Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Banks

Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Currencies

China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Financial

Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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Categorized | Currencies

Investors re-engage with emerging markets


Posted on March 31, 2014

Global investors are more willing to engage in emerging markets than at any time since the sell-off of last summer, according to research by Morgan Stanley – whose analysts coined the term “fragile five” to describe the most vulnerable countries.

Despite mounting evidence of a slowdown in China, tensions over Ukraine and tense election campaigns in several countries, the currencies previously seen as most exposed to the US Federal Reserve’s tapering have rallied in recent weeks.

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    Evidence of economic rebalancing and hopes that elections will usher in reform-minded governments have sent Indonesia’s rupiah up more than 7 per cent against the dollar since the start of the year. India’s rupee is up 3.2 per cent and Brazil’s real has gained 3.9 per cent. The Turkish lira and South African rand – grouped with them in the “fragile five” – have also rallied since interest rate hikes in both countries, and low volatility across currency markets, tempted investors back into carry trades.

    The Institute of International Finance, which has just begun publishing estimates of portfolio flows to emerging markets, said last week that the 30 countries it tracks had received inflows of $39bn in March, up from $25bn in February and $5bn in January.

    The shift in sentiment “has some fundamental support in the near term”, according to Manoj Pradhan, a senior economist at Morgan Stanley, given hopes of stimulus from Chinese policy makers, the receding threat of sanctions against Russia and signs that investors are taking tapering in their stride for now.

    The bank’s assessment is striking, because Morgan Stanley has been consistently bearish on emerging markets for much of the last year – and still warns investors against mistaking this near-term stabilisation for a longer-term turnround.

    Some are more bullish. Analysts at Commerzbank last week gave an upbeat outlook for emerging market local currency bonds, arguing that investors had had time both to digest the Fed’s plans and to price in the political risks in many emerging markets.

    Other analysts urge greater caution. “External vulnerabilities are still out there,” warned strategists at Citigroup. “The recovery in capital flows could be a temporary phenomenon, ahead of a more dramatic move in US rates over the next quarters.”

    “Emerging markets are experiencing what can be termed a ‘capitulation of bears’,” wrote strategists at BNP Paribas, who advised betting against further price rises.

    Matthew Cobon, head of currency at Threadneedle Investment, voiced a similar view, saying the recent rallies chiefly reflected an unwinding of short positions.

    Mr Pradhan said that mainstream investors who had previously withdrawn from emerging markets had now become the most enthusiastic about their prospects, while EM-dedicated funds were more tentative. “It seems likely to us that many investors feel they cannot remain on the sidelines,” he said.