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January 9, 2009 • 2:01 am 14

Brazil, Mexico, South Korea, Singapore Debt compelling says PIMCO

Bonds sold by Brazil, South Korea, Mexico and Singapore will beat other emerging markets as they avoid a “domino effect” of defaults, according to Pacific Investment Management Co.

Debt sold by countries with large enough financial reserves to stimulate economic growth and access to support from the Federal Reserve’s $120 billion of currency swap lines will outperform, the world’s largest emerging-market bond investor said in a report.

Investors pulled $18 billion from emerging-market bond funds last year as Ecuador’s default last month accelerated losses, according to data compiled by EPFR Global. Brazil’s bonds due 2040, which fell as much as 25 percent last year, gained 30 percent since mid-October. Brazil, Turkey, Colombia and the Philippines raised $4.5 billion selling dollar- denominated bonds this week alone.

“Default probabilities for countries like Brazil, Korea, Mexico and Singapore remain very low,” Curtis Mewbourne, a managing director and co-head of emerging-market investments, wrote in a note published on Pimco’s Web site. “Current spreads for their debt represent a compelling risk-return opportunity.”

Pimco is most bullish on countries that have the resources or can borrow to stimulate their economies as exports slump, according to Mewbourne. He highlighted China’s $585 billion stimulus package and Russia’s $186 billion program.

Default Risk
Ecuador’s bonds plunged 73 percent in 2008 and Argentina’s lost 58 percent. Emerging-market local-currency debt rallied a record 8.2 percent in December in U.S. dollar terms, according to Merrill Lynch & Co.’s LDM Plus Index of local-currency sovereign notes.

Pimco’s $2.4 billion Emerging Markets Bond Fund lost 14 percent last year, Bloomberg data show.

The Fed announced currency swaps in October of $30 billion each for the central banks of Brazil, Mexico, South Korea and Singapore. The arrangements, due to expire in April, reduce the likelihood of capital outflows that marked the Asian financial crises of 1997, Mewbourne wrote.

Pimco, based in Newport Beach, California, said access to finance will be significantly reduced for Ecuador, Argentina and Venezuela because of their unconventional policies.

Ecuador reneged on a $30 million coupon payment on Dec. 15, while keeping $5 billion of foreign-exchange reserves. Ecuador’s credit rating was cut to “selective default” by Standard & Poor’s.

Currency Weakness
Argentina in November approved plans to nationalize about $26 billion held by 10 private pensions in a move to shore up government finances.

The cost to hedge against a default by Argentina for five years rose to 3,713 basis points yesterday from 1,800 basis points three months ago, according to CMA Datavision prices in New York. The cost of contracts on Venezuela’s debt jumped to 2,918 from 1,292.

Credit-default swaps pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements. A basis point is equivalent to a cost of $1,000 a year to protect $10 million of debt.

Investors should expect a “wide range of different outcomes” in emerging markets, Mewbourne wrote. As policy makers in developing countries follow the U.S., Japan and Europe in cutting interest rates to boost their economies, the currencies will face “downward pressure,” Mewbourne said.

Bond Sales
China, South Korea, Turkey, the Czech Republic and Colombia have cut borrowing costs to counter slumping demand, a response previously reserved for the developed world, Mewbourne said. “We see the scope for even lower policy rates.”

Pimco has tempered its “secular enthusiasm for a generalized strengthening of emerging currencies,” Mewbourne wrote. He didn’t provide any specific currency forecasts.

The Philippines sold $1.5 billion of 10-year notes yesterday to yield 8.5 percent, or six percentage points more than Treasuries, while Turkey sold $1 billion of eight-year bonds to yield 5.01 percentage points above Treasuries. Brazil and Colombia each sold $1 billion of debt this week. Mexico sold $2 billion in bonds on Dec. 18.

Chile, Malaysia, South Korea and Indonesia may also tap the global sovereign debt market later in 2009, according to Brown Brothers Harriman & Co. in New York.

