No More Learning

Canal earnings rose 5 percent but the expansion is a year behind schedule and larger vessel traffic will not accelerate until 2016. The Dominican Republic’s GDP showing has been similar with remittance and visitor surges and a deal on Petro Caribe debt to Venezuela may be struck at a discount paving the way for further commercial issuance in the absence of an IMF arrangement. Gold exports have provided support after mining rules were clarified and border tensions with Haiti have eased fostering joint ventures. Costa Rica’s new administration has scrambled to regain momentum after a big computer maker closed and a 10 percent currency deppreciation against the dollar, with tax collection and better business climate key priorities. Public debt is in the 60 percent of GDP danger zone and the sovereign rating outlook is stable after investment-grade loss but dedicated buyers await bolder consolidation measures. Negative parallels are drawn with El Salvador with a steeper ratio and party gridlock unable to agree on reforms with the economy operating well under potential. Banks there criticize recent imposition of a transaction tax as upcoming legislative elections are expected to again loosen the purse strings.

In the Caribbean Jamaica’s MSCI index is off 5 percent as it too is in hock to Venezuela’s Petro Caribe within the 130 percent debt/GDP ratio. The IMF program is broadly on target but growth is just over 1 percent on flat tourism performance. International reserves jumped to $2 billion after an $800 million bond placement but the current account gap may again approach 10 percent of output without sizable direct investment gains to cover it. Barbados continues to dodge the Fund’s grip with last-gasp budget adjustments but debt is stuck at 100 percent of GDP on near recession. Local banks, insurers and pension funds must fill the hole as regional players seek other island havens.

The Gulf Trio’s Oil Swing Swipe
2014 December 16 by admin

Posted in: MENA
OPEC powers Saudi Arabia, the UAE and Kuwait sold off shares as cartel production stayed constant despite the 30 percent global oil price slide in recent months. The Saudi minister in charge hinted at a Vienna headquarters meeting that output may be curtailed to just over 9 million barrels/day next year, which would place the onus on infrastructure spending to extend 3 percent GDP growth. The MSCI component had rallied 10 percent before the decision on a popular IPO from National Commercial Bank offsetting the fallout from the resignation of a telecom firm executive for alleged accounting misrepresentation. The US-trained regulator has vowed a harsher stance against abuses in the run-up to broader international opening. With the petroleum export blow the exchange rate peg has come under forward pressure in a repeat of the immediate post-2008 aftermath, although Monetary Authority foreign assets have since soared toward $750 billion and could be liquefied in an emergency. The central bank may decide to hike rates before the Fed, which could choke double-digit private sector credit expansion to support the non-energy economy. The UAE’s Emaar real estate listing hit the daily allowable bottom on new overheating fears as Dubai World moved to extend a 2018 repayment lump another 5 years after comfortably meeting 2015 obligations with asset sales. Its draw as an international education hub also came under scrutiny following attacks on teachers and alleged labor standard violations. Headline inflation has worsened to 4 percent on higher property as well as food and health care costs angering middle-class citizens. Kuwait’s large MSCI frontier weighting is flat with hydrocarbons accounting for 95 percent of revenue, but a 15 percent of GDP budget surplus is still envisioned next year. Relations with Iraq may improve in the fight against ISIS and remaining Iraqi debt may be forgiven as Baghdad tries to marshal military and humanitarian resources for the onslaught.

Middle East oil importers in turn may receive lower Gulf aid and remittance flows, and Egypt after reimbursing a Qatar loan may be preparing for other early demands as it organizes a global donor conference in the coming months, with the IMF prominent after a positive Article IV report. Former president Mubarak was acquitted of murder accusations against Tahrir Square protesters and may soon be freed from jail in failing health. Tourism has revived and the pound has been firm at 7. 15/dollar despite the recent resignation of the central bank deputy governor for alleged policy disputes. Tunisian stocks are stuck awaiting the outcome of the second presidential round run-off which focuses in part on economic issues. Manufacturing has been lackluster and depends on further Eurozone recovery and real interest rates remain negative as state bank recapitalization was delayed. The new government will revisit budget questions including possible mainstream sovereign bond re-entry in a swipe at Maghreb favorite Morocco.

Ukraine’s Frantic Foreign Fund Manager Mandate
2014 December 16 by admin

Posted in: Europe
Ukraine external bond yields stayed at 20 percent for the second greatest EMBI loss as the President and Prime Minister after splitting party dominance in parliamentary elections named foreign-born fund managers as Economy and Finance Ministers as the half-year old IMF program further unraveled on Eastern industrial center bloodshed and energy, banking and fiscal cleanup delays. The respective appointees are private and public equity specialists from the US and Baltics and were granted citizenship upon acceptance. They will try to pass overdue budget changes and access supplementary assistance with the 5 percent output contraction due to last into 2015 with 20 percent inflation, and the hyrvnia at half the pre-revolt 8/dollar level on $7. 5 billion in reserves, not enough to cover next year’s hard currency debt repayments before gas and other imports. The separate Naftogaz bill next year is estimated at $10 billion and to replenish reserves the $15 billion Fund arrangement may have to double revisiting the urgency of commercial restructuring for sustainability with the 60 percent/GDP public debt threshold for Russian acceleration already passed. Under new guidelines creditors would at least have to extend maturities but outright haircuts may now be sought with Templeton reported as the main international fund Eurobond owner. Ukrainian corporates are not widely-held either with defaults in progress, and quasi-sovereigns may offer debt-equity swaps in workouts. Russian banks have been the dominant buyers since 2008 and they are under their own earnings pressure from recession at home and rollover squeeze from sanctions abroad. The central bank has barely intervened in the ruble crash past 50/dollar and predicated annual capital flight over 100 billion and possible double-digit inflation in 2015. With $70/barrel a fiscal deficit will appear and backstop official funds could be exhausted on state spending and company refinancing demands. President Putin has blamed the troubles on Western conspiracy and his opinion approval remains high although neighbors register historic post-communist doubts over geopolitical intentions. In Moldova Moscow’s proxy party was removed from the ballot and elections before in Latvia dented the Harmony grouping’s traditional strong showing. The premier there kept her coalition on a platform of budget discipline and modest growth with minimal inflation despite lower Russian exports.

Serbian shares pared a 15 percent MSCI drop as the cultural Russian ally renegotiated a 3-year IMF standby of up to EUR 1 billion after the Prime Minister slashed official wages and pensions with the budget gap at 8 percent of GDP. Recession is again set for 2015, but inflation should be close to the 5 percent target allowing potential benchmark rate easing. Auto making has picked up followed by oil and gas exports and Croatia could be next to approach the Fund after presidential elections in December with public debt/GDP at 85 percent and the EU excess debt procedure already in operation. Coastal tourism has been diverted to other cheap Southern Europe spots as vacationers await a fresh mandate.

