarching threat and Syria’s collateral damage has already entered Iraq and Jordan. Egyptian President Morsi’s “ineffective rule” may stir populism and quash moderate secular aspirations, according to the forecast. Among developed economies Japan, Israel and the UK are in the geopolitical crosshairs, as Great Britain’s decades-long fight with the EU will prompt further mutual recrimination. In Europe the upcoming election season could bring a split parliament in Italy, while a Merkel victory in Germany seems assured although crisis action may be on dangerous hold until the event. The continent’s post-debt competitiveness remains elusive, unlike in East Asia where rivalry has shifted to the defense and diplomatic sphere, with China-Japan island disputes and territorial claims also placing Asean members against Beijing. The US has tried to regain influence in Cambodia and Laos after paying little attention since the Vietnam War and refugee era.

In the BRIC contingent India and South Africa could further disappoint with ruling party obstacles and dysfunction. Indian states will attempt to take power from the corruption-tainted center, and the last-gasp reform push will soon be overtaken by full-fledged 2014 campaigning. Fiscal profligacy is due to worsen with agricultural and anti-poverty support programs that could result in demotion to “junk” sovereign status. Sub-Sahara Africa’s positive middle-class direction is offset by the high-spending interventionist drift in the Zuma administration, despite the recent deputy election of business executive Ramaphosa. Technocrat former Finance Minister Manuel left the ANC’s leadership, and social unrest intensifying with a string of mine worker stoppages will linger through 2013. The report concludes with a list of less worrisome trends despite great publicity, including global protectionism and European separation. It notes a series of trade liberalization proposals like the Trans-Pacific partnership and possible US-EU pact. In the periphery Spain has been in the forefront of the breakup debate as the Catalan premier urges independence, but the process will evolve slowly to match GDP growth and bank rehabilitation performance.

Egypt’s Crumpled Pound Pyramid
2013 January 25 by admin

Posted in: MENA
Non-Arab foreign investors again bought Egyptian stocks on early-year general asset class switching and specific central bank moves toward greater currency flexibility with the introduction of regular auctions and deposit withdrawal fees and limits, as dollarization increased with reserves at $15 billion and the outline IMF agreement on hold until February parliamentary elections. The new governor Ramez joins a fresh Finance Minister with an academic background after a cabinet shakeup and has not ruled out stricter exchange controls as the 6. 5 to the dollar handle was immediately breached. Qatar doubled assistance and loan pledges to $5 billion after the changes equal to the mooted Fund program, as US, EU and African Development Bank participation remain pending. All bilateral and multilateral providers have underscored the importance of wide political consensus for fiscal and balance of payments and structural adjustments which have already proven elusive with government backtracking on commodity subsidy reductions in the face of party and popular opposition. President Morsi’s assertion of unilateral powers and rewriting of the constitution has further split the respective religious and secular factions, with Salafists pitted against the more moderate Muslim Brotherhood and civilian and military figures vying for leadership elsewhere. Economic platforms are not articulated in detail although greater credit access for small business is a standard nostrum. The private sector has been crowded out by heavy Treasury bond demand, with bank exposure as a fraction of deposits now over 50 percent. Non-resident portfolio inflows are still minimal with benchmark yields approaching 15 percent. In external accounts remittances have been solid to help offset the trade gap while tourism and Suez Canal revenues continue to disappoint. Devaluation could improve earnings and historically have boosted GDP growth half a point. However the hydrocarbon sector which was previously an export pillar will again run a deficit, as energy at home must also be more market-priced to keep the fiscal shortfall under 10 percent of GDP.

Turkey, which topped all stock exchanges in 2012 with a 60 percent gain, likewise fulfilled a $500 million commitment to Cairo over the period, as the central bank signaled minor easing in its multi-tiered framework with year-end inflation within the target range at 6. 5 percent. Yields on local and foreign bonds are at record lows, with soft landings in credit and economic growth and the current account deficit around 7 percent of GDP. Bank and corporate issuers have joined the sovereign in tapping overseas debt appetite with long-awaited assignment of an investment-grade rating, despite political and geopolitical cross-currents. The prime minister is preparing a presidential run in the coming months and may replace his deputy Erbacan as the main global business community representative and Syrian refugees continue to pour across the border as a separate Kurdish enclave may straddle it. A poorly-drafted capital markets law revision which banned negative commentary also caused brief consternation before promised revisions devalued the threat.

