For more information please contact us

ashmail [at] ashmoregroup [dot] com (Email Ashmore)

07 February 2013

Weekly investor research

07 February 2013

Markets traded erratically due to perceived rising risks in the financial and political spheres of Europe as downside risks to currencies in HIDCs (Heavily Indebted Developed Countries) continue to become more evident.



Markets traded erratically due to perceived rising risks in the financial and political spheres of Europe as downside risks
to currencies in HIDCs (Heavily Indebted Developed Countries) continue to become more evident.


US higher frequency data is still improving with better than expected ISM Manufacturing
and University of Michigan Consumer confidence data. US payrolls came in line with
expectations, but the previous numbers were revised higher by 50,000 jobs. After the
US Congress managed to roll the debt ceiling until May, the market has turned its
attention to European politics, where recent developments added uncertainty.
Specifically, in Italy former Prime Minister Silvio Berlusconi’s centre-right coalition gained
ground in the polls on the back of a campaign promising property and other tax cuts.
Meanwhile, in Spain Mr. Rajoy was dragged into an illegal party finance scandal, which
threatens to eat away at his popularity, which is already battered by sky-high
unemployment and a fragile economic outlook. On the data front, European
Manufacturing PMI failed to surprise, but banks were affected by a new wave of weaker
than expected earnings on account of asset write-downs. The government of The
Netherlands nationalised SNS Reaal – its fourth-largest bank – at a cost of EUR 3.7bn to
Dutch taxpayers. SNS Reaal had high levels of exposure in Spanish assets. At the same
time, the parliament of Ireland rushed to liquidate Anglo Irish Bank after an attempt to
cut a deal with the ECB to replace EUR 28bn of its costly promissory notes leaked in the
US equities were flat on the week, while European equities declined 3%. US 10 year
Treasury yields retraced from a 2.06% high to 1.97% and Italian and Spanish bonds
widened 20-30bps with the 10 year now flirting with the 5.5% mark. Italian bonds also
increased between 7 and 25bps with the 10 year bond now at 4.55%. The Euro was flat
around 1.355 levels while the JPY weakened more 2.2% at 93.80.
The ECB and the BoE will announce their monetary policy committee meeting decision
today. The ECB maintained the benchmark rate at 0.75% and ECB deposit facility rate at
0%. Mr. Draghi is expected to deliver a somehow more dovish impression at the 2:30
press conference, potentially commenting on the Euro strength. In England, the BoE
kept the key rate at 0.5% and pledged to maintain the target for bond purchases at
£375bn by reinvesting future gilts redemption. The market will be paying more attention
to the BoE’s future governor Mr. Carney’s testimony in congress in which the current
Bank of Canada governor left a less dovish impression by mentioning that an exit
strategy from ultra-low monetary policy should be designed.
In Asia, geopolitical tensions between Japan and China escalated after the revelation
that a Chinese Navy targeted a Japanese warship with its weapons radar last month.
In this context, Emerging Markets bonds continued to face some temporary profittaking.
The sovereign external debt index (EMBI GD) was down 0.7% over the last week;
Corporate credit was down 0.8%. Local currency indices have done better and the
GBI-EM is up 0.5% on the week, while the ELMI+ climbed 0.2%. The MSCI Emerging
Markets was down 0.5%. For another week, JPY weakness proved to be an important
headwind, particularly to Emerging Market Asian currencies, as JPY remains the funding
currency of choice as opposed to USD. EMEA and Latin American currencies outperformed
against the USD, in sympathy with the EUR while Middle East and African
currencies recovered from recent lows.

Latin America

In Brazil, CPI came slightly higher than expected at 0.86% mom, moving the annualised
inflation to 6.15%; In Colombia, on the other hand, inflation surprised to the downside,
as the annualised number reached 2.0% (vs. 2.22% expected). December’s monthly
economic activity in Chile rose by 4.7% vs. 3.7% expected. The Peruvian Central bank
stepped up US Dollar purchases in the FX markets in an attempt to reduce the PEN
appreciation pace.


India’s government speed-up economic reforms and privatisation resulted in the
announcement of the intention to sell a stake of state-controlled power company NTPC
in an attempt to achieve the 5.3% fiscal deficit target. Consumer prices in Thailand rose
3.39%, about 10bps below expectations while Indonesian inflation surprised to the
upside at 4.57%. South Korean exports in January rose by 11.8%. The Chinese official
PMI came at 50.4 (vs. 51 expected), while HSBC China PMI was better than expected at

Eastern Europe, Africa, and Middle East

Poland cut interest rates by 25bps to 3.75% as largely expected in order to smooth out
the economic deceleration motivated by Western European slowdown. Romania kept
rates unchanged at 5.25%. In Turkey, inflation came above expectations at an
annualised rate of 7.31%. The Hungarian PMI came better than expected at 55.9 while
rumours regarding the announcement of the Central Bank Governor added volatility to
the HUF. The Czech National Bank maintained its base rate at 0.05%, while Governor
Singer’s comments gave a lower probability to currency interventions which benefited
the Czech Krona. Uganda kept its benchmark interest rates at 12%. South Africa
manufacturing production declined more than expected by 2.2% mom (up 2.0% yoy).
The level of FX reserves in Egypt dropped to U$ 13.6bn at the end of January – below
the important level of three months import cover.



No part of this article may be reproduced in any form, or referred to in any other publication, without the written permission of Ashmore Investment Management Limited © 2013.

Important information: This document is issued by Ashmore Investment Management Limited (Ashmore), which is authorised and regulated by the Financial Services Authority. The information and any opinions contained in this document have been compiled in good faith, but no representation or warranty, express or implied, is made as to accuracy, completeness or correctness. Save to the extent (if any) that exclusion of liability is prohibited by any applicable law or regulation, Ashmore, its officers, employees, representatives and agents expressly advise that they shall not be liable in any respect whatsoever for any loss or damage, whether direct, indirect, consequential or otherwise however arising (whether in negligence or otherwise) out of or in connection with the contents of or any omissions from this document. This document does not constitute an offer to sell, purchase, subscribe for or otherwise invest in Units of any Fund referred to above and is not intended to provide advice on the merits of investing in any particular Fund. The value of the Units may fall as well as rise and investors may not get back the amount originally invested. With the exception of the SICAV fund, Ashmore’s public Funds are only available to persons defined as Professional Clients and Eligible Counterparties under the rules of the Financial Services Authority of the United Kingdom. Prospective investors should obtain and review the Scheme Particulars or other offering documents relating to the Units or Shares of any Fund, including the description of risk factors/investment considerations contained in the Scheme Particulars or other offering documents, prior to making any decision to invest in such Units or Shares. The Funds are offshore and not regulated in the United Kingdom.

Full article

Latest Insights

View all