Tag Archives: turkey
Emerging Markets Suffer The Advent Of The Taper
http://www.ft.com/cm…l#ixzz2WqnxHnE7 Last updated: June 20, 2013 6:36 pm Emerging markets suffer the advent of the taper By Robin Wigglesworth, Amy Kazmin and James Crabtree Back in late 2010, as the US was embarking on its second round of monetary easing and emerging economies were struggling to cope with the hot inflows that came hand in hand with it, Brazilian finance minister Guido Mantega coined the phrase “currency wars”. He was complaining about countries like the US possibly using quantitative easing to devalue their currencies and boost growth following the crippling financial crisis. Three years on, as the US Federal Reserve provides clarity over its plan to start slowing QE3, those currencies appear to be in full retreat. India’s rupee and the Turkish lira bore the brunt of the emerging market rout on Thursday, both hitting record lows, after Fed Chairman Ben Bernanke said the central bank would probably start reducing its $85bn-a-month asset purchases this year, and end it in 2014. The rupee’s precipitous slide prompted the Reserve Bank of India to intervene to stop the currency from breaching Rs60, the psychologically important threshold, according to currency traders. The RBI declined to comment. Despite Mr Mantega’s complaints of currency wars, many developing countries benefited from western central bank-supplied money seeping into their healthier and less indebted economies, as investment in companies, infrastructure and their capital markets aided growth. But analysts fret that some states could suffer as that flow of money starts to reverse. “It’s a shot across the bow,” said David Jacob, vice-chairman of Henderson Global Investors. “Emerging markets are vulnerable. A huge amount of money has flowed there.” The prospect of less easy monetary policy in the US comes at an awkward time for many developing countries. Economic growth is already slowing, and a combined current account surplus of almost 5 per cent before the financial crisis has now shrunk to just 1 per cent, according to the International Monetary Fund. Countries with current account deficits – such as India and Turkey – are seen as particularly vulnerable to outflows, and it was their currencies that were hurt the most on Thursday. These economies import more than they export, and need foreign capital to plug the gap. Of the 25 largest emerging market currencies, only the Indonesian rupiah managed to hold its ground against the US dollar. Indians’ hunger for gold has fuelled its record current account deficit of 6.7 per cent of economic output. Finance minister P. Chidambaram has made an impassioned appeal to Indians to stop buying gold. “If we can have minimal gold imports for six months or one year, it would dramatically change the current account deficit, and you would see the impact on every other index that measures the economy.” The crucial issue for emerging markets is whether market turbulence persists and exacerbates this economic slowdown by pushing up borrowing costs for their governments, companies and households. Brazil and Ukraine are vulnerable, while better performing economies like the Philippines and Mexico are also facing higher borrowing costs as international investors edge out of their markets. Many investors are confident that the impact could be limited, highlighting the structural, financial and economic progress made since the developing world was plagued by crises in the 1980s and 1990s. Budgets and debt levels remain far healthier than in the west. The Fed’s tapering of QE3 is also expected to be gradual and interest rates kept on hold until 2015. The IMF forecasts that emerging economies will grow 6 per cent a year between 2013 and 2018. If the Fed does begin to taper its asset purchases, that will be on the back of a stronger US economy, which should help global growth, analysts said. Emerging markets also rely less on foreign investors and overseas debts than in the past, with many having shifted to local bond markets in the wake of past crises. Bryan Pascoe, global head of debt capital markets at HSBC, said that emerging markets are “in much better shape to weather storms these days.” Continue reading
Brazil’s Unrest: Should Investors Worry?