India’s Tarnished Gold Gifts
2013 January 25 by admin

Posted in: Asia
Indian stocks with deflated valuations attracted a brimming $20 billion in foreign inflows on the same percent MSCI advance in 2012 as the retail and banking sectors were further opened to allay worsening economic indicators. GDP growth is at a decade low around 5. 5 percent and the current account gap is at the same extreme as a portion of output on flagging manufacturing and services exports and heavy energy and gold imports. The precious metal demand has spiked despite the softer world price for traditional cultural and inflation hedge reasons, with the wholesale cost index still hovering at 7 percent to prevent decisive central bank easing. To cover the structural trade deficit the inward portfolio investment ceiling has also been raised for government and corporate debt, with FDI at only 1 percent of GDP a meager capital account contribution. Outward FDI has been a different story as Indian companies spent over $10 billion on acquisitions, often citing better prospects abroad than at home. State oil giant ONGC recently bid for holdings in Kazakhstan as private family groups like Tata argue that damaging domestic policies force them overseas. The recent passage of a bill allowing new banking licenses satisfies a longstanding desire from the conglomerates and also lifts the foreign ownership cap to 25 percent, but approvals may come slowly with existing competitors hit by a wave of non-performing loans requiring workouts, alongside high-profile bankruptcies such as airline Kingfisher. Contingent liabilities could endanger the medium-term fiscal plan to honor legal limits and avoid an immediate sovereign rating downgrade by bringing the fiscal deficit under 5 percent of GDP. The ruling coalition remains reluctant to introduce a general sales tax or further curb food and fuel subsidies before upcoming elections, although advanced technology has aided the push for less fraud-prone direct cash transfers. Rahul Gandhi is set to lead the Congress Party in the next national race but the opposition BJP may pose a strong challenge following the third consecutive win of Gujarat chief minister Modi in December. He regularly holds investor summits to trumpet a business-friendly approach, but involvement in past anti-Muslim violence undermines broader political appeal.

In Indonesia, where shares ended last year barely positive, the 2014 presidential succession derby has already begun with candidates jostling over natural resources control as a wedge issue. The central administration has retaken post-Suharto local prerogative with a set of new mining rules and the decade-old oil and gas law was recently declared unconstitutional. Jakarta’s governor hiked the minimum wage 45 percent after union marches blocked the capital’s main roads. Carmakers could benefit from higher disposable income as consumption continues to support 5 percent GDP growth, while poorer rural areas are dealt a blow from lower coal and palm oil exports to China darkening the current account picture.

The US Government’s Future Decades’ Drill
2013 January 23 by admin

Posted in: General Emerging Markets
The National Intelligence Council, which acts as a long-range think tank for State and Treasury Department policymakers, released the latest in its Global Trends series attempting to extrapolate “Alternative Worlds” out to the year 2030. It foresees “radical transformation” without the US, China or another large power dominant amid changing demographic, urbanization and commodity patterns in both industrial and developing countries. The majority of the population will become middle-class over the period but individuals will also have access to “new and lethal” technologies. Asia will be the biggest economy and in other regions Brazil, Indonesia, Nigeria and Turkey will be important while Europe, Japan and Russia will continue their decline. With emerging markets’ move to cities, housing, office and road construction over the next 40 years could equal history’s total to date. Food, water and energy demand will increase 30-50 percent and climate change will aggravate access. The US, which has already regained the gas export lead with innovations like “fracking,” could be resource-independent by mid-century but environmental costs could limit the breakthrough. The global economy will continue to run at multiple speeds, but a savings shortfall versus investment needs will raise term interest rates. The BRICS could be trapped in middle-income status and the Middle East, Central and South Asia and Sub-Sahara Africa suffer a “democracy deficit. ” which can foster instability. Cross-border financial crises can be repeated in the absence of governance structure overhaul, with the Bretton Woods institutions likely to cede monitoring and rescue to fresh players.