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The IIF’s Broken Globalization Records
2014 December 12 by admin

Posted in: General Emerging Markets
The Institute for International Finance issued a post-crisis retrospective on the “broken” globalization trend in mature and emerging financial markets since the 2007 apex and warned of an indefinite “hiatus” under new banking and securities regulation stifling cross-border flows now averaging $1 trillion annually. It argues that the process should strengthen after deleveraging from the previous decade-long credit boom with developing economies in particular a “powerful engine” despite closed capital accounts in giants China and India. That future is however diluted by uncertain prospects for trade and infrastructure finance and bond and stock market-making, as backlash from national supervisors promotes “balkanization. ” The G-20 and Financial Stability Board have been the focus for harmonizing exchange rate and monetary policies and prudential norms, but the balance between benefits and risks has often strained business models and may inject greater volatility, according to the group. Emerging markets should avoid short-term capital inflow restrictions and focus instead on local activity and institutional development. The IMF may be called in as a backstop and governance tweaks contained in pending US legislation are needed for continued legitimacy. The network of central bank swap lines could be extended as an additional safety net beyond existing mainly G-4 and regional arrangements. Since 2008 better Asia and Latin America flows have compensated for Eastern Europe’s “bust,” but by segment syndicated and project lending “reversed” while portfolio investment has been uneven. As Euro Area banks have retrenched with EM borrowers, US, UK and Japanese competitors entered, and Chinese and Gulf units have become active worldwide. Non-resident equity is closer than fixed-income allocation to the mid-2000s peak, but foreign ownership of government bonds has skyrocketed and prompted notable selloffs as in the 2013 Fed taper episode. FDI in contrast has been stable at an average $1. 5 trillion from 2010-13 increasingly in South-South direction. Financial deepening as measured by the range of assets/GDP at 200 percent is half the mature market level, but the pace slackened prior to the economic slowdown and investor liquidity and protection must become priorities as new technologies expand the product range, the IIF urges.

Capital flows/GDP at 4 percent are half the 2007 proportion and the disparity in equity market size is particularly pronounced at only 12 percent the total versus the almost one-third share of global output. Emerging market derivatives turnover has reached $1 trillion with the majority conducted over the counter, which will be subject to tighter global clearing and reporting guidelines that could delay progress. Ten case studies at the end point to good and lagging practice with Chile and South Africa praised as sophisticated middle-income destinations. China, India and Indonesia are bank-dominated with limited international participation while Russia and Turkey’s capital markets are also “shallow. ” Poland and the UAE have embraced open capital accounts and Brazil has followed an intermediate strategy, and almost all the countries despite mixed integration were “unscathed” by the post-2008 crisis in another historic break.

Iran’s Negotiation Pause Reflection
2014 December 12 by admin

Posted in: MENA
The Tehran Stock Exchange was disappointed with delay in foreign investor opening until at least next July when nuclear weapon negotiations with the West, Russia and China face another deadline after anti-enrichment for sanctions lifting talks were extended. The regime will continue to receive $700 million in monthly easing on oil sales and frozen bank accounts, and President Rouhani expressed optimism an accord would be reached as he tries to restore economic growth and combat inflation which has moderated to 20 percent and relieve youth unemployment estimated at 25 percent. The currency weakened in the parallel market with postponement of the potential investor and visitor flood although delegations will still arrive to probe commodity, consumer and financial market offerings. The President is again expected to participate in the Davos World Economic Forum in January and press his intention to cut subsidies and expand the private sector. Gulf buyers were active in initial state company stake divestitures under the previous government but efforts have since stalled as the Revolutionary Guard and religious foundations continue to control major listings. Banks operate under a no-interest Islamic fixed return and commercial competition has been stifled with new applicant license delays and the absence of bad loan resolution procedures. With declining oil prices and OPEC infighting energy focus has shifted to gas reserves and autos and mining are two other priority sectors for progressive international engagement pending further boycott removal. Europe and Asia are poised to return faster than the US, where stiff Treasury Department prohibitions remain in place that Republicans now in charge of the Senate are due to underscore and try to strengthen. Iran’s budget mix has been further roiled by the rising cost of Islamic State fighting alongside coalition airstrikes although it is still allied with Syria’s Assad. The toll has already depleted neighboring Iraq’s coffers with military and refugee spending forcing austerity including civil servant wage and hiring freezes. The economy will shrink 3 percent according to the IMF and employee in the Kurdish enclave have not been paid for months as Baghdad seeks to strike a fresh provincial relationship as ISIS soldiers surround key cities. Bond yields have tipped toward 7 percent as 2015 envisions a fiscal deficit and continued coalition fragility despite the longtime prime minister’s replacement.

Israeli stocks stayed down with the prolonged dialogue and Palestinian street attacks in Jerusalem and suspension of the Leviathan offshore gas project on regulatory and Jordan bickering. The economy and currency are flat as the Tel Aviv exchange aims to lure high-tech startups shunned by venture capital caution. Egyptian energy shipments have revived after terrorist interruption as stocks up 35 percent continue to top the core universe. The pound slipped to 7. 5 to the dollar on Qatar loan repayment as the central bank vowed to end the black market. Foreign buyers have tiptoed into local bonds with double-digit yield as the Finance Minister reopened the door to IMF assistance after pre-military rule rejection.

South Asia’s Stricken Presidential Stand
2014 December 8 by admin

Posted in: Asia
The Pakistan and Sri Lanka stock markets sold off as prime minister Sharif and President Rajapaska respectively tried to hold on to power in the face of opposition attacks and supporter defections. The former’s state oil company stake offering was further delayed but the IMF is due to release the next $1 billion tranche despite the setbacks and missed central bank deficit financing and foreign reserve targets. GDP growth flagged the past quarter on export and manufacturing weakness but a 50 basis point benchmark interest rate drop and lower oil prices should return it to 4 percent on high single-digit inflation. The budget deficit improved to 5 percent of GDP but tax revenue barely budged as collection overhaul hit administrative and legal roadblocks. In the balance of payments the small current account gap has been offset by a 15 percent remittance rise and another portfolio inflow from a reopened sovereign bond bringing reserves toward $10 billion as the currency settles at 100/dollar. Clerical critics of the administration have pulled back as party adversary Khan continues his campaign on claims of election fraud and inadequate electricity and security. In next-door Afghanistan the Taliban have resumed suicide bombings against military and aid installations following establishment of the new leadership there with technocrat President Ghani in charge. The former World Bank executive has stressed project implementation and anti-corruption with donors and has promised to punish perpetrators of the Kabul Bank collapse and promote delayed commodity joint ventures. Sri Lanka, which has spurned both the IMF and UN after it claimed civil war human rights abuses was surprised as the President called elections two year ahead of schedule and then was challenged by a former cabinet ally over his family’s far-reaching control. Construction, tourism agriculture and textiles sustain 7. 5 percent growth and inflation has come down to 5 percent as the central bank throttles margin credit. With poll spending the budget gap may again blow out to over 5 percent of GDP as the trade deficit will shrink on declining energy imports. The President’s 60 percent landslide after defeating the Tamil rebels will not be repeated, but legitimate political rivals have been silenced or arrested and the exercise may not be valid in the absence of international observer involvement.

In Mongolia in contrast a no-confidence parliamentary vote sent the prime minister packing to the relief of foreign investors decrying too harsh a line toward the next $5 billion phase of the OT mine, which may now start in the first quarter of 2015. The chief executive of Rio Tinto’s operation running the project also resigned for a clean slate as the pace of economic overheating has dwindled. Credit growth is still above 20 percent but half the early year level on 15 percent inflation and a 10 percent of GDP current account hole. A Chinese swap arrangement intends to keep reserves at the critical three months import minimum in a belated stand.

