Our round-up of the week’s best comment and analysis from the Financial Times looks at the fresh opportunities offered by the recent revival of emerging markets but also cautions on lessons for investors eight years on from the Lehman bankruptcy.
The selection is taken from our Markets Insight and Smart Money columns, written by industry contributors and FT commentators.
Argentina is a prime example of both the opportunities and risks inherent in emerging markets, argues the FT’s John Authers.
“Emerging markets as a whole are also enjoying an upswing. If ever there was an opportunity to pile into a value opportunity, this would appear to be it. And yet. Argentina, notoriously, has been here before. Argentina’s political instability, and penchant for populism, defaults and devaluations, makes investors wary.”
Emerging economies are having a big impact on the gold market, according to David Marsh and Ben Robinson of the Official Monetary and Financial Institutions Forum. “In the further development of the Ages of Gold, the metal’s monetary renaissance that started in 2008 may have some way further to run.”
But the cheap money policies of the global central banks are a cloud on the horizon for emerging markets, notes the FT’s Henny Sender.
“It is hard not to conclude that the end of cheap money will cause valuations to reverse and drop. Indeed, it is disconcertingly easy to argue that the financial world is more vulnerable to a taper tantrum now than it was in the spring of 2013.”
A similar sombre note on cheap money is struck by John Authers in a two-part look at the health of the financial system eight years after Lehman in The Long View.
“Should cheap money finally spark growth and inflation, it would be a consummation devoutly to be wished. But the market is positioned for the opposite. The higher rates that would follow, pumped through a conservative banking system in which far fewer banks make a market, could spark a new crisis.”
The Lehman crash left a legacy of anger against bankers that has spilled over into today’s divisive political battles, he explains, yet there remains frustratingly little true clarity.
Even those banks that survived 2008 in the best shape have suffered reversals of fortune as the sales-driven culture of Wells Fargo becomes mired in scandal and huge fines, notes the FT’s Ben McLannahan.
“The scandal has already cost Wells its crown as the world’s biggest bank by market capitalisation, nudged aside last week by JPMorgan Chase. But few rivals are enjoying watching the bank squirm, because they know that retributions will wash over them too.”
Plans by Canadian group Intertain to move its listing from Toronto to London catches the analytical eye of the FT’s Dan McCrum.
“Corporate tourists are something else entirely. A company which decides to list its shares overseas should be approached more like a salesman offering a free lunch and the chance to hear a presentation about a timeshare opportunity. Start with a question: don’t they have perfectly good capital markets where you come from?”
Citigroup’s Mohammed Apabhai spells out the implications of a striking rise in Libor/money market rates.
“Investors would be wise not to ignore the pervasive impact of changes to money market regulations. Higher dollar Libor rates could argue for a stronger dollar against most currencies — the yen excepted — and higher equity and bond volatility argue for an increased allocation to cash, a shortening in duration and ‘bond refugee’ stocks.”
The FT’s Neil Collins casts aside his usual sceptical nature about flotations in the case of the expected IPO of a big UK mobile phone group.
“A good rule for the cautious investor is never buy a share until the company has been publicly listed for at least a year. However, there is an exception to test every rule, and this year’s monster flotation, O2, may be it. A big company priced to go is a rarity. Pay attention.”
Of limited value
Don’t ignore the drawbacks of relying on price-earnings ratios when assessing stock market value, advises the FT’s Miles Johnson.
“Back in 2009, stocks as a whole would have appeared to many casual observers as misleadingly expensive rather than cheap if they relied on the p/e of the S&P 500.”