Among troubled states Central America and the Caribbean are at risk of failure from external and internal criminal and terrorist networks. Cyber-security will be a frequent battle front but at the opposite extreme health care advances will markedly raise longevity in the developing world. The US will be a “first among equals” in government relations, but business, philanthropic and subnational groups will also exert unprecedented influence. The list of improbable near-range “black swan” events features EU or China collapse as well as liberal reform in Iran. Gloomy prognostications of a Greek exit from the euro ending the single-currency experiment have not been as prominent recently, but the scenario cannot be ruled out given the continent’s aging and productivity challenges. Russia is also on a downward trajectory the report suggests, and Central and Eastern Europe may still be tempted by populist and socialist alternatives with its own budget and competitive difficulties twenty years after the Berlin Wall fall. In Hungary far-right parties may again pose a fascist specter heading into 2014 elections, and in the Czech Republic previously spurned communists may be invited into the ever-splintering ruling coalition that cannot agree on austerity steps with recession already underway. In Poland with domestic mainstay construction in the doldrums and jobless immigrants returning from abroad, conservative public finance management is no longer the scenario as mainstream economists embrace heavy spending alternatives.

Ukraine’s Bashed Union Label
2013 January 17 by admin

Posted in: Europe
Ukraine’s stock exchange was down 50 percent in 2012 as the worst MSCI performer, as the reinstated Prime Minister Azarov edged closer to formally joining the Russia-led Customs union with Belarus and Kazakhstan partially reviving the CIS grouping with the suspended IMF accord set to expire. Amid devaluation and default rumors he signaled “cooperation” with the Fund while assuring its money was not needed this year. Despite further sovereign ratings demotion a $1. 25 billion Eurobond was placed in November to lift the country contribution to the buoyant EMBI return near 20 percent. International reserves dipped to $25 billion, less than three months’ imports, in the last quarter with the economy in recession. $10 billion in external debt payments come due in 2013, over half to the IMF and combined public and private sector foreign obligations are 75 percent of GDP. Domestic borrowing, which took 60 percent of the official total last year, has also skyrocketed on 20 percent increased state spending with the fiscal gap close to 3 percent of GDP. The Finance Ministry has dangled 20 percent yields and hard currency versions to lure bond buyers, and has now turned to retail potential with lackluster institutional appetite. The current account deficit more than doubled to 5. 5 percent of GDP as metal exports slid 15 percent, and on the capital ledger foreign banks have withdrawn subsidiary support on flat loan growth. Parent banks anticipate a 20 percent hyrvnia drop against the dollar as the central bank rules out adjustment and ordered surrender of export earnings to bolster the peg.



High banking system NPLs also linger in Kazakhstan, an immediate Central Asia union backer, as a central asset-disposal agency is not yet functional. Oil and mining-led GDP growth will again be 5 percent in 2013 as the government acquired an additional stake in the huge Kashagan field. Agriculture and construction are uneven, and the succession to President Nazarbaev was further muddied with replacement of the prime minister, although his son-in-law remains the front-runner. FDI as a fraction of output tops all of EMEA and has facilitated exchange rate management within the 145-50 band to the dollar. The stock market staged a 25 percent rebound, and London-listed heavyweight ENRC has agreed to stricter corporate governance standards.

Sovereign sukuk are planned which could add the country to the regional NEXGEM contingent alongside Belarus and Georgia. The former was a top gainer last year as it skirted default with Russian aid and currency depreciation, although the Lukashenko regime remains under international sanction for human rights abuses. On the corporate side after 2012’s record volume Europe is again projected to see $50 billion in issuance mainly from higher grade quasi-sovereigns. The demand for new entrants may be relatively unabated with the yield hunt, shortage of industrial world paper, and crowded major EM positions uniting for the welcome.

