from MacroScope:
Investment Week: Rain until September?
And so, toning down the alarmism of Aug 10’s FOMC statement, Fed chief Bernanke rowed back a bit at Jackson Hole last weekend and both US consumer and business confidence readings showed things were not anything like as bad as the worst fears. Euro zone and Chinese biz surveys showed likewise and suggest global industrial growth for August was still running at just shy of a 5% annualised rate – half the early year highs maybe, but still on par with the pre-credit crisis boom years. And it's not all just emerging markets. India topped the manufacturing activity polls but Germany -- the world's 4th biggest economy and one that's just recorded annualised Q2 GDP growth at a whopping 9% -- comes a close 2nd.
What's more, neither were corporate dealmakers and investment managers singing from the same "double-dip" hymnsheet last month. ThomsonReuters data shows that, at $267 billion in August, worldwide M&A was at its highest level in 14 months and that new junk bond issuance, at $24.6 billion, was the highest for any August on record and the eighth highest of any month since 1980. There are caveats to this data, for sure, and mistakes do get made -- but this is hardly the behaviour of those either seeing or betting on another recession over the next year.
So, where does that all leave us? Well, the world economy is clearly slowing from the supercharged rates of early 2010, rates fed by base effects and a massive inventory correction in the Spring'09-to-Spring'10 year. But with policymakers retaining super-easy monetary policy support and growing signs of private sector recovery, household demand and balance sheet repair, we will most likely find a slower, more plodding expansion over the year ahead – one littered, no doubt, with its share of scares and positive surprises. The key here may well be that market risks are simply different from likely realities and the most successful medium-term investors will be those seeing through the panic or exhuberance of the herd.
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from MacroScope:
Giant FX market now $4 trillion gorilla
The increase in turnover was driven by growth in spot transactions, which represent 37 percent of FX market turnover. Turnover was driven by trading activity by "other financial institutions" -- a category that includes hedge funds, pension funds and central banks, extending a trend seen in the past several years where buyside firms are increasingly trading currencies themselves, via prime brokerage, rather than turning to interbank dealers.
Also notably, emerging market currencies are gradually increasing their share in the marketplace. Turnover of the Russian rouble has increased its share in total turnover to 0.9 percent of 200 percent (FX is double counted as transaction involves two currencies), up from 0.7 percent three years ago, while the Brazilian real rose to 0.7 percent from 0.4 percent. The Indian rupee's share rose to 0.9 percent from 0.7 percent. The dollar keeps its dominance, although off its 2001 peak, with its share standing at 84.9 percent.
from Jeremy Gaunt:
And the investor survey says…
One big difference, month-on-month, was a large jump into investment grade corporate debt. Andrew Milligan of Standard Life Investments reckons this may in part have been because sovereign debt rallied so much over summer that returns from government bonds are now too meagre.
Here is the big picture:
Not so rough waters?
The industry, which transports almost 90 percent of global trade, has gone through a choppy ride after the credit crisis as a slowdown in global trade hit charter rates and vessel values, aggressive use of leverage for new ship building led to bloated order books and maritime lending markets were dysfunctional.
For example, spot market charter rates for some bulk carriers fell by 99 percent after the crisis.
from Jeremy Gaunt:
Wishful thinking on earnings?
There may be more surprises ahead -- although which sort, remains in question. The research suggests that analysts still expect solid growth in the coming quarters and that the decline in U.S. economic strength over the summer has not changed their minds much.
Third-quarter earnings growth is estimated at 24.9 percent, down slightly from July estimates but higher than earlier in the year. Fourth-quarter estimates are at 31.8 percent.
It is only when you get into 2011 that you start seeing some pull back. But even then Q1 is seen coming in at 11.8 percent.
Emerging bonds say thank you, Ben
The Fed’s move is likely to increase this divergence in returns.
Essentially the Fed has decided it will reinvest proceeds from its maturing mortgage investments back into Treasury bonds, thus keeping market liquidity levels high and signalling to the world its belief that the U.S. economy is still weak enough to need financial stimulus. Its action also leaves investors staring at the prospect of near-zero interest rates in the United States and the industrialised world for another year or so.
Such monetary stimulus is usually a godsend for stocks — something investors such as Phil Poole of HSBC Asset Management liken to a “comfort blanket” for investors. In 2009 for instance emerging stocks jumped 80 percent as global central banks unleashed torrents of liquidity onto world markets. But this year investors have been wary of boosting allocations to stocks — fearing that robust growth in emerging markets will not shield their export-oriented companies from the impact of a U.S. slowdown.
State funds and environmental investing
Local Government Super (LGS), which manages around A$6 billion in assets for 100,000 local government employees in New South Wales, has invested A$50 million ($45.96 million) into a portfolio which invests in small cap environmental technology stocks, run by London-based Impax Asset Management.
The portfolio will follow an investment strategy followed by one of Impax’s fund, which returned 47.71 percent in the last five years, versus 20.10 percent for the benchmark MSCI World Index.
from MacroScope:
Argentina set for wheat windfall
Wheat's rise to 2-year highs was caused first by heavy rains in Canada and now by a Russian export ban that was triggered by its worst drought in decades. There are floods in Pakistan, another major wheat grower. But while the wheat market shenanigans are triggering much hand-wringing across developing nations, Argentina, one of the world's top seven wheat exporters, may be set for a windfall.
Farmers there are increasing wheat plantings, the Buenos Aires Grains Exchange says. The South American country is expected to export around 8 million tonnes of wheat in the 2010-2011 year. With wheat futures on the Chicago Board of Trade at around $8 a bushel, a very simple calculation shows export revenues are going to very significant.
Investors are taking note.
PIGS, CIVETS and other creature economies…
HSBC chief Michael Geogehan has been championing ‘CIVETS‘ to describe Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa as the next tier of developing economies poised for spectacular growth.
Evoking the skunk-like animal blamed for the spread of the deadly SARS outbreak in Asia is not exactly auspicious but then it will probably be less offensive than the porcine moniker for Portugal, Italy, Greece and Spain. The collective term — with permutations such as PIIGGS to include Ireland and Great Britain among the list of debt-ridden countries — has been denounced by politicians in Portugal and Spain.
In less troubled times, of course, these economies were often dubbed ‘Club Med’, with all its associations of sun-saturated holidays by the sea.
Going green in frontier markets
But one of the concerns has been that a speedy development would lead to environmental damage.
London-based alternative investment specialist Greenleaf Global is trying to mix frontier markets and environmentally friendly investment, saying that a changing global environment brings investment opportunities in biofuel, biomass and anaerobic digestion (generating electricity from renewable sources).