Venezuela’s Yacht Harbor Reverie
2014 December 8 by admin

Posted in: Latin America/Caribbean
Venezuelan bonds extended double-digit EMBI losses at 20 percent yields as President Maduro spurned default talk with scheduled repayments and tackled fiscal crisis with new luxury goods taxes on yachts and rum as $4 billion in Chinese loans were added to official reserves under $20 billion. Twenty-five other laws were passed under economic emergency powers pending new legislative elections next year that could end ruling party dominance as suggested by the President’s meager 30 percent approval rating. Although only inflation has been reported statistically at 65 percent with a lag, output will contract 3-5 percent on widespread staple shortages without authorized dollars or profits. Consumer giant Proctor & Gamble was the latest to cease operation as price controls pinched further and rigid labor practice prevented worker shedding. With world petroleum value declining OPEC representation has focused on supply restraint as domestic production capacity will be flat through 2015. Beijing will allow minimal shipments of around 300,000 barrels/day to service debt and the Finance Minister has committed to maintaining Citgo US service station ownership even if assets are sold. International cash reserves are just $1 billion with the rest held in gold and an equivalent $15-20 billion stash may be in off-balance sheet accounts according to estimates. To smooth the debt profile the sovereign and state oil company may soon conduct liability management exchanges, but participation could be limited by sustainability doubts and mounting Washington sanctions against the regime for anti-democratic moves including the arrest and jailing of opposition leaders. A small current account deficit will be run this year on falling oil exports and the overvalued multi-tier exchange rate. Currency devaluation and unification remain on the table but reform proponents were purged several months ago and only gradual changes from the progressive 6-50 bolivar/dollar formal levels are expected against the parallel rate above 100, especially with the military benefiting from the preferences. Domestic fuel subsidy adjustment has also been shelved indefinitely for fear of social explosion, although unaddressed crime and health concerns also rank high in public anger.

Border closings with Colombia to squeeze smuggling and normal trading are part of the “economic war” strategy and contributed to negative stock market results there as the FARC peace negotiations temporarily unraveled after a general was captured by the guerillas. President Maduro has not pronounced on the talks which were facilitated by his predecessor, and Colombia’s business community which suffered from extortion and kidnappings is split on the prospects. President Santos in turn inherited the office from now Senator Uribe who has spearheaded opposition to any deal in Havana as sympathy with “Castro-Chavismo. ” The dispute has overshadowed solid 5 percent growth on a mix of domestic and external support as the peso weakens against the dollar without intervention amid a clamor for redenomination dropping zeroes. A $25 billion public-private infrastructure medium term infrastructure program has also been reformulated after early criticism for smoother commercial sailing.

IMF Quota Legislation’s Private Sector Breakout
2014 December 4 by admin

Posted in: IFIs
Four years after initial agreement at a G-20 summit and a year after another IMF quota review was due, the Obama Administration and Congress have yet to pass a bill enshrining minor funding and voting changes as the US, the original architect still with an over 15 percent controlling share, stands alone in refusal. The technical provisions are obscure, but basically enshrine an earlier post-2008 enlargement of Fund capacity to $950 billion and an incremental 5 percent power, and pledge transfer to big emerging economies mainly at the expense of European countries with their separate pre-EU representation. The package was delayed in Capitol Hill submission and House Republicans in particular, whose majority will be reinforced in the next Congress along with Senate takeover, have complained of lack of outreach and rationale and added reservations about lending policies in Europe and elsewhere to the bill’s specifics. The Treasury Department has been the lead agency actor and White House lobbyists have joined the effort, while outside advocacy crested earlier this year on an attempt to insert the clause in emergency Ukraine appropriations with a letter-writing campaign organized by the Bretton Wood Committee. It brought hundreds of signatures from former officials and interested professionals, along with a plea on behalf of former Cabinet heavyweights dating back decades, but the private banking and capital market community was not mobilized distinctly through its national trade associations or local presence in swing congressional districts. These financial sector practitioners have already staked future business and security on developing and frontier economies, and could aid adoption of the US-instigated Fund reforms by placing them in context and acting to monitor progress and broader issues at lawmaker request. Their dedicated participation could help clarify esoteric details and serve as a supplemental policy check for Washington-backed international lender direction.

The 2010 Seoul deal doubled quotas and increased emerging market control to over 40 percent in the immediate aftermath of post-crisis expansion, when representatives were already ascending to senior management ranks and the countries had offered Fund provisional credit lines as global worry centered on the US and Europe. Most directors will now be elected instead of appointed, and the Europeans have relinquished board seats. The proposal drew on previous appropriations and requested no new money, but the Congressional Budget Office assigned a $5 billion and later a $300 million contingent cost without elaboration to meet federal guidelines. Even that modest amount may be overstated since the US’s liquid claim has never been in default and the Fund has over $100 billion in precautionary balances and gold reserves. The higher contributions would enable access to a multiple of the sum as in Ukraine’s recent case promoted by President Obama. More controversially Greece before then obtained exceptional limits angering Washington and developing country shareholders alike, and the waiver has since been revisited with private sector debt reduction a key issue in both instances. As big demands continue from other regions including the Middle East and Africa, BRICS members awaiting action are pursuing their own alternatives for mutual support with the launch this year both of a joint development bank and currency reserve as well as China’s pan-Asia infrastructure lender. Along with the Bretton Woods Committee which was founded to back the international financial institutions on the Hill, the expertise and views of members from the Institute for International Finance, Emerging Market Traders Association, Bankers Association for Foreign Trade, US Chamber of Commerce and similar bodies could assist in improving the reform climate from the basic 2010 commitment through the subsequent range of priority Fund considerations and operations in a next session bid with analysis and events to refresh the stale quota debate.

India’s Jagged Journey Jubilation
2014 December 4 by admin

Posted in: Asia
Indian shares continued to outrun BRIC and Asian peers with an over 25 percent upswing after the ruling BJP triumphed in state elections and the Finance Minister reiterated a “long journey” reform plunge at a World Economic Forum event. Prime Minister Modi ordered fuel subsidy decreases in the aftermath as a stake in Coal India will be sold on the exchange after a previous scotched attempt. The changes should pare the fiscal deficit 1 percent to GDP as growth and inflation are both in the 5 percent range, the latter inviting central bank easing. Bonds have rallied in response and the currency is also firm with over $300 billion in reserves and a smaller current account gap. Price-earnings ratios above 15 exceed the core universe average by 5 points but bank listings remain soft with bad loans expected to reach 10-15 percent of the total under stricter standards. At the November G-20 gathering representatives hinted at greater financial sector opening as a compromise on food protection was struck with the US to enable the WTO facilitation accord to go ahead. India’s Oil and Gas Company also came under scrutiny for a $200 billion long-term expansion plan at home and abroad as Washington and Beijing agreed in principle to carbon emission cuts in the coming decade. According to the International Energy Agency, petroleum appetite will outstrip China’s by 2020 and ventures abroad target Russia and Africa regardless of geopolitical objections. In the post-Modi euphoria traditional business outsourcing has been a disappointment as the services PMI dropped to 50. He has recognized the setback with a push to take global manufacturing share but outdated rules and infrastructure throttle the ambition according to executives still awaiting the outcome of lengthy tax disputes.

Indonesian stocks have also gained 20 percent as the new President there appointed a business friendly cabinet and prepared 30 percent energy subsidy withdrawal and launch of a one-stop foreign investment shop. The rollback can be ordered by presidential action which overcomes slim parliamentary backing and the easier permitting process intends to elevate World Bank rankings above 150th place out of 190 countries. With higher domestic energy cost the central bank raised the benchmark rate 25 basis points to maintain the 3-5 percent inflation target next year as GDP growth dipped to 5 percent on flat fixed investment and lackluster consumption over the election cycle. Following external bond default by the Bakrie family-owned Bumi resources, officials have directed borrowers to hedge their exposures as international buying of local government instruments also wanes on currency risk and regional competition. Vietnam after a sovereign upgrade to BB returned with a $1 billion 10-year issue breaking an extended absence, with almost 500 accounts bidding. The oversubscribed placement preceded a final phase of TPP free trade conclusion with the US as the journey may be promoted by the Senate Republican majority swing.