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South Africa’s Worn Windfall Welcome
2013 January 17 by admin

Posted in: Africa
South African equities rose 15 percent on the MSCI index in 2012 on positive foreign fund engagement despite the December ANC leadership battle where President Zuma was challenged by his former deputy, who was subsequently replaced upon defeat by wealthy business executive Ramaphosa as the gathering urged a “resources rent tax” previously put at 50 percent for strategic industries like mining. The party backed away from more aggressive expropriation calls and vowed not to be reckless with its “bold state intervention. ” Ramaphosa’s seat on the board of beleaguered miner Lonmin was also attacked by labor activists who accuse the company of safety abuses and illegal dismissals after a lengthy strike. He is also chair of pan-continental telecoms giant MTN and Standard Bank, and while criticized for benefiting from black economic empowerment mandates his close relationship with Nelson Mandela, who experienced a sickness bout over the period, promoted the vice president candidacy. The President was dogged by a new controversy over home province spending as he appealed for unity after easily winning internal re-election ahead of the next national contest in 2014, when he may not seek another term as the century-old movement emphasizes fresh personnel and policies to ensure its legacy and age and investigations take their toll. After the vote he lambasted the notion that recent credit downgrades meant the country was “falling apart” and pointed to specific growth and job creation plans even as the wave of wildcat mine violence cost billions of dollars in direct and indirect losses. The sovereign rating is still investment-grade but the outlook is negative from the three main agencies on weaker public finances and increased social strife. Q4 saw recession and 2013 will repeat sleepy 2. 5 percent GDP growth as official unemployment again teeters at 25 percent. Inflation remains stubborn at 5 percent on food and currency causes as the current account deficit is at a 5-year high near 7 percent of output. Fixed-income inflows have surged since entry into world bond indices, but public debt approaching 45 percent of GDP has introduced caution especially with a big infrastructure program underway to relieve housing, power, highway and sanitation shortages and provide employment.

The banking sector has come under scrutiny with almost half of consumers reporting impairment and the regulator describing a “ridiculous” expansion of unsecured lending which has tripled in recent years to one-tenth the total. Borrowing rates can be 30 percent and to collect banks have used court orders to attach worker wages in the absence of other relief measures. A range of smaller specialized providers have joined the “big four” in the personal, credit card and overdraft push. The problem could blemish the middle-class story propounded by the World Bank and private analysts ,with the continent’s per capita-income now estimated at over $1500 and average GDP growth leading developing regions at almost 6 percent in a good news windfall.

China’s Trampled Trust Trails
2013 January 15 by admin

Posted in: Asia
Chinese stocks finished the year up 15 percent on the MSCI Index on a post-leadership change improvement in economic statistics, despite regulatory urgency over third-party trust and wealth management products which now account for over $1 trillion or one-fifth of total financing as banks were ordered to “check sales. ” The PMI is again above 50 and monthly housing prices stabilized as official and private 2013 GDP growth forecasts were raised to 8 percent-plus on infrastructure stimulus and solid retail demand. Exports are barely increasing and Japanese trade and investment ties have been battered by geopolitical rivalry over tiny islands that may be aggravated by the return of LDP leader Abe, who hails from a prominent World War II military family and has vowed also to fight “currency war” more aggressively through greater monetary expansion to weaken the yen. Food-driven inflation is down to 2 percent, and the Q3 capital account outflow moderated as the new party and government senior representatives assumed their posts in a smaller politburo. Their financial sector work agenda will include deposit insurance introduction, insurer asset allocation liberalization, and debt and equity access limit removal for foreign central banks and sovereign wealth funds. Local bodies have shifted from loans to bonds with RMB 550 billion issued through end-September 2102 surpassing all of 2011, at yields often in the 7 percent range. Banks have accounted for less than half of outstanding credit still increasing at a 20 percent annual clip. Smaller competitors outside the big four state giants have dominated the wealth product space while foreign ones continue to represent less than 2 percent of traditional activity. The latter prefer Hong Kong and Singapore for mainland and regional servicing and have likewise exited Tokyo after years of lackluster business. Incoming Prime Minister Abe named veteran policymakers to his cabinet and controls a two-thirds majority in parliament with party allies. He seeks to double the inflation target to 2 percent and revise the pacifist constitution, as the economy fell into recession the last quarter and household confidence hit a yearly low. The current account returned to surplus but GDP growth will end around 2 percent largely on the Chinese spat fallout.

Australia by comparison continues to court exposure as the commodities powerhouse inked a $1. 5 billion natural gas deal which should help keep the current account deficit to 5 percent of GDP. Retail property transactions are off 30 percent on softer commercial and consumer sentiment, and non-bank lenders have run into trouble. In emerging and peripheral Europe authorities are targeting Chinese buyers for asset and debt sales with scant success. Hungary has moved instead to diversify its bondholder base with domestic retail outreach, and Cyprus has abandoned insolvency rescue hopes through offering Beijing offshore oil rights as it places trust in a possible EUR 15-20 billion dual lifeline from the EU and Russia.