Source: Bloomberg, 08.01.2009  (David Yong in Singapore at dyong@bloomberg.net)

Filed under: Banking, Brazil, Korea, Mexico, News, Singapore, , , , , , , , , , , , , , , , ,

January 8, 2009 • 8:00 pm 0

Brazil Stocks have $11 Billion Foreign Outflow in ’08, mixed outlook

Foreign investors pulled money from Brazil’s stock market for a seventh month in December, the longest streak since at least 1995, as costlier credit and a slowing economy led investors to sell the country’s assets.

Foreign investors sold 439 million reais ($195 million) more than they bought in stocks last month, BM&FBovespa SA said in a statement posted on its Web site. That brought the total outflow for 2008 to 24.6 billion reais, compared with 4.2 billion reais in 2007.

“Last year was a year for huge outflows due to massive de- leveraging of investments, and 2009 will be a year of rebuilding portfolios,” said Regis Abreu, who helps manage the equivalent of $624 million at Mercatto Gestao de Recursos in Rio de Janeiro.

The sell-off, which started with two record months of more than 7.4 billion reais of outflows in June and July, slowed in the last two months of the year. Investors sold 1.2 billion reais more stocks than they bought in November, after withdrawing 4.7 billion reais in October. In December, investors sold 27.9 billion reais and bought 27.5 billion reais of shares.

The benchmark Bovespa index plunged 49 percent from a May record and ended 2008 down 41 percent, its worst year ever, as commodity prices tumbled and credit markets seized up amid a deepening financial crisis that cut demand for riskier assets. The index has gained 11 percent in the first two trading days of 2009 to close at 41,518.66 today.

The country’s main stock index will rebound this year, according to strategists. Banco Santander SA, Spain’s biggest bank, expects the Bovespa to rise to 49,000 points in 2009. Citigroup Inc. strategist Geoffrey Dennis expects the Bovespa to rally to 55,000 points, while Itau Corretora forecasts 66,500 for the 66-member index. Deutsche Bank AG predicts the Bovespa may end the year at 45,000.

Source: Bloomberg, 05.01.2009, by Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net

Filed under: BM&FBOVESPA, Brazil, Exchanges, News, , , , , ,

January 8, 2009 • 11:32 am 0

Latin American brokers join Thomson Reuters order routing network

Thomson Reuters today announced that four key brokers from Brazil and Mexico have joined its order routing network, expanding the reach of its exchange traded instruments offering into the two largest financial markets in Latin America.

This move forms part of Thomson Reuters aim to expand its desktop and transaction capabilities across Latin America.

Financial market professionals can now route equities orders via Reuters Trading for Exchanges (RTEx) to Alpes and Ativa for Brazil and Casa de Bolsa Finamex and Grupo Bursátil Mexicano for Mexico.

Any user connected to the Thomson Reuters order routing network, both in Latin America and outside the region, can now access liquidity from BMFBovespa and Mexico Stock Exchange via these brokers.

Reuters Trading for Exchanges in Latin America is available to users of Reuters 3000 Xtra and Reuters Trader Latin America. It provides access to the joint global community of Tradeweb Routing Network and Reuters Order Routing Network, comprising over 1,000 participants worldwide and processing in excess if 1.5 billion shares per day.

Ricardo Diniz, Managing Director for Thomson Reuters in Latin America, said, ” Brazil and Mexico are the most sophisticated Latin American financial markets, using advanced technology and trading the largest volumes. Thomson Reuters is pleased to expand the reach of its Reuters Trading for Exchanges offering with the support of these four leading brokers. Thomson Reuters plans to continue to support this growing community by adding new asset classes with an initial focus on the increasingly automated derivatives markets.”