China’s Sleeper Train Trials
2014 December 2 by admin

Posted in: Asia
Chinese shares stayed positive but were mostly unmoved by the “through train” Hong Kong tie-up which after initial hype barely filled a fraction of daily quotas. Mainland retail investor south bound connect use particularly lagged even as income was tax-exempt and HK authorities lifted previous renimbi access limits. Foreign institutions dabbled in Shanghai with the launch as holders of QFII allocations considered bond shifts, as both clamor for additional entry into Shenzhen’s small-cap market. Renewed street protests against Beijing’s refusal to allow popular elections in the city-state may have quelled enthusiasm as the rationale for “backdoor” capital account opening was also dashed by official insistence on a gradual timetable at the APEC summit. The dollar will be the currency for the new Asian Infrastructure Bank created against Washington’s opposition, as traditional FDI strength was eroded with a year-to-date flat total of $95 billion. The state planning agency has acknowledged growth toward 7 percent in 2015 as retailers report sales declines and the PMI sits at 50. Wholesale prices show deflation and the government has steered its exhausted fixed investment push overseas with a $1. 25 trillion outbound target over the coming decade aided by a new “Silk Road Fund” for neighbors and a proposed pan-Asian free trade pact to match the US Trans-Pacific Partnership. Recent export figures reflect EU weakness and Japan’s latest yen depreciation round will roil both diplomatic and commercial relations despite a handshake between the two leaders at the APEC meeting. October’s total social financing was almost half the previous months as banks reasserted dominance over shadow units where trust activity especially has frozen under tighter rules and property sector exposure. Home prices were down in almost all cities according to the latest survey, and developers are highly leveraged with debt up fivefold post-crisis as they represent one-third of regional speculative external issuance, rater S&P reports. Banks have slashed mortgage loans despite official exhortations and restriction easing as they worry about capital positions in view of domestic asset impairments and global prudential pressures. Bank of China entered the US private placement market with a Basel III structure as the central bank confirmed a $125 billion system liquidity injection this quarter to bolster defenses in the absence of mobilization for stimulus.

Sovereign CDS spreads have widened as big houses grab the trade with Pimco recently selling $7 billion in protection on a bullish Chinese outlook in the waning days of the Gross era. Volume has roughly doubled the past year as a main instrument behind Italy and Brazil according to New York Depository Trust statistics and the International Swaps and Derivatives Association. The emerging market total was $37 billion in Q3 as tracked by EMTA, with Argentina, Russia, Turkey and Venezuela also featuring alongside Brazil’s $70 billion. Quasi-sovereign oil and gas credits were active at the same time, led by Gazprom and Petrobras facing their own train wrecks.

Africa’s Energetic Pocket Protectors
2014 December 2 by admin

Posted in: Africa
As Sub-Saharan capital markets continue to correct, slashing year-end MSCI frontier index improvement to single digits, the IIF issued an upbeat forecast for new energy and financial services capacity to mitigate “turbulence pockets. ” Regional GDP growth should again top 5 percent in 2015 and rebased accounts in Kenya, Nigeria, Tanzania and Zambia will double economic size. For commodity exports, hydrocarbon and metal prices are down but agriculture has diverged with Cote d’Ivoire and Ghana getting cocoa windfalls, although the former may experience worker shortages with the Ebola epidemic. Traditional oil heavyweights Angola and Nigeria have been joined by major East and West African discoveries with “game-changing” potential according to the study. Ghana’s Jubilee field will be fully on line in 2016 and double current 100,000 barrels/day output. In Kenya fifteen exploration wells have been drilled with half hitting deposits. Presumed reserve revenue could offset the current account deficit, and a pipeline to Lamu will facilitate delivery. Mozambique and Tanzania have huge offshore gas availability likely to start production by end-decade and shale is also untapped in South Africa’s Karoo area. Electricity generation aided by bilateral and multilateral public-private partnerships has also increased to reach the two-thirds of the continent without power as regular outages cost another 2 percent of GDP. Nigeria’s sector was privatized and five winning local-foreign bidders modernized plants bringing current scope to 5,000 megawatts with plans to rise almost tenfold by 2020. Ghana and Kenya have invested heavily in alternatives, including wind, hydro and geothermal to add thousands of MW. Clean coal technology is being tapped as aid recipients look to further commitments by the US and China after they reached an outline carbon-emission reduction understanding at the November G-20 summit. Washington offered $3 billion to the UN’s Climate Fund and other members signaled pledges ahead of a global summit next year to extend the original Kyoto treaty. Tanzania, which hosted President Obama when he unveiled the Power Africa scheme, has upgraded transmission lines and will link the domestic grid with neighbors. Government debt in part to finance the effort has crept back to 50 percent of GDP for a half dozen countries, but officials have adopted wage restraint which may be embedded in IMF programs and short term portfolio capital inflows are “relatively low,” the IIF believes, despite occasional dangers as when foreign investors did not rollover Ghana’s Treasury bonds as the Finance Minister reluctantly entered IMF negotiations.

The central bank hiked the benchmark rate above 20 percent with the currency off 30 percent against the dollar and double-digit inflation. In September a $1. 5 billion Eurobond and cocoa board syndicated loan over that amount were raised, so the Fund facility will likely be precautionary to address the “confidence crisis,” the report argues. Templeton continues to buy external bonds as a contrarian play as the stock market is the worst MSCI African performer with bank, consumer and gold listings devoid of earnings energy.

Brazil’s Corrosive Car Wash Streaks
2014 November 28 by admin

Posted in: Latin America/Caribbean
Brazilian securities continued to sell off after the President’s squeaker re- run despite her assent to higher fuel prices and lower state development bank lending converging with the opposition platform as new cabinet speculation focused on Workers Party economic orthodoxy proponents especially Lula Administration veteran Mireilles. The Petrobras corruption scandal exploded further in the aftermath with additional arrests and investigations at home and the launch of US Justice Department and SEC prosecutions. Senior executives and politicians have been implicated in the “car wash” for alleged bribes and money laundering, with construction giant Oderbrecht also named, as the latest quarter financial statements were delayed without auditor signoff pending balance sheet and legal clarifications. The central bank hiked interest rates 25 basis points on depreciation-driven inflation with the real below 2. 5/dollar after resumed swap intervention. GDP growth is barely positive and the primary budget surplus derives mainly from bookkeeping maneuvers as gross debt tips past 60 percent of GDP increasing sovereign downgrade pressure. On the credit front Banco do Brail warned of slowdown and souring consumer and corporate portfolios as normal household borrowing rates hit 45 percent. Petrobras has dragged the MSCI down double-digits and with $50 billion in bond issuance in recent years is the largest CEMBI component as that asset class has continued with good returns and fund inflows versus choppier government segments. Last year’s OGX default has been mired in lawsuits against former billionaire Batista, and smaller firms suspended payments in recent months as S&P warned that downgrades would be twice upgrades in 2015. Energy and water rationing could further damage prospects and deter FDI in particular needed to bridge the 3 percent of GDP current account gap and prepare the 2016 Olympics stage. Mexican stocks were likewise battered by sensational stories as protestors marched on the presidential palace demanding answers on college student disappearance purportedly linked to local drug gangs with official collusion, and a Chinese construction firm was awarded and then lost a contract after reports it owned and had upgraded the first lady’s $7 million private residence. These blows came as a new Finance Ministry hedge was put on against steeper oil price decline, which will hurt budget revenue and potential bidding for Pemex’s first private exploration tracts next year after the Supreme Court dismissed remaining challenges. A trade shift to surplus on auto exports and solid domestic demand readings will sustain 2-3 percent growth as the central bank stays on hold with 4 percent inflation.