Russia’s Family Neglect Nods
2013 January 15 by admin

Posted in: Europe
Russian shares were largely unmoved by a child adoption ban imposed against the US in response to asset and visa sanctions for official abuse contained in the so-called Magnitsky bill as they rose 10 percent in 2012 in MSCI dollar terms, as falling world oil prices and breakneck domestic credit growth otherwise stoked tensions. The diplomatic tiff followed stiffer requirements for foreign parent eligibility even as hundreds of thousands of children remain in orphanages with health and behavior problems rendering them undesirable to local families, amid reports of matches abroad going sour including an incident where a youngster was sent back unaccompanied on an airplane to Moscow. With both Presidents Putin and Obama re-elected relations had briefly seemed to warm after the earlier dashed “reset,” as cooperation turned to Syria in particular as the Kremlin distanced itself from the Assad regime and began to evacuate citizens from Damascus. On Iran the parties were increasingly working on a nuclear enrichment compromise while staying within the broad outline of the UN-agreed commercial boycott. In Europe bilateral ties had improved slightly as consultations took place over a rescue package for Cyprus with hefty Russian offshore banking deposits, following recriminations over an EU investigation into possible Gazprom anti-trust violations.

At home officials have been preoccupied with slowing GDP growth to around 3. 5 percent as the PMI dropped to 50 in December on inflation above the 5 percent target due to drought. A marginal fiscal deficit is expected in 2013 with a declining current account surplus at 3 percent of GDP. Foreign reserves are over $525 billion but annual capital flight is again in the $75 billion range. A recent government report from Ernst and Young challenged the definition and asserted the outflow was actually half with the balance accounted for by normal investment and low-tax fund shifts.

State giant Sberbank has been active on the acquisition trail abroad with the purchase of Austrian and Turkish units as ratings agencies warn about “spectacular” uncollateralized retail loan expansion. Central bank figures show the 45 percent annual jump in the segment quadruple the pace of deposit increase and now greater than corporate activity outstanding. It includes personal, credit card, auto, and mortgage borrowing and banks have pared their average capital adequacy ratio 5 percent to support the business. Deposit insurance has been hiked and addition liquidity facilities are on offer to maintain confidence. Financial institutions and companies raised some $50 billion in Eurobonds last year and now anticipate a local windfall with full opening of the ruble market following a regulatory agreement with Euroclear. Foreign holdings of OFZs alone could double from the current 7 percent share, as quasi-sovereigns unveil innovative structures such as with VTB Capital’s gold-linked instrument. Multinationals like Caterpillar have also tapped the deeper internal base as progress accelerates from the former crawl.

Equities’ Great Equalizer Grab
2013 January 9 by admin

Posted in: General Emerging Markets
Equity inflows just short of $50 billion caught up with debt funds’ $55 billion tilted toward hard currency, according to final EPFR data as the MSCI likewise ended with a 15 percent spurt in contrast with single-digit performance most of the year. Even though economic and earnings growth may be flat in 2013 overdue asset rotation favors additional stock exposure which may lift the lagging frontier as well as core universe. Among the constituent groups the diversified global slot was the big winner accounting for virtually all the net total with $5 billion also put in Asia offset by Latin America and EMEA outflows. In the developed world only Japan was positive at $7 billion as $80 billion fled the category. Among individual countries China led with $8 billion, while $1. 5 billion went into Brazil, Korea and Russia combined. Mexico was the Latam standout and Africa got its entire $60 million in the last quarter. The BRIC theme shed $2. 2 billion as the CIVITS and MIST successor acronyms along with frontier destinations took in roughly the same amount. The Middle East was again shunned with the Arab Spring’s aftershocks and festering geopolitical confrontations, although Egypt reappeared on the horizon with a 45 percent retracement of 2011’s collapse. Commodity, financial and consumer goods companies were popular, unlike energy and utility listings. As opposed to the mixed equity picture all bond classifications gained for $475 billion in total inflows. Both EM sovereigns and corporates set records, and local currency preference reasserted at year-end as central banks in the US, Europe and Japan extended monetary stimulus programs. Throughout 2012 exchange-traded ETFs absorbed a greater chunk of activity and now represent over half the equity space, while consistent institutional appetite compensated for retail wavering in both classes.

