Month: February 2014

How India and Indonesia escaped selloff

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Last year, they were the two emerging markets in Asia not to touch with a barge pole. Yet for India and Indonesia, a few months appears to have made a big difference.

The two countries have come off relatively unscathed in the latest bout of volatility to hit emerging markets amid a scaling back of the US Federal Reserve’s monetary stimulus and worries about the global growth outlook following weak data from the U.S. and China.

(Read more: Is Indonesia’s rosy growth a flash in the pan)

While not out of the woods yet, India and Indonesia have made progress in convincing investors that they will do whatever it takes to rein in wide current-account deficits and get their houses in order, analysts say.

Both countries have raised interest rates sharply since the second half of last year, when heavy selling in emerging markets first took hold. Other measures such as restrictions on gold imports in India to help bring down the current account deficit have also helped boost sentiment.

“We are now in an environment where we can see lots of idiosyncratic differences in the countries. Asia for me is standing out versus other parts of the world,” Hayden Briscoe, director of Asia Pacific fixed income at Alliance Bernstein, told CNBC earlier this week.

“Indonesia is one we have a brighter light on compared with other countries,” he said. “They have gone a long way to improving their productivity, so we’re looking to put some money to work there either in the bond market or currency.”

(Read more: ‘Fragile Five’ face low risk of full-fledged crisis: Roubini)

 Indonesia this week posted its third straight monthly trade surplus in December and at $1.52 billion, the surplus was the biggest in two years. Southeast Asia’s biggest economy also surprised markets on Wednesday with better-than-expected fourth-quarter economic growth data.

India meanwhile delivered an unexpected interest-rate rise last week, a move seen by analysts as a pre-emptive strike against inflation.

“We expect India will continue to struggle with persistent inflation, current account and fiscal deficits, and a slow pace of reforms,” Wells Fargo said in a note on Thursday. “However, we believe the worst of these troubles has passed and appropriate measures will be enacted to combat these issues.”

While the Turkish lira sank to a record low and the South African rand hit a five-year low last week, the Indian rupee and Indonesia rupiah have been relatively stable.

 The rupee, which hit a record low against the greenback last August, is down just 1 percent this year to around 62.52. The Indonesia rupiah, which slid 26 percent last year, has been stable around 12,170 per dollar.

(Read more: Indonesia Finance Minister: No deficit issue in 2014)

Indonesia’s stock market meanwhile has outperformed other members of the fragile five big emerging market economies that also include India, Brazil, Turkey and South Africa, with gains of 2.6 percent this year. In contrast, Brazil’s stock market is down 9.5 percent.

“You’ve got to be selective, it’s [emerging market volatility] not going to hit all of them, so you have to look at strong models with strong policy and strong balance sheets,” Medha Samant, investment director of Asian equities at Fidelity Worldwide Investment, told CNBC this week.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Australia stocks no longer expensive: Goldman

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The global market selloff has a silver lining for Australian stocks, as the highest yielding developed market globally is no longer too expensive, Goldman Sachs said.

“Following the underperformance of Australia relative to global markets and its continued growth in dividends, Australia has now moved back to a position where it no longer looks overvalued on the basis of yield,” Goldman said in a note.

(Read more: 2014 a `litmus test` for Australia economy: Goldman )

After global bond yields hit their nadir in mid-2013, yield-chasing reached extreme levels, pushing Australia`s high-dividend payers up to the point where the market looked as much as 20 percent over-valued, the bank said.

In May, when the 10-year US Treasury yield was near its 1.7 percent low, the average Australian index stock with a 5-6 percent yield traded at 15.4 times earnings, around 15 percent above the international average, while stocks with dividend yields of more than 6 percent were at a 30 percent premium to global averages, the bank noted.

(Read more: Are fears of an Australian housing bubble overblown? )

“In the period since, Australia`s under-performance as bond yields rose combined with further dividend increases have seen this yield premium disappear,” it said.

With the market`s recent fall – the SandP/ASX 200 index is down around 4 percent since the start of the year – and expectations that low interest rates will stick around for a while, Goldman believes the 4.8 percent yield for the index will keep shares supported.

Even better for yield chasers, Goldman believes the dividends can be sustained even though it expects this year`s earnings forecasts may slip and even if economic conditions don`t improve.

(Read more: Australia keeps rates steady at a record low )

The bank does expect a weaker Australian dollar and loose monetary policy will drive an earnings recovery into the end of the year.

To be sure, it expects most companies won`t be able to surprise with dividend increases this year, as the pay-out ratio for index stocks already averages around 70 percent of earnings, a 20-year high. It also noted dividends per share have increased by 8 percent over the past two years even as earnings per share have fallen six percent.

(Read more: Has the tide turned for corporate Australia? )

“Given historically high pay-out ratios, we expect dividends to grow at or below the growth rate in earnings, but believe they have very limited downside in the current environment,” it said.