On external bonds Mexico as with collective action clauses originally will be the first main issuer to adopt aggregation and pari passu rules suggested by the IMF and private bodies to block future Argentina-like holdout claims. Beyond the initial group, other unpaid funds have joined the New York Court filing for relief as the standoff goes into the year-end expiry of the no better offer legislative clause in Buenos Aires. Minister Kicilof hinted at an improved subsequent negotiating climate as the black market peso exchange steadied with rolling dealer raids.

Turkey’s Explorer Spirit Rediscovery
2014 November 28 by admin

Posted in: Europe
Turkish shares continued to lead Europe with a 15 percent spurt as the Istanbul exchange will soon go public and Prime Minister Davitoglu released a medium-term economic strategy to hoist growth and further curb the current account deficit which has leveled to 5.
5 percent of GDP on lower oil prices and consumer demand. A second sukuk bond was also snapped up after President Erdogan appealed to the investor base with the assertion that Moslems arrived in America before Columbus and that he would build a mosque in Cuba to honor the discovery. Present day geopolitics also proved controversial after attacks on visiting US sailors in the wake of a Treasury Department report on Islamic State fuel smuggling through Turkish intermediaries. Kurdish relations remain delicate after refusal to send troops across the Syrian border to hold Kobani as ill-equipped Peshmerga fighters try to regain ground with support from Western airstrikes. GDP growth is down to 3 percent but inflation with lira depreciation against the dollar touched 9 percent in October. The central bank has maintained multiple rates intact but recently moved to pay interest on reserves and aid export credit. Sales to Iraq and Russia are off but FDI was up 10 percent to $8. 5 billion in the last quarter and record amounts have come in through the errors and omissions column to cover $150 billion in short-term mainly private debt on flat portfolio inflows. Sovereign bonds have been hurt by ratings agency caution over investment-grade status, although Fitch kept its reading and Moody’s delayed action with a negative outlook pending clarification of the surrounding conflicts. Officials have blamed the agencies for meddling in domestic politics and threatened to sever contact, and plan to reexamine their role in global markets as host of the G-20 summit next year. The group agreed in Australia to consider new sovereign debt restructuring approaches at Argentina’s urging, as the IMF formally adopted a preference for early maturity extension in unsustainable cases where Ukraine could soon qualify. According to estimates public debt/GDP is already above the 60 percent that would call in Russia’s emergency $3 billion infusion in the final days of the previous administration, as private issuers with Eastern operations seek relief and court default. In a workout Russian and Western bondholders would be forced to cooperate despite their countries’ strained ties which have sparked additional EU sanctions against rebel military chiefs.

Kazakhstan was the first to insert recommended clauses into bond contracts to avoid later legal complications, and the move allowed for a dual $2. 5 placement after a 15-year absence. The benchmark intended to pave the way for corporate taps as oil price sluggishness and continuing problems at the largest field cut growth to 4 percent. Official have hedged the commodity risk with investment banks and will sell the electricity company and other state holdings on the slumping stock exchange to garner revenue and reprise pioneer popular capitalism from two decades ago.

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Qatar’s Running Cup Caper
2014 November 24 by admin

Posted in: MENA
Qatari shares kept their 20 percent MSCI advance as football governing body FIFA allowed 2022 World Cup preparations to proceed following a corruption inquiry. The host was tentatively cleared of wrongdoing as construction is up 20 percent on an annual basis with groundbreaking for the first stadium and other infrastructure and real estate projects in course. Its reputation was also rescued with stricter Islamic charity rules after concern over ISIS support from international coalition officials, although military backing will be minimal. GDP growth will be close to 6 percent despite the recent hydrocarbon price drop as bank credit jumps 15 percent at home and abroad after a lull on tighter public borrowing controls and the soccer event controversy. Overseas expansion is double that figure with leading banks well-capitalized at 15 percent of assets. Qatar National Bank has been in the forefront and just took a 12 percent stake in pan-African powerhouse Ecobank, whose previous CEO resigned on sweetheart deal allegations. The continent is also a commodities destination as state mining and steel companies head to Kenya, the Democratic Republic of Congo and Sudan and consider gold ventures in Mali and Tanzania. The outward thrust comes as Gulf relations remain sensitive over Qatar’s perceived activism in Middle East disputes and Bahrain complains about luring its professionals with citizenship and compensation packages with the Sunni-Shia tensions there contributing to a 20 percent MSCI loss through November. The ambassador was withdrawn from Doha and many Bahraini families are accused of dual loyalties with fluid geographic ties. A causeway linking the two has been on the drawing board for a dozen years and work still requires billions of dollars in joint financing. The impasse reflects an earlier clash over Arabian Peninsula islands that was referred to the International Court in The Hague. Economic growth is only 3. 5 percent under the political-sectarian stalemate which still spills out into the streets, and ratings agencies point to fiscal fragility with the 5 percent of GDP budget deficit. Onshore banks are shielded by strong retail franchises but offshore players rely on regional diversity for profitability.

The UAE continues as the foreign investor favorite with a near 25 percent MSCI gain on 4. 5 percent property, construction, tourism and re-export growth. Expo 2020 foresees $7 billion in infrastructure outlays with the site to be half solar powered. Airline passengers are up 15 percent and hotel occupancy is almost 85 percent. The Iran thaw has boosted trade and this year’s $30 billion in debt maturities were covered as quasi-sovereign firms can readily access loan and bond refinancing. Kuwait shares have been barely positive despite their larger weight in the revised MSCI frontier index and replacement of the capital markets regulator. The housing squeeze has become another contention point between the parliament and ruling family as oil-driven growth falls below 3 percent with refinery capacity also stretched.

Cyprus’ Foreclosed Recovery Chances
2014 November 24 by admin

Posted in: Europe
Cyprus bond prices firmed after proposed foreclosure laws still favorable to borrowers to handle the 75 percent bad construction loan ratio were overturned by the courts to release the delayed $450 million international rescue installment. The IMF has expressed doubts about reform commitment against “entrenched political interests” although ratings agencies have recently upgraded sovereign readings. Economic contraction will be 3 percent this year and could worsen with the onshore banking collapse and skittish offshore flows reflecting the Russia-Ukraine mess. Nonperforming assets are equivalent to almost 150 percent of GDP and private capital raising can succeed only with buoyant European high-yield conditions and residual appetite from Greek offerings which may fall short of meeting ECB stress-test holes even with $15 billion in leftover official facilities from the original crisis program. The stock market has been the worst MSCI regional performer as the Troika puts the financing gap near EUR 15 billion in 2015 which would be covered commercially under Prime Minister Samaras’ exit timetable. Growth then could be in low single digits for the first time since 2008 on budget balance according to the European Commission, but snap elections could bring the Syriza opposition party to power which has vowed to repudiate the accumulated debt load and reverse austerity steps. In Portugal, another stock market laggard, the IMF and EU have slammed results since the May finish with reform stalls and increased public and private debt at a combined 130 percent of GDP level leaving aside the costs of the BES cleanup and transport support. The duo questioned 2015’s 1. 5 percent growth target as the biggest bank Millenium BCP failed the asset quality review under the supervisors’ adverse scenario. Italy and Spain were the major core member worries but only one small lender was deficient in the former as deflation deepens. Political risks abound as a third party alternative Podemos has emerged to challenge the establishment and an indicative Catalonia referendum showed 80 percent for secession in the industrial bulwark. Italy’s Monte dei Paschi was EUR 2 billion shy of standards and still owes the state from a previous bailout. Recession has lingered under Prime Minister Renzi, who attacked excess deficit procedure rules and then agreed to eliminate planned individual and small business tax relief to come in under 3 percent of GDP. Bank lending has declined since 2012 and labor market changes continue to confront stiff resistance by the populist Five Star movement which also aims to abandon the euro.

France likewise submitted last-minute adjustments to keep within range of the threshold although ruling socialist party lawmakers abstained from budget votes. The far-right National Front is ahead in opinion polls as former President Sarkozy resurfaced to claim the mainstream opposition mantle even though he is under multiple corruption investigations. After speculation that Commerzbank would flunk German banks were also cleared by the stress test as Chinese and Russian weakness hurts machinery exports in particular to possibly later expose gearing.

Myanmar’s Preempted Pagoda Pageantry
2014 November 20 by admin

Posted in: Asia
Myanmar prepared to host its first ASEAN summit since admission fifteen years ago as both financial sector and broader economic and political reforms were “stalled” according to international democracy champion and Nobel laureate Aung San Suu Kyi, as she cited ethnic clashes and military backtracking in the two years since opening loosened commercial and diplomatic sanctions. The Muslim minority Rohingyas have been attacked and threatened with expulsion as the free election timetable for 2016 remains skewed by the army’s automatic one-quarter of seats and a constitutional ban on foreign-citizen presidential contenders excluding her. The government leader Thein Sein recently convened a preparatory session dominated by generals as the National League for Democracy party tries to rebuild its grassroots base and candidate bench beyond the famous dissident. The ASEAN meeting’s focus is strategic issues, in particular island and natural resource disputes in the South China Sea. Beijing and Tokyo at historical odds in the area are vying for FDI leadership and the former has concentrated on energy and built a pipeline to Yunnan province after a hydroelectric dam project was rejected in 2011. Japan’s involvement includes technical assistance in launching a stock exchange which has been dormant with two listings since establishment in the mid-1990s. Five companies will be added by the target end-2015 debut with an optimistic scenario mirroring the tiny initial trading volume achieved in nearby Cambodia and Laos. Only local investors can buy shares under existing law, and a handful of off-exchange offerings have taken place such as from the main state agribusiness operator. A regulator has not yet been created and bonds may slowly evolve with planned Treasury instrument issuance. A 30 percent foreign ownership limit is likely under the preliminary framework developed by Daiwa Securities, but Singapore linkages already available for a few enterprises will still be needed for larger positions.

The IMF’s October Article IV report acknowledged “daunting challenges” to economic transition despite 8 percent GDP growth the past fiscal year and new foreign bank and telecoms licenses. Inflation is around 5 percent and the budget and current account deficits are 5 percent of GDP. The exchange rate has stabilized and reserves cover three months imports. Despite high double digit monetary expansion private sector credit is just 15 percent of output. The central bank was granted legal independence but is still tapped for deficit financing. With poverty at 25 percent of the 50 million population by the last estimate purchasing power is minimal compared with other low-income economies in the region. Future oil and gas revenue could readily be absorbed by critical infrastructure and social spending, and planned decentralization may decrease Yangon’s taxing power. Despite approval of several foreign bank branches convertibility obligations under the Fund’s Article VII will not be assumed in the near term. They can deal only with international customers in hard currency and state policy banks have been expanded at the same time as “political imperatives” that reinforce the old order, according to the staff-monitored program.

Cuba’s Primed Post-Sanctions Postulation
2014 November 20 by admin

Posted in: Latin America/Caribbean
The 60-year US embargo against Cuba featured in Florida elections as bipartisan groups called for a rethink of the approach in view of post-2008 reforms introduced by President Raul Castro which were explored in a lengthy Brookings Institution study in partnership with a Havana think tank. It noted “important progress” since new policies were formalized in 2011 including small-business opening and internet access, bilateral debt renegotiation, and pilot state enterprise restructuring to allow price and operating flexibility. This year the foreign investment code was revamped and currency and monetary adjustment joined the agenda, but the economy has been “in stagnation” for over two decades with annual average growth under 2 percent. Capital formation was 10 percent of GDP, half the hemispheric average, as a chronic housing shortage was worsened by non-functioning financial markets. The 2011 guidelines detail 300 steps to update the development model which still prioritize socialist planning, according to the authors. They point out that exports to Latin American neighbors beyond the scope of Washington sanctions are also low and that multinational firms’ local presence is minimal. Less rigid labor rules could spur a diaspora Cuban influx, and even informal engagement with the Bretton Woods institutions could inject confidence and transparency. The reform process remain at “early stage” and has yet to validate profit and industry-specific supervision or mirror China-Vietnam “socialist market” precedents. Agriculture in particular suffers from undue restrictions which prevent food self-sufficiency and export capacity. Currently 500,000 citizens work in private micro-enterprise, one quarter the initial goal, but lack of credit and heavy taxes are outstanding obstacles. In China and Vietnam bureaucracy is not as intrusive and decisions are decentralized, and Cuba’s free trade zone regime around Mariel differs from nearby practice as in Costa Rica where FDI is systematically welcome and subject to predictable law-based approvals. The dual currency arrangement with the convertible and normal peso creates “huge distortions” and unification is set for 2016 despite the absence of a roadmap. Loss-making firms would be bankrupt under market exchange rates and the shift must be gradual to avert general economic collapse, the report observes. A devalued level has been introduced in the hotel and sugar sectors, but alternatives could still be considered including dollarization and “big bang” realignment which would allow fiscal support as a cushion. Non-participation in international financial institutions exacerbates potential hard currency crunch, and the island may have to turn to other sources during the transition.

Pension and subsidy cuts have begun and education and health coverage remains comprehensive with capability offered abroad as in the dispatch of medical professionals to combat Africa’s Ebola epidemic. Creditworthiness could be enhanced by resolving unpaid official obligations, and travel and remittances would increase with further Obama Administration liberalization steps. Old Havana will only stay an attractive destination with development protections in place, and President Castro’s intention to retire in 2018 with a “soft landing” may otherwise be subject to hard realities without an economic revolutionary march, Brookings concludes.