Source: Reuters Thomson, 07.01.2009

Filed under: BM&FBOVESPA, BMV - Mexico, Brazil, Chile, Colombia, Data Vendor, Exchanges, Latin America, Mexico, News, Trading Technology, , , , , , , , , , , , , , , ,

January 6, 2009 • 7:15 am 1

Bailout Bust: Why Big Finance Is Laughing All the Way to the Bank

Instead of making loans to help the economy, they’re shoring up their own finances and buying up their competitors.

[Exerpt] The country’s financial markets have collapsed, as they tend to do when left without adult supervision, and they’re taking our economy with them. With the large banks refusing to make loans after losing billions on worthless subprime derivatives, the government stepped in and agreed to October’s financial bailout package.

The $700 billion legislation was meant to buy banks’ “troubled assets” for cash, and thus improve banks’ balance sheets to the point that they would lend again. This would mean credit for struggling businesses and households and could encourage expansion and hiring, thus pulling us out of recession.

But it turns out the banks haven’t held up their end of the bargain. All they’re holding up is a glass to a government that would rather shovel cash into the largest banks than take the edge off the recession.

…The fact is that the banks are not making loans — the “credit crunch” goes on, and the economy is the worse for it. After so many of Wall Street’s great investment banks went bankrupt, or were bailed out by the government, or were bought by competitors, the banks want to “hoard cash” to avoid a similar fate.  But besides shoring up their own finances, the banks are putting our public bailout money to another purpose — buying up their smaller competitors.

The mergers are large-scale — the Financial Times calls them a “wave of consolidation as banks scramble to use the cash on takeovers and bolt-on acquisitions.”  BusinessWeek reports “what could emerge is a barbell-shaped system with megabanks, small banks and little in between.” The business reporters for the New York Times describe the Treasury Department as “using the bailout bill to turn the banking system into the oligopoly of giant national institutions.”  An oligopoly is a market, such as banking, dominated by a few very large companies.

…. If any doubt remained, it was put to rest by the minor scandal that has emerged over a quiet change to the tax code made by the Treasury Department. This change allows banks to apply the losses of other banks they buy against their own taxes. In other words, when a bank buys a struggling smaller bank, the buyer can deduct the money lost by the struggling bank against its own tax bill. This is clearly meant to further encourage merger activity — for example, when Wells Fargo bought Wachovia, it paid $15 billion. But Wachovia’s losses total over $19 billion. Meaning, Wells Fargo was paid by the government for buying a highly valuable bank, for a profit of $4 billion, at our expense… for full article click here

Source: Alternet.org, Rob Larson, 05.01.2009

Filed under: Banking, News, , , , ,

January 6, 2009 • 7:08 am 0

Asia facing growth shock as economic slump deepens

Singapore’s economy may shrink more than previously forecast in 2009, foreshadowing a deepening slump throughout the region as exports and manufacturing contracted further in China, South Korea and Australia.

China’s manufacturing declined for a fifth month in December, South Korea’s exports fell by more than 15% for a second month, and Australian manufacturing shrank, reports on Friday showed.

Singapore’s economy may contract as much as 2% this year, worse than a November prediction, the government said on Friday.

“Asia is facing a growth shock with indicators suggesting the contraction will be as sharp as during the depth of the Asian financial crisis,” said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. “There will be more fiscal pump-priming and monetary-policy loosening forthcoming over the next three to four months.”

Public spending packages and interest-rate cuts by governments and central banks around the world have failed to reverse a worldwide economic slump and the worst credit crunch in seven decades. Asia’s export-driven economies are slowing as demand for their products diminishes amid recessions in the US, Japan and Europe.

Overseas shipments by India are also falling, and Vietnam this week said its 2008 economic expansion was the weakest in nine-years.

Among Southeast Asia’s three biggest economies, Thailand says it’s at risk of falling into a recession this quarter, while Indonesia and Malaysia expect growth this year to be the slowest since 2001.

‘Tough time’

The World Bank last month predicted international trade will shrink in 2009 for the first time in more than 25 years. Exports account for about 32% of Asia’s gross domestic product, according to the World Bank. Japan, China’s Hong Kong, Singapore and New Zealand are already in recession.