The big exception may be the beaten down mining sector, it said, noting that its payout levels are low, with consensus forecasts calling for the companies to pay out only around 37 percent of earnings this year.

“The mining sector remains the most likely to deliver capital management surprises,” Goldman said. “While earnings volatility is high as the commodity super cycle ends, mining firms remain focused on cutting costs and reviewing their capex budgets.”

-By CNBC.Com`s Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

Copyright 2011 cnbc.com

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Gold bugs, be patient your time is coming

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Demand for physical gold has soared. Okay, so that hasn’t shown up significantly in the spot gold price yet but that’s likely to come soon, some analysts say.

“Physical gold is disappearing off the market at a terrible rate. As soon as that really starts to hit I think gold goes through the roof,” Jim Walker, founder and CEO of Asianomics told CNBC. “That’s one of our biggest longs for the year.”

(Read more: Prepare for a gold ‘moonshot’: Peter Schiff)

Mints from Austria to the US and UK have reported huge demand for gold coins in recent months as a slump in gold prices last year spurred buying of physical metal.

The Perth Mint, which runs Australia’s only gold refinery, said on Monday that sales of gold coins and minted bars rose 10 percent to 64,818 ounces of gold in January in the latest sign of firm demand for gold bars and coins.

Still, a number of houses including Goldman Sachs expect another bad year for gold, which fell 28 percent in 2013, amid a scaling back of the US Federal Reserve’s asset-purchase program.

(Read more: Goldman predicts steep losses for gold in 2014)

And spot gold, trading at around USD1,256 an ounce, has struggled to push above the key USD 1,300 area.

“I think we probably still have people in gold ETFs [exchange traded funds] releasing some of their gold,” said Barry Dawes, head of resources at Paradigm Securities, a Sydney-based securities advisory business, giving a reason why gold prices have not pushed above USD1,300.

“I can’t see that lasting very much longer at all and that real supply-demand numbers for gold will push to a higher gold price,” he added.

Fundamental change?

According to Dawes, gold is moving steadily into the next stage of a bull market.
Spot gold prices are up over 4 percent so far this year, outperforming other precious metals such as silver, which is up about 2.3 percent and platinum which up just 0.75 percent. “There are some fundamental changes that have taken place and one thing that I really note is the performance of gold stocks,” said Dawes. “They have started to look better but more importantly they have broken a two-year downtrend against all stocks.”

Australia’s Newcrest Mining, is up 31 percent so far this year, hitting its highest level in three months on Wednesday.

Evolution Mining, which operates five gold and silver mines in Queensland and Western Australia, has rallied about 8 percent since the start 2014. Both firms have outperformed the broader Australian stock market, which is down just over 5 percent this year.

“As long as gold holds above USD 1,175-80 it’s good, I am positive,” Sean Hyman, editor of the Ultimate Wealth Report told CNBC on Wednesday.

(Read more: Gold holds up on safe-haven bids)

“With dollar weakness we should get some base building in metals and all that equity volatility can help gold,” he said referring to a recent sell-off in global stock markets that lifted the appeal of the safe-haven asset.

— By CNBC.Com’s Dhara Ranasinghe; Follow her on Twitter
@DharaCNBC

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Fed volatility is emerging markets’ ‘poison’: Analyst

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The notion that markets will return to ‘normal’ this year is pure fiction, one analyst told CNBC on Thursday, noting weaker emerging markets are still vulnerable to volatility stemming from the Federal Reserve’s monetary policy.

Emerging markets came back into the spotlight in recent weeks, after steep drops in the currencies of countries like Argentina, Turkey, Brazil and South Africa – all of which have current account deficits – reminded investors how vulnerable they can be to worries over a reduction in the Fed’s asset-purchase program.

(Read more: Stand by: EM turmoil sparks credit crunch fears)

Axel Merk, chief investment officer of Merk Investments, told CNBC that Fed members have been acting confused, and a lack of clarity in policy direction would continue to hurt the more vulnerable emerging markets this year.

“Fed policy is going to be volatile and the key implication from that is that it’s poison for emerging markets, because the volatility is bad for markets with little liquidity,” said Merk.

Emerging markets – which have been one of the biggest beneficiaries of quantitative easing – were hit particularly hard last year when talk of ‘tapering’ first started to panic investors, and countries with higher current account deficits saw vicious selloffs as a result.

 The Fed eventually began its taper in December when it reduced asset purchases by $10 billion, a move it repeated at its January meeting. Although many analysts now believe the end of quantitative easing (QE) has been priced in, other commentators, including Philadelphia Fed President Charlie Plosser, suggested Fed policy could still catch people off guard.

(Read more: Emerging markets—Is it time to bottom fish?)

In a speech made in Rochester, New York on Wednesday, Plosser said the current levels of tapering could prove insufficient if the economy keeps growing at its current pace, and said the Fed may be forced to scale back asset purchases faster, by mid-2014.