Africa’s Unhealthy Commodity Command
2014 November 17 by admin

Posted in: Africa
Sub-Saharan stock markets continued to reel amid Ebola, raw material price and political scares as Nigeria in particular was off 15 percent on the MSCI Frontier index as the naira fell through the 165 to the dollar band. The WHO declared success in eliminating the virus there, but Boko Haram continued attacks and kidnappings in the North with thousands killed and displaced as the economy withers. GDP growth otherwise has been pared back to 6 percent as oil dips below the 2015 budget assumption placing the recently restored $4 billion excess crude account at risk. The Finance Minister has warned that tax collection at under 5 percent of GDP must improve to fill the hole, especially with traditional election-related spending due to rise. President Jonathan was formally endorsed by the ruling party for another term but his passivity on economic and security policies has raised doubts among supporters and foreign investors who previously were overweight debt and equity. The fiscal deficit is manageable and the benchmark 12 percent interest rate has not budged with the new central bank chief, but reserves have slipped to $38 billion, which covers 6 months’ imports but may not sustain the currency fluctuation mandate instead of outright devaluation. The pass-through weakness may return inflation to double digits and harm consumer purchasing power going into the polls and domestic demand as a safety valve. In West Africa Cote d’Ivoire was on the immediate front line of potential Ebola spread and fallout from the military takeover in Burkina Faso as longtime President Compaore fled after attempting another tenure extension. The borders with Liberia and Guinea remain porous as civil war vestiges have left large undefended swathes of territory. President Ouattara, who is likely to run again next year despite ill health, agreed to receive Compaore who had mediated past regional disputes. The main opposition party continues to boycott the process as growth at 8 percent skyrockets from a low base. The regional bourse awaits privatization listings to keep the budget deficit at 3 percent of GDP as past supplier arrears are steadily cleared. No external bond issuance is planned over the election period as performance on JP Morgan’s NEXGEM index is solid. Elsewhere in the CFA franc zone Gabon’s illiquid bonds have been pressured by the oil price corrections and opposition efforts to unite against President Bongo. Medium-term 5 percent growth will come increasingly from infrastructure spending that has created a minor budget gap as offshore blocks are opened to potential “pre-salt” discoveries from foreign companies with advanced technology.

Kenya stands out with a 15 percent MSCI gain with the 25 percent recalculation of output as per-capita income approached $1500 within the middle-income range. Poor weather and terrorism are the main threats to the 5 percent growth forecast and single-digit inflation, with the central bank likely to keep the policy rate at 8. 5 percent as tax-free infrastructure bonds repeat as a prized commodity.

The Arab Spring’s Eternal Election Season
2014 November 17 by admin

Posted in: MENA
Middle Eastern shares were buoyed as Arab Spring bellwethers Egypt and Tunisia headed into final phase elections four years after ousting single party dictators with economic indicators bottoming and external aid packages back on track. Egypt’s almost 30 percent gain through October led the core universe with parliamentary contests likely before year-end, with Islamic groups due to boycott and seats allotted from approved party lists. President Al-Sisi declared a state of emergency in the Sinai after attacks on soldiers, as his terrorist hard line has resumed international backing from the US and Europe with ISIS fears. Secretaries of State and Treasury Kerry and Lew travelled to Cairo and praised initial subsidy changes and other economic reforms as the IMF may consider a $10 billion program in the context of a global coordinated effort centered on Gulf support which was just boosted $5 billion. A $500 million Qatar loan was repaid and a $700 million Paris Club payment is soon due but reserves have firmed above $15 billion with tourism improvement and capital account inflows. Inflation is down to single-digits on near 3 percent growth but the fiscal deficit still exceeds 10 percent of GDP and the pound has been stuck at 7. 15 to the dollar despite exchange control relaxation. The central bank is monitoring large government securities exposures at leading banks as the stock exchange is planning to lure bond trading. Private equity houses have assembled smaller deals as billionaire Orascom head Sawiris announced his intention to re-invest domestically after settling a $1 billion tax dispute dating from the Mursi regime. Next door Libya’s collapse has sent wealth into both real and financial assets as officials are reported to be helping former army factions there in battling militias. In Tunisia the legal Islamist party came in second in legislative polls behind a secular movement, reverting the MSCI result to positive as the interim technocrats in charge managed to foster public-private sector cooperation. State bank cleanup remains a key impediment to improving 3 percent growth and 25 percent youth unemployment and is designed to accompany debt and equity market development under EU and World Bank technical assistance.

Morocco’s King has devolved more power to parliament as officials are pushing Casablanca as an offshore pan-African finance hub. Budget consolidation has advanced with incremental fuel subsidy cuts and 3 percent GDP growth is again in sight for 2015 with decent agricultural and Eurozone conditions with the MSCI component up 5 percent. Jordan in contrast has fallen slightly with the Iraq-ISIS conflict fallout on energy, tourism and refugee influx, with donors less amenable to closing the 12 percent of GDP current account deficit. Hard currency deposits at one-fifth the system have not spiked with the upheaval, as heavyweight exchange listing Arab Bank strives to reassure accountholders and investors after an adverse New York Court decision on facilitating terrorist funding during a past grim season.

The Balkans’ Fumbled Fund Football
2014 November 11 by admin

Posted in: Europe
Balkan stocks languished in negative MSCI territory with complications in EU and IMF aid programs aggravated by political repositioning as Russian energy and export dependence also dampened economic prospects. In Romania Prime Minister Ponta got 40 percent in the first presidential round but opposition candidate Johannis was close at over 30 percent on an anti-corruption platform which ignores the Fund precautionary deal now on hold pending a new government and revenue to cover social security contribution cuts. GDP growth is under 2 percent on tight fiscal policy and lagging fixed investment due in part to the low use of EU cohesion funds. Industrial output continues to drop and local currency lending has slowed despite consecutive benchmark rate reductions due to last to just over 2 percent with minimal inflation. Bank reserve requirements have also been slashed to reflect ECB norms with euro entry targeted by end-decade. With S&P’s recent elevation all agencies assign a sovereign investment grade although the current account may shift to a slight deficit this year as FDI was stunted by privatization delays. Serbia held a London promotion for its proposed state divestitures including the Belgrade airport, as the IMF began a visit to resurrect a lapsed arrangement officials foresee by early 2015 after enacting wage and pension austerity. Recession was deepened by flooding which hit farm and coal production as Italy’s Fiat expanded its plant despite mixed car sales. The central bank has kept the main interest rate at 8. 5 percent to break currency weakness as spillover from Croatia’s debt troubles also damages confidence. Deflation has taken root with economic contraction with external obligations over 100 percent of GDP. The fiscal deficit was raised to 5 percent of GDP with contingent liabilities from toll roads as the government tries to avoid Fund recourse. Bulgaria eyed another coalition between the GERB and Reformist Bloc as Prime Minister Borisov was returned to office, although elections could again be called if the agreement dissolves. After receiving a Brussels infusion for seized Corporate Commercial Bank an audit found a huge hole commending liquidation which would activate retail deposit insurance but leave external bonds in default. The budget gap will exceed the 3 percent recommended EU threshold and Greek banks exiting Troika oversight face additional capital-raising post-asset review which may involve further cross-border withdrawal.

Baltic share losses have been in double digits despite 2-3 percent economic growth and euro adoption for all three members set with Lithuania’s admission next year. Geopolitical aversion has settled in with the schizophrenic Russian relationship underscored by the continued strong showing of Latvia’s pro-Moscow party as diplomatic and trade ties sour. Lithuanian bonds were recently snapped up and Scandinavian bank domination in the area is still viewed as positive despite Sweden’s repudiation of pro-business parties and interest rate cuts, Finland’s loss of AAA rating, and Norway’s sovereign wealth fund redeployment in light of oil price and environmental patterns.