Singapore’s recession this year may be the worst in its 43-year history, Citigroup Inc economist Kit Wei Zheng wrote in a note. “It’s going to be a tough time across Asia,” said Alvin Liew, an economist at Standard Chartered Plc in Singapore. “We don’t see any bright spots in the Singapore economy, especially in the first half.”

Singapore’s Chartered Semiconductor Manufacturing Ltd and Taiwan Semiconductor Manufacturing Co, two of the world’s three largest custom-chipmakers, last month lowered their earnings projections amid delayed orders and a slump in demand.

In South Korea, President Lee Myung-bak on Friday pledged to help bring down interest rates amid concern the economy may enter its first recession since 1998 by June as exports slow and consumer spending weakens. Overseas shipments fell 17.4% in December, after a 19% decline the month before.

Worst to come

“We won’t waste a minute or a second in examining economic conditions every day and coming up with measures,” Lee said. “Most of all, we have to ensure money flow in the markets.”

The worst global financial crisis since the Great Depression in the 1930s will deteriorate further, said New York University Professor Nouriel Roubini. “The entire global economy will contract in a severe and protracted U-shaped global recession that started a year ago,” Roubini said. “A hard landing for emerging-market economies may also be at hand.”

Still, HSBC’s Neumann forecasts a rebound in Asian growth in the second half of 2009 as government spending boosts domestic consumption. “Governments across the region have promised a very significant fiscal stimulus,” Neumann said.  “We believe that Asia will be able to generate enough domestic demand to lead a recovery in growth

Source: Intellasia / Chinadaily 05.01.2009

Filed under: Asia, Banking, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, News, Risk Management, Singapore, Thailand, Vietnam, , , , , , , , , , , , , ,

January 6, 2009 • 7:00 am 0

Singapore slump makes for a toxic cocktail

Economists fear that the Lion City will fall into the worst recession in its history, while hope rests on a resurgence of intra-regional trade.

Where Singapore leads, other Asian countries must fear to follow. Often considered Asia’s bell-weather economy, the Lion City continues to shock its neighbours and economists with data that casts a murky cloud over the region. The Singapore slump is a cocktail that induces an immediate and thunderous New Year hangover.

On Friday, the Singapore government cut its GDP forecast for 2009 to a range of -2% to 1% compared to its projection of between -1% and 2% made in November. The revision came after it announced a contraction of 2.6% in the fourth quarter from a year earlier. It cited a worsening global economic crisis, manifested by sharp falls in global demand, trade and investment.

“This will very likely be the worst recession in Singapore’s history,” says Citi economist, Kit Wei Zheng. “We’re forecasting a GDP contraction of 2.8% this year; while in 1998, during the Asian crisis, GDP fell 1.4% and in the recession after the bursting of the dotcom bubble in 2001 it declined by 2.4%.”

The economy contracted at a seasonally adjusted, annualised rate of 12.5% (quarter-on-quarter) in the final three months of 2008, after falling 5.4% (qoq) in the previous quarter, according to Singapore’s Ministry of Trade and Industry. This was the largest decline in GDP since 1976 when the authorities started publishing seasonally adjusted data.

It is also the third consecutive quarterly decline, and economists expect the trend to continue in the first three months of this year. For example, Citi expects a likely decline in GDP of between 6% and 8% in the first quarter of 2009 compared with the same period a year ago.

Singapore’s economy is highly dependent on overseas demand. Electronics exports have been especially badly hit, falling for 20 consecutive months in November, but the downturn originally started with a collapse in pharmaceutical output, which slumped by 30%-35% year-on-year during the third quarter.

Especially worrying is the reported slowdown in the growth of the services sector. It is usually the reliable engine of Singapore’s economy, making up about two-thirds of GDP, but it grew just 1.1% compared with a year ago.

To some extent the drop in growth in the services sector is a gauge of what is happening elsewhere in the region, argues Matt Hildebrandt, economist at JPMorgan Chase. But, he adds, “Singapore is pretty unique in that it is being hurt from all sides”. Manufacturing, particularly electronics and pharmaceuticals, has suffered from a big decline in external demand, shipping revenues have fallen because of the commodity price slump, and a large part of the services sector is related to finance and trade, which have been hurt by the global meltdown.

But, write the economists at HSBC in their “Global Economics Q1 2009″ report, “all is not lost. History suggests that when the economy does turn, it turns sharply”. Reasons to be optimistic include a supportive policy environment as market-determined interest rates fall further and the government is likely to provide a stimulatory budget on January 22 for the fiscal year beginning in April. Measures might include financing support for companies, rent and wage subsidies and a resumption of infrastructure and other construction projects which were shelved earlier last year.

Hildebrandt also reckons that the authorities have plenty of room to provide a fiscal stimulus, which will combine spending on infrastructure and new projects previously put on hold, with a raft of measures such as tax rebates and credits and handouts. He expects “the period of contraction [of the economy] to stabilise in the second quarter, and recovery to begin in the third and fourth quarters of the year, predicated on [JPMorgan Chase's] global view”.

A more pessimistic Kit at Citi disagrees. “It will be a prolonged recession, with negative quarter-on-quarter growth expected over four straight quarters, and possibly even five or six [quarters]. The recovery, when it arrives, will likely be gradual, rather than swift, as was the case in past recessions.”

The January budget will offer pain relief but is not a cure-all, given the highly open nature of the economy, he argues. Private consumption, for example, makes up only about 40% of GDP, so any fiscal stimulus designed to boost domestic demand will only have limited impact on overall GDP.

Reasons to be cheerful
On the other hand, write the economists at HSBC, regional demand should strengthen during the second half of the year, offering relief to exporters; “wholesale demand” – transport and logistics – represented by port activity, has slumped as regional economic activity has declined. In November, the Singapore port recorded its first decline in traffic volume since 2001.

Also, sharp falls in commodity prices should drive down inflation to 2% from a recent high of 7.5% which will pass through to higher real incomes. The Monetary Authority of Singapore (the central bank) has already apparently relegated the inflation threat to the backroom. In October, the MAS, which uses the exchange rate rather than interest rates as its main monetary policy tool, gave up its anti-inflationary strategy of gradually appreciating the Singapore dollar against a basket of currencies. Instead, it shifted to a “zero appreciation” stance, and announced it would maintain the dollar at the low end of a narrow band. Now many economists believe that a downward re-centering of the currency band is likely.

Surprisingly, the labour market was fairly resilient last year, with almost 200,000 jobs created despite the recession, but the downside is that with productivity having fallen, unemployment could rise more quickly. Unemployment could reach 4.5%-5% this year, says Kit. This will have consequences including a rise in credit card delinquencies and falling residential property prices.

Aware of the pending problem and, as always, pragmatic, the government is trying to expand the safety net, for example by providing subsidies for re-training [introduced last November]. This is especially important in the context of a widening income gap. Not only had the income gap widened, but incomes of those in the bottom 20% actually saw their real wages stagnate between 2000 and 2005, with wages only starting to rise in 2006 on the back of the tight labour market, says Kit. “This group will likely be hit harder in the current recession, which suggests the need for the government to provide some form of support, while not undermining the incentive to work.”

Anecdotally, Singapore has become an even more comfortable place for expats with money and a job. There are no longer waiting lists for international schools, you can now just walk into smart restaurants without having to book days in advance, and even find a vacant bar stool at Raffles Hotel to enjoy an optimistic Singapore sling. Of course, the famous shopping malls are crowded, but, some observers suspect, people are often just window-shopping, socialising or simply taking advantage of free air-con.

Source: FinanceAsia.com, Rupert Walker, 06.01.2009

Filed under: Banking, Exchanges, News, Singapore, , , ,

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