Merk told CNBC he was concerned Fed policy makers did not have a strong handle on things.

“The Fed is transparently confused, they don’t have a clue what’s going on and the reason they don’t have a clue is because they have taken away their gauges,” he said, referring to how QE has distorted the bond markets, making it difficult to analyze inflation expectations.

Furthermore, the market hasn’t yet priced in the new Fed chair Janet Yellen’s dovish viewpoint, said Merk, and could be surprised when she makes a U-turn in both the bank’s communication style and policy, though he believes it will be a while before any policy reversal does happen.

(Read more: Emerging markets rout a reality check for Davos elite)

 All of this will have consequences for emerging markets, he said.

“It’s not going to work…. so the emerging markets, in particular Brazil and South Africa – they’ll be jolted around, maybe Turkey as well,” he said. “We will continue to be in an environment where there are heavy handed choices [made] by policy makers and the market is going to react. This notion that we go back to normal as many folks say out there isn’t going to happen anytime soon.”

However, other analysts told CNBC that there has been confusion over how reliant emerging markets have been on the Fed’s flow of easy money.

(Read more: Did the Fed sink the emerging markets?)

“I am confounded by this assumption that the emerging markets have somehow been major beneficiaries of QE and loose monetary policies. I just do not buy into this at all,” said Jim Walker, founder & CEO of Asianomics, who told CNBC on Wednesday that he believed the emerging market correction was largely over.

“The main beneficiaries of the Fed’s QE program have been US equities and partly US housing market,” he added.

Walker said the main reason economies like Argentina and Turkey have suffered such brutal selloffs this year, was due to individual structural problems that should have already been addressed, rather than a direct impact of Fed monetary policy.

Tim Condon, head of Research for Asia at ING Financial Markets, said the market has misidentified the cause of the recent bout of emerging market stress.

“We attribute the stress in emerging markets to growth worries, not G3 monetary tightening worries,” said

“The 10-year US Treasury yield is a principal determinant of emerging market creditworthiness but its re-pricing for the taper occurred in May-August of last year,” he added.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Global stock selloff – Rumble or rout?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Stock markets in the US, Japan and Europe appear to have joined emerging markets in the doldrums, but is the sharp sell-off just a rumble or is a deeper rout on its way?

The consensus so far is this: equities could fall further especially if economic data disappoints, but until that happens the big picture of a brighter growth outlook has not changed so don`t panic just yet.

(Read more: Markets fear US chilled by more than weather )

“The interesting thing is how much movement there has been on so little information,” said California-based John Rutledge, chief investment strategist at private investment firm Safanad. “We`ve had a weak US ISM number and China PMI which registered just a small fall, so that would suggest this (sell-off) is a correction, ” he said referring to recent data showing slowing factory activity in China.

“The one thing that is different this time around is that the US, Japan and Europe are growing and that means higher interest rates, so people who had exposure to emerging markets when rates were low are closing out of those positions,” he added.

Japan`s Nikkei stock index fell 3 percent on Tuesday to its lowest level in almost three months following a sharp fall in US stocks. The Nikkei, is now in correction territory with a fall of more than 10 percent from a six-year high of 16,320 points hit in late December.

(Read more: How bad will the Nikkei meltdown get? )

On Monday, the SandP 500 suffered its worst single-day drop in seven months after the Institute for Supply Management (ISM) said its index of national factory activity fell to its lowest level since May 2013.

That news follows disappointing data from China last month, adding to jitters in emerging markets that have been hurt by a scaling back of US monetary stimulus.

“You have to decide what`s going on. Is this a correction in a bull market or the emergence of something fundamental to the downside?,” said Bob Doll, chief equity strategist at Nuveen Asset Management.

“Our view is the former, that this is a normal correction. We had one less than a year ago,” he said, adding: “The question for US stocks, aside from will there be significant contagion from emerging markets, is how strong is US growth going to be, and until we get some answers we will be flapping in the breeze.”

Both the blue-chip Dow Jones Industrial Average and Nikkei have this week dropped below their 200-day moving averages for the first time since 2012, a major bearish signal from a technical perspective.

The SandP 500 is down about 3.6 percent so far this year, but is up 19 percent over the past year.

Japan`s Nikkei, which surged 57 percent last year, isn`t the only market in correction mode. Russia`s stock market is also down more than 10 percent since the start of the year, while stocks in Brazil and Turkey are not far behind will falls of roughly 9 percent.

(Read more: Market Correction: CNBC Explains )

“The global economy is not in a significantly different position to where it was a month ago when stocks were much higher,” said BlackRock Global Chief Investment Strategist Russ Koesterich. “What has changed is sentiment especially towards emerging markets. From that perspective, there`s probably some more downside. If we pull back another 4-5 percent, that`s a good buying opportunity.”

– Reporting by Dhara Ranasinghe; Follow her on Twitter at @DharaCNBC

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow