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Investors warned of Chinese bond risks
June 20, 2011--It is well known that international bond investors have loaned tens of billions of dollars to Chinese companies in recent years and that some of those companies, notably Sino Forest and China Forestry, are now in distress.
Less well known, however, is the fact that almost every Chinese borrower that has tapped the international markets for funds has done so through a circuitous route that exposes investors to considerable risk.
Deutsche Bank - Equity Research - Global-Q2-11 ETP Market Review & Outlook : ETF market carried forward by strong flows
June 20, 2011--Q2-11: ETP assets grow driven by inflows in the midst of declining asset prices
Last quarter markets started on risk-on mode underpinned by overall positive economic data during Q1-11. In April, equity benchmarks around the globe delivered positive returns. However as we entered May, the consequences of Japanese related disruptions and the spike in gas prices, coupled with speculation regarding the end of the Fed’s QE2 program, the development of a new chapter on the Greek Sovereign crisis, fears about the Chinese economy slowing down, and debt ceiling discussions in the US, all permeated into the economy and the markets resulting in the reversal of the risk-on trade.
During most of May and June, investors engaged in a defensive trade, by selling risky assets in pursuit of safety. A last minute rally, occurring in the last week of June, nevertheless, helped to lessen the losses for the quarter. At the end of the quarter, the S&P 500 and the MSCI EM (USD) recorded losses of 0.39% and 1.15%, respectively; while the MSCI EAFE (USD) experienced gains of 1.56% (mostly from USD weakening).
The global ETP industry grew by 2.7% (10% YTD) and reached $1.58 trillion in Q2-11, primarily helped by strong inflows across all regions. In USD terms, the Asia Pacific ETP market reached $92 billion and was the best performing market adding 7.2% (9% YTD) in AUM growth, followed by the European ETP market with 4.1% (13% YTD) growth and $349 billion in AUM (1.9% growth in € terms and €241 billion in AUM), then the US ETP market with a 2.0% (9% YTD) expansion and $1.08 trillion in AUM, and finally, the Rest of the World with flat growth (9% YTD) and $59 billion in AUM.
Most of the 2.7% growth in the global ETP industry during Q2-11 came from inflows (+3.0%), while contracting asset prices offset part of the inflows growth (-0.3%). Asset flows for the quarter were strong, totaling $47 billion and they were slightly down for the same quarter last year ($49.1 billion).
The US market accommodated 62.5% of all new flows, while Europe, Asia-Pac and the Rest of the World accounted for 20.9%, 14.5%, and 2.2%, respectively. ETP flows in Q2-11 were significantly more concentrated than Q2-10. Equity, fixed income, and commodity ETP flows breakdown was 72%, 26%, and -3% last quarter vs. 43%, 30%, and 26% on Q2-10, respectively.
Global flows trend (long only ETPs)
Long equity ETPs received $33.2 billion in new flows during Q2-11 with good momentum in the beginning and end of the quarter and a somewhat slower/flat mid quarter period. Fixed income funds, on the other hand, received steady new contributions throughout the quarter adding up to $10.5 billion by the end of this period. Meanwhile, commodity products experienced some inflows during April, but these reversed later on.
Equity ETF Market: sailing amidst choppy seas
Equity ETP allocations favored EM products the most with $11.9 billion in inflows during the quarter, followed by DM ex US, US-focused, and Global ETPs with $9.9 billion, $8.5 billion and $2.9 billion, respectively.
In terms of sector rotations, investors engaged in a defensive trade by allocating $4.7 billion of cash into defensive sectors such as Healthcare (+$2.5 billion), Consumer Staples (+$1.3 billion), Utilities (+$662 million), and Telecom (+$262 million); while taking $3.1 billion of money out from global cyclical sectors such as Energy (-$3.2 billion) and Materials (+$50 million). In the meantime, domestic cyclical sectors (i.e. Financials, Technology, Consumer Discretionary, and Industrials) remained oscillating mostly between -$1.0 billion and +$1.0 billion throughout the quarter.
Fixed Income ETF Market: quality, quality, quality
Underpinned by increasing uncertainty and a flight from risky assets, fixed income products experienced a very active quarter during Q2-11. However not all categories or credit buckets were equally favored. Sovereign and Corporates products received the largest inflows each with about $3.8 billion; while Money Market ETPs experienced the largest outflows with $2.0 billion.
In terms of quality, investment grade products captured most of the new flows during the quarter with $6.3 billion in inflows, followed by mixed quality portfolios with $3.8 billion. On the other hand, high yield ETPs were dumped by investors and ended the quarter relatively flat (+$151 million) as the focus changed from risk to quality and safety.