Greater China’s Delayed Dealing Declaration
2014 November 11 by admin

Posted in: Asia
Chinese and Hong Kong shares sagged as the Trade Connect platform was indefinitely delayed on technical and policy issues as political and financial market development differences between the two locations were openly debated after scant consideration with President Li’s initial announcement. Occupy Central protesters continue to press demands for direct popular elections in the enclave as promised by Beijing in the 1997 UK handover, but they have been careful not to interfere with exchange or investor operations although interruptions have occurred with blocked public passage. They got an audience with the Beijing-backed chief executive and seek specific commitments and timetables for grassroots polls as the Connect project skidded on lingering cross-border disparities on tax, custody and settlement. The daily Yuan 10 billion limit remained intact, but institutional investors considering Shanghai were stuck on fiduciary guidelines which may be difficult to satisfy in view of local divergence from global norms. In reverse the retail players who could access HK must have a minimum Yuan 500,000 account beyond average portfolio worth. Wealthier individuals have already arranged offshore channels and institutions under the RFII scheme have not even used the available quota to date. From a profits standpoint big industrial firms listed in both places have reported an average increase barely keeping pace with 7. 5 percent GDP growth. Capex is down and overcapacity grips many sectors with the main bright spot developed economy higher-end exports with modest US and European recovery. Hong Kong sales at home and abroad were sputtering before the street unrest, with the latter up just 1 percent in December. Fake export activity however continued to flourish as a hot money conduit betting on further CNY appreciation after a brief pause in the previous quarter. Taiwan has largely stayed out of the internal spat, but its President proclaimed sympathy with the Occupy movement as stocks were marginally positive on 3. 5 percent GDP growth and the central bank on hold although it may be regularly supporting a competitive currency level to the chagrin of foreign finance officials. That effort will accelerate with Japan’s surprise QE expansion with the annual government bond buy rising to Yen 80 trillion at longer maturities and also embracing wider purchase of commercial securities and mutual funds. Bank of Japan head Kuroda overruled opposition to the move as European drift into deflation reinforced the mentality of decades-long experience which has persisted despite fiscal and monetary shock treatment from “Abenomics. ” Low public approval ratings and cabinet resignations of female members may have helped prompt the ratcheting with the 2 percent inflation target still elusive.

Rival Korean shares are down as auto and tech production falter exacerbated by strikes and continued executive infighting at chaebol as family and outside owners grapple for control. Along with corporate governance the lack of official accountability in the school student ferry disaster has raised questions there as the North seems to have resumed outreach with informal meetings following Kim’s reappearance after ankle surgery which has yet to hobble nuclear plans.

Doing Business’ Quality Control Quarrel
2014 November 6 by admin

Posted in: General Emerging Markets
The World Bank’s 2015 Doing Business edition has reacted to methodology criticism from an independent expert panel by adding regulatory quality readings to its efficiency list in ten areas drawing in several cases from members’ second commercial city. The top twenty include Korea, Estonia and Malaysia as almost 250 improvements were registered globally the past year. Sub-Sahara Africa accounted for 15 percent of progress and Europe-Central Asia had 85 percent of economies with at least one reform as opposed to the poor score for Latin America and the Caribbean. Francophone Africa and Benin, Togo, Cote d’Ivoire, Senegal and the Democratic Republic of Congo in particular had the most advances, with Azerbaijan, Trinidad and Tobago and the UAE standouts from other regions. The OHADA business code was implemented in the West African Monetary Union on company launch and minimum capital as signatories also adopted common credit bureau rules. The UAE’s shareholder rights overhaul accompanied elevation to the MSCI core universe with new disclosure and related-party transaction mandates. Trinidad and Tobago’s updated insolvency regime provided a fresh rehabilitation option, but the study found that dispute resolution can differ between major cities as with Nigeria’s 450 day average in Lagos, almost 300 days below Kano’s. The tax and permitting systems also vary greatly between country centers, and in the BRICs labor market guidelines including minimum wage are uneven. In bankruptcy “very few” economies have a robust mechanism as defined by the possibility of 50 cents on the dollar recovery, and with property transfer the process can be fast but unreliable, according to the publication. In contract enforcement both judicial and out-of-court procedures are important but specialized commercial tribunals may not be quicker or better equipped than alternatives. In the past decade relative gaps between lead and bottom performers have narrowed, with the real estate ownership shift time between the extremes down two-thirds to 60 days. The overall tax rate fell by almost 10 percent over the period, with the financial crisis lowering thresholds and introducing online payment technologies.

Singapore was number one ahead of New Zealand and Hong Kong, where the rule of law ranking has been eroded as well by Beijing’s backtracking on open elections. Tajikistan despite authoritarian rule moved the most toward the “regulatory frontier” with a one-stop investment shop and fee and tax reductions and establishment of a credit bureau. Georgia had another good year at 15th place despite presidential transition and prosecution of former officials for alleged abuses in bank and enterprise dealings. Iceland was #12 despite the persistence of capital controls and the continued concentration on fishing, tourism and alternative energy. Taiwan (19) was far above China (90), which had spearheaded the revolt against previous measures as ignoring state capacity. With the Asian Infrastructure Bank founding the challenge is more direct to the Bretton Woods institutions as both sides reassess basic foundations.

Indonesia’s Retrograde Red and White Blues
2014 November 6 by admin

Posted in: Asia
Indonesia tried to keep double digit share gains and one-third foreign ownership of local debt as President Jokowi took office after his opponent’s “red and white” coalition with legislative control moved to annul post-Suharto era electoral decentralization. The change would place appointment power with regional councils dominated by the parties, and outgoing President Yudhoyono proclaimed his “disappointment” with the bill which must be voted again to take effect as democracy activists launched protests. The new chief executive was relatively unperturbed by the move and vowed to appeal directly to the citizenry as he pointed out his minority political backing as mayor of Solo and Jakarta. His cabinet slate was also delayed by pending clearance from the anti-corruption body, but was presented to initial applause with technocrats in key economic posts. Other ministers came from his PDI-P party still dominated by former presidential contender Megawati. Lower oil prices have pared the fuel subsidy budget cost but the issue will be tackled as an immediate priority along with FDI treatment after the arrest of several mining company executives for alleged abuses. Jokowi will attend November summits in the region as questions hang over his lack of international experience. His hands-on style promises visible early administrative and infrastructure progress and more attention to the 40 percent poor population. The current account deficit remains stuck at 3 percent of GDP and relies disproportionately on portfolio inflows for coverage as the rupiah hovers around 12000/dollar. The central bank continues incrementally tighter money with credit growth down to 15 percent and a cap just imposed on premium deposit rates at large banks to divert liquidity to smaller competitors. The loan-deposit ratio is close to 100 percent but with growth slowing to 5 percent consumer and company bad assets are expected to rise.

That measure at 110 percent has started to raise financial stability concerns in Thailand despite the stock market’s 15 percent MSCI increase as the central bank is likely to stay on hold with tame global food and energy prices. Households borrowing heavily under populist schemes before the military takeover may be overextended and corporate bond issuance has spiked to 20 percent of GDP with low rates amid flat internal and external sales under the junta’s erratic policy direction. While infrastructure spending has been partially unblocked interim officials have suggested new wealth and property taxes although the army’s own business portfolio may be shielded. Corruption charges have surrounded government members after suspect asset declarations as the murder of British tourists at an island resort also raised negative attention. Malaysia has embarked on fiscal and monetary tightening as shares are off slightly through October. Gas and diesel costs were hiked and a VAT will be operational next year. The benchmark rate and bank lending standards were tweaked as gentle budget and credit landings are envisioned after the doomed airliner equivalents.

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Africa (106)

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Russia’s Depleted Energy Entanglements
2014 November 4 by admin

Posted in: Europe
Russian shares were down 25 percent despite P/E ratios toward 5 as lower oil prices and currency intervention dented the $400 billion reserve pile and gas talks with Ukraine again degenerated into payment ultimatums as the breakaway East held separate parliamentary elections from the rest of the country due to back President Poroshenko’s makeshift coalition. The ruble continued its 15 percent tumble past 40 to the dollar and ratings agencies added demotions that may shake investment-grade status. Domestic government bond auctions were scrapped on 10 percent yield demands as Rosneft raised its external repayment claim on official coffers to $50 billion.