In the main MSCI markets only Brazil and the Czech Republic were down while the other Mideast member Morocco was at the bottom of the heap with a 15 percent loss. In Asia the Philippines was the surprise leader with a 45 percent jump, followed by Asean counterpart Thailand at 30 percent. India was up 25 percent although EPFR’s commitment tally was negative. Colombia squeaked by Mexico in that region with a 30 percent advance despite liquidation of a major brokerage there which slowed trading. The joint Andean index rose half that level, with Chile’s 5 percent lackluster result acting as a drag. Turkey was the Europe and universe champion with a 60 percent surge with Poland’s 32 percent a distant second. Hungary, which rewarded global houses like Franklin Templeton betting big on local debt, also managed a 20 percent share uptick as the government bought back a stake in energy heavyweight Mol. The frontier index lagged with a 5 percent increase as half the markets tanked and Kenya and Nigeria topped the charts with a 55 percent spike. The outcome was triple JP Morgan’s EMBI as such dizzying numbers may soon spin portfolios in another direction.

Argentina’s Flouted Flanking Maneuvers
2013 January 9 by admin

Posted in: Latin America/Caribbean
Argentina shares were at the rear of the MSCI index with a 40 percent blow although bonds moved into the positive EMBI column, as a US court decision on repaying holdout creditors was delayed until March and a UN tribunal ordered release of a naval ship seized in Ghana to satisfy judgments they obtained. President Fernandez’s popularity rating improved slightly to the 40 percent level on the legal confrontation with the “vulture” funds as well as with media at home on a new asset divestiture mandate and the UK and its diplomatic allies abroad on repeated post-war claims on the Falkland islands. Separately the US and EU filed trade complaints over agricultural and manufacturing import curbs, as Spain took its fight against oil company YPF’s expropriation to the World Bank’s investment settlement body, which has already awarded multinational firms billions of dollars in compensation from last decade’s pesofication actions. With dollars again scarce and subject to unwieldy controls smaller provincial borrowers have reprised that route, as the unsolicited sovereign rating was recently lowered by S&P to “B-“ on increasing policy risks. The downgrade noted that the eventual New York appeals court ruling, which will consider application of the “pari passu” equal treatment clause, may not affect debt service but could further impede relationship normalization with private and official lenders including the Paris Club as default enters its 12th year.

The medium-term economic view foresees “deterioration” with widespread government interventions, and high inflation and “rigid” spending. Real 2012 GDP growth will be only 1. 5 percent, and while foreign reserves are at $45 billion on strong beef and soy exports with just $4 billion in external payment due in 2013, liquidity could be constrained from both current account and financial market causes. Foreign investors who have bought both local and international corporate debt are closely monitoring the end-game in the Elliot Associates case, and holders who previously accepted the swap have organized as a group with their own counsel to demand an uninterrupted payment stream. The Federal Reserve has petitioned not to compromise Bank of New York Mellon’s trustee role through account release, while the State and Treasury Departments have urged that longstanding sovereign immunity practice be honored to the same end.

However the octogenarian presiding judge Griesa may have reached the limits of endurance with unsatisfied collection dictates when he initially ordered Argentina to deposit over $1 billion in escrow pending determination of the pari passu issue and sum. Awaiting the end-February hearing date Elliott has enlisted law scholars through the Washington-based Task Force Argentina advocating restructuring fairness to argue its interpretation and Argentine fund manager Puente has also entered the ring underscoring the wider damage from a ruling against the country. Meanwhile Greece’s second private sector haircut at a buyback price around 35 cents to the dollar was completed as the ECB will not countenance below par value redemption in that continent’s feuding pair.

The Berne Union’s Pungent Political Risk Sauce
2013 January 7 by admin

Posted in: General Emerging Markets
The World Bank’s MIGA direct investment guarantee arm offered a mixed annual take on developing country FDI trends with a near 10 decline this year, despite a better political risk climate under the Berne Union insurance body with record issuance directed at the post-Arab Spring Middle East and elsewhere.