Commodity ETF Market: silver bubble, risk-off trade and gold
Commodity products experienced $2.0 billion of outflows during Q2-11. Most of the sectors experienced outflows with the exception of Industrial Metals and Livestock which experienced nominal inflows of $116 million, and $8 million, respectively. On the other hand, Energy products experienced the largest outflows of $931 million.
At a sub sector level we find that gold products were the big exception within the commodity products. Gold ETPs received inflows for $2.0 billion driven mostly on the basis of the safe haven and value protection argument. On the contrary, Silver, Broad Agriculture, Broad Commodities, and Crude Oil experienced the most significant outflows of $2.4 billion, $612 million, $518 million, and $449 million, respectively.
Large providers dominate the US; while medium sized providers gain ground in Europe and Asia Pacific
Provider competitive dynamics on a global level remained fairly stable among the top 5 global providers. Year to date, Blackrock (nu.1, 40.3%) and StateStreet (nu.2, 16.6%) have lost 0.9% and 0.6% of market share respectively, while the world’s number 3, Vanguard has gained 0.8% reaching 11.0%.
US market dynamics remain tilted towards the Tier 1 providers which recovered 0.1% of market share at the expense of smaller, Tier 3, providers. This is a sign that as large providers get larger and big financial institutions or asset managers enter the industry, the competitive landscape will become more and more difficult for smaller ETP shops which try to take their shots at the ETF industry.
In Europe, the top 5 providers lost 0.6% of market share (mostly) to medium sized providers. Again this quarter, UBS, Source and Amundi continued to gather healthy cash inflows (€1.0 billion, €862 million and €507 million respectively).
Tier 1 providers in Asia Pacific lost the largest market share among Tier 1 providers across regions, yielding 3.1% (mostly) to medium sized providers. This is a testament about the dynamics governing the market in the eastern world which still remains more open to new competitors.
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'Gold may hit $2 000 by year-end'
July 19, 2011--Gold will likely reach between $1 700 and $2 000 an ounce by year end, Nick Barisheff, president and CEO of investment company Bullion Management Group said on Thursday.
Gold pushed beyond the $1 600 an ounce this week amid debt-ceiling concerns in the US and continuing sovereign debt problems in the euro-zone.
Is Fiscal Policy Procyclical in Developing Oil-Producing Countries?-IMF Working paper
July 19, 2011--Summary: This paper examines the cyclicality of fiscal behavior in 28 developing oil-producing countries (OPCs) during 1990-2009. After testing five fiscal measures - government expenditure, consumption, investment, non-oil revenue, and non-oil primary balance - and correcting for reverse causality between non-oil output and fiscal variables, the results suggest that all of the five fiscal variables are strongly procyclical in the full sample.
Also, the results are not uniform across income groups: expenditure is procyclical in the low and middle-income countries, while it is countercyclical in the high-income countries. Fiscal policy tends to be affected by the external financing constraints in the middle- and high-income groups. However, the quality of institutions and political structure appear to be more significant for the low-income group.
view IMF Working paper-Is Fiscal Policy Procyclical in Developing Oil-Producing Countries?
Global Commodity ETP Assets Rise 33% In 1H 2011, Trading Surges 95%
July 19, 2011--Global commodity ETP assets under management (AUM) rose 33% year-on-year to reach US$171bn at the end of 1H 2011, with on-exchange average monthly trading turnover nearly doubling year ago levels to hit US$167bn. These findings come from today's publication of ETF Securities' Global Commodity ETP Quarterly, Q2 2011, a comprehensive guide to investing in global commodity ETPs.
Key findings from ETF Securities' Global Commodity ETP Quarterly for Q2 2011 include:
Global commodity ETP assets stood at US$171bn at end of June 2011, up 33% on the year. Global commodity exchange traded product (ETP) 1 assets stood at US$171bn at the end of June 2011, 33% above year-ago levels as investors continue to increase weightings in the asset class. Assets are nearly triple end-2008 levels.
ETFS Precious Metals Weekly: Gold Soars Through $1600/oz as Trans-Atlantic Debt Deadlocks Spook Markets
July 18, 2011--Gold price rallies to new record high above $1600/oz, also hitting records in GBP and EUR denominated terms. US and EU government officials continue to struggle to find solutions to their respective sovereign debt-problems, driving investors into perceived safe havens.
Gold futures positioning bounces back to its highest levels in a month, after
hitting 5 month lows in the past week. Although positioning has picked up
substantially over the past week, positioning remains far from overbought, still 3% below its one year average.
Silver jumps towards $40/oz even as speculative futures positioning remains almost half pre-COMEX restriction levels. Silver has often acted as a geared play on gold price moves, with double the gains of gold over the past month. Market specualtion of ‘QE3’ also may have spurred interest in the metal.