http://blogs.ft.com/beyond-brics/2013/06/19/brazils-unrest-should-investors-worry/#ixzz2WqmHIlTT Jun 19, 2013 4:11pm by Jonathan Wheatley The scenes have been extraordinary. Not only the size of public demonstrations in Brazil’s major cities over the past week but also the violence with which they were met by supposedly elite police units have made for surprising and shocking viewing. Are investors worried? And should they be? The short answer to the first question is, apparently, No. To be sure, Brazilian stocks have had a rough ride lately but equity investors are far more worried about the US Federal Reserve than they are about protesters, and the Bovespa index has been heading south since long before they took to the streets. The same is true of the currency and other assets. Beyondbrics has not seen a single analyst make any connection between the demonstrations and asset prices (we would be more than interested to be advised otherwise). To the second question, though, the answer must surely be, Yes. “What is going on is the result of slow growth and that is unlikely to go away,” says Alfredo Behrens, a professor of management at FIA, a business school in São Paulo. Which about sums it up. As one articulate young video blogger puts it, this month’s protests are about more than the 20 centavo increase in bus and metro fares that initially sparked them: “If everything was working, health, education, public transport itself,” she says, “nobody would be on the streets demonstrating.” Parallels have been drawn with the recent protests in Turkey (indeed, protesters in São Paulo and Istanbul saluted each other). Other parallels could be drawn with recent demonstrations in Chile, and even with the upper middle class protesters of Moscow and Chinese micro-bloggers. In all cases, newly economically-enfranchised people, the much-cited new middle classes, are looking about and finding themselves dissatisfied, often because their taxes are not being properly spent. They may feel their freedoms are being curtailed in other ways, too, but common among them is a sense of getting the bad side of a bargain with the state. Many have been quick to point out that Brazil’s protesters may be more privileged than the newly-enfranchised “classe C”. As newspaper Folha de S.Paulo noted on Wednesday, three quarters of the demonstrators have university degrees and more than half are aged under 25. But to dismiss them as a bunch of upper crust urbanites with nothing better to do would be a serious mistake. The educated young have led big revolutions in Brazil in the past (and around the world). And the first thing on the shopping lists of many joining the classe C has been a university eduction for their children. Why should investors worry? One threat to their interests is that the government may react in an overly placatory manner. Reversing the increase in transport fares would be fiscally irresponsible. (Doing what some protesters demand and making public transport free would be fiscal suicide.) The government may be doubly tempted to damp down the protests with floods of cash by the fact that next year is election year – and voter support for President Dilma Rousseff, until recently seen as a shoo-in for re-election, has slipped severely in recent weeks. Another threat is that the government may simply ignore the protests, assuming they calm down over time. That would leave Brazil stuck in its low-growth rut. This may no longer be as appealing to policy-makers as it once was. Slow growth of around 2.5 per cent is probably enough to keep unemployment at a level acceptable for voters. But voters are getting upset all the same. Ideally, of course, the government will listen to the voices from the streets and take energetic action to fight corruption and inefficiency in the public service. On the evidence of recent performance, the chances of that are slim. Even the leading Brazilian politicians who were convicted last year for corruption in a landmark case have yet to actually do any time. Continue reading
Is Dubai set to be the next big technology hub?
Most people immediately think of the US or Japan when the subject of technology is raised, but Dubai is also building itself a strong reputation in this area.Indeed, Dubai Internet City has already attracted some of the leading companies on the planet – not least Google – and this is a trend that is likely to develop over time.Speaking to Al Arabiya, Omar Christidis, chief executive of ArabNet – a forum for technology start-ups – said the emirate is a “growing hub for digital business”.His comments were made during the ArabNet Digital Summit, which poignantly has been switched from its usual location of Beirut to Dubai, further emphasising just how powerful the city has become in the technology sector.Mr Christidis said the interest in digital corporations has “exploded” since 2010 and this is reflected in the growing number of people attending the summit every year.”We're seeing global companies establish their Middle East – and often their Middle East and Africa – headquarters in Dubai, sometimes even managing Turkey and India based out of Dubai,” he was quoted as saying.”This year we decided to shift the Digital Summit, our biggest international event, from Beirut to Dubai, as Dubai is the hub for digital business in the Arab world.”Earlier this month, a study conducted by the Economic Intelligence Unit on behalf of Citi bank concluded that Dubai is an excellent place to do business, describing the city as an “all-round performer”.Aside from the plethora of technology organisations that have moved to the sheikhdom, plenty of enterprises in other fields have been keen to set up a new base in this part of the Gulf. This is partly attributed to the favourable tax laws in the UAE.The Hot Spots 2025: Benchmarking the Future Competitiveness of Cities report showed Dubai is the leading business destination in the Middle East and is set to be the 23rd strongest market in the world over the coming years. Continue reading