Gold jumps towards $1,600/oz as debt impasses stoke default concerns on both sides of the Atlantic. ECB president Trichet reiterated his opposition to restructuring of Greek debt late last week as EU government officials prepared to meet for a second time to hammer out details of a Greek debt bailout scheme after the first failed to find a consensus last month. Meanwhile S&P became the second rating company to put a warning on the US’s top credit rating last week as Republicans and Democrats struggle to find consensus on how to pare the US government budget deficit as the Aug 2 deadline to rasie the US government debt ceiling draws closer.
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Gold powers above $1600 on debt fears
July 18, 2011--Gold prices rallied to record highs above $1 600 an ounce in Europe on Monday as investors - spooked by the eurozone debt crisis and the threat of a US default - bought into the metal as a haven from risk.
Spot gold rose as high as $1 600.40/oz and was up 0.4% at $1 598.76/oz in morning trade. Gold rose more than 3% for a second straight week to Friday, a feat it has not achieved since February 2009.
OPEC Monthly Oil Report July 2011
July 15, 2011--Oil Market Highlights
The OPEC Reference Basket remained volatile in June, moving within a wide range of $102-$114/b. In monthly terms, the Basket fell for the second consecutive month to average
$109.04/b, down 90¢ from the previous month. Futures prices also declined as macroeconomic sentiment weakened across many regions, as well as on the temporary impact of the IEA’s decision
to release oil from strategic reserves.
The Nymex WTI front-month fell a further $5 or 5% to average
$96.29/b. ICE Brent also declined but at a slower pace, due to lower supplies of light sweet crude and constraints in North Sea production. As a result, the Brent spread over WTI jumped to a record
high on a monthly basis of around $17.60/b. In early July, the market remained volatile due to reduced speculative activity and weaker economic data. The Basket stood at $111.35/b on 11 July.
The forecast for world economic growth in 2011 remains at 3.9% following off-setting revisions in the US, Japan and Euro-zone. Growth in the developing countries remains unchanged, with China growing by 9.0% and India by 8.1% this year. In 2012, the world economy is expected to grow by 4.1%, slightly higher than in 2011. The OECD is forecast to grow by 2.5%, compared with this year’s growth of 2.1%. OECD growth is supported by the recovery in the Japanese economy, which is expected to expand by 2.5%. US growth is forecast at a higher 2.9%, while growth in the Euro-zone is seen slowing to 1.5%, due to planned austerity measures. The strong expansion in the developing countries is expected to ease somewhat, with China forecast at 8.5% and India at 7.7%.
view the OPEC Monthly Oil Report July 2011
Jovian to sell ETF business to Korea's Mirae for C$90 mln
Deal expected to close in about 120 days
Jovian's interest in Hahn Investment not part of the deal
Shares touch near 3-year high, then fall
July 15, 2011--Jovian Capital Corp said it would sell its nearly 58 percent stake in Canada's No. 3 exchange-traded funds business, BetaPro Management, to South Korea's Mirae Asset Global Investments Co Ltd for about C$90 million ($93.9 million).
Jovian shares, which soared 32 percent since the word of the talks were leaked to the South Korean press on July 5, touched a nearly three-year high of C$11.99 earlier on Friday. They later shed some gains to fall more than 4 percent to C$11.00 on the Toronto Stock Exchange.
The Financial Crisis and Information Gaps: Implementation Progress Report
July 15, 2011--EXECUTIVE SUMMARY
This report updates on progress by
the Financial Stability Board (FSB) Secretariat and International Monetary Fund (IMF) staff in implementing the 20 recommendations in the report The Financial Crisis and Information Gaps endorsed by the Group of Twenty (G-20) Finance Ministers and Central Bank Governors in November 2009. Since the last progress report a year ago, consultations with national authorities revealed broad agreement with, and a positive view of, the G-20 Data Gaps Initiative, with better identification of the build-up of risks in the financial sector and financial interconnectedness (domestic and cross-border) being among the highest priorities.
Work in the priority areas is progressing well:
A draft reporting template for the global systemically important financial institutions has been developed for banks, with the FSB Plenary agreeing to progress this work.
Agreements have been reached to enhance the Bank for International Settlements (BIS) international banking statistics (IBS) data to provide more granular information on a nationality basis; to increase the frequency from annual to semi annual of cross-border security holdings data in the IMF’s Coordinated Portfolio Investment Survey (CPIS); and to introduce a reporting template to provide a better understanding of domestic vulnerabilities by economic sector. The challenge over the coming year will be to start implementing these enhancements.
view The Financial Crisis and Information Gaps: Implementation Progress Report