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Oil price holds global economy hostage
March 11, 2011--Friday brought the first real evidence on how a 20-30 per cent jump in oil prices over the past few months will affect the US economy. It was not reassuring.
The University of Michigan index of consumer confidence slumped from 77.5 to 68.2 in March, the lowest for six months, and expectations of inflation for the next year rose to 4.6 per cent from 3.4 per cent.
Thomson Reuters Monthly Market Share Reports For February 2011
March 10, 2011--Trading is fragmenting between exchanges and competing venues. But by how much and which venues? Find out in the summarised monthly reports.
CPSS-IOSCO principles for financial market infrastructures
March 10, 2011--New and more demanding international standards for payment, clearing and settlement systems have today been issued for public consultation by the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO).
The new standards (called principles) are designed to ensure that the essential infrastructure supporting global financial markets is even more robust and thus even better placed to withstand financial shocks than at present. They are set out in a consultative report Principles for financial market infrastructures which contains a single, comprehensive set of 24 principles designed to apply to all systemically important payment systems, central securities depositories, securities settlement systems, central counterparties and trade repositories (collectively financial market infrastructures or FMIs). These FMIs collectively record, clear and settle transactions in financial markets.
view the Principles for financial market infrastructures-
Consultative report
Traders face rise in costs to clear deals
March 10, 2011--Traders of equities, bonds and derivatives face significantly higher costs under proposals by global regulators that would require the companies that process their deals to bolster their financial bases.
Traders would be required to post higher so-called margin payments to clearing houses.
Record inflows for hedge fund industry forecast in 2011
March 10, 2011--Hedge funds will attract record inflows this year, estimated at $210bn, with smaller managers seeing growing interest from investors, according to a survey by Deutsche Bank.
Almost two-thirds (65 per cent) of the 528 respondents to the survey said they anticipated making allocations to hedge funds that had less than $1bn in assets.
BlackRock * New Report * ETF Landscape: Industry Highlights - February 2011
March 9, 2011-- Global ETF and ETP industry:
The global ETF industry had 2,557 ETFs with 5,802 listings and assets of US$1,367.4 Bn, from 140 providers on 48 exchanges around the world. This compares to 2,091 ETFs with 3,998 listings and assets of US$1,001.9 Bn from 115 providers on 40 exchanges, at the end of February 2010.
The global ETF and ETP industry combined, had 3,649 products with 7,583 listings, assets of US$1,542.7 Bn from 174 providers on 52 exchanges around the world. This compares to 2,721 products with 4,919 listings, assets of US$1,152.2 Bn from 139 providers on 43 exchanges, at the end of February 2010.
United States ETF industry:
The ETF industry in the United States had 919 ETFs and assets of US$929.1 Bn, from 28 providers on two exchanges. This compares to 807 ETFs and assets of US$678.6 Bn, from 28 providers on two exchanges at the end of February 2010.
US$7.5 Bn of net new assets went into United States listed ETFs/ETPs in February 2011. US$2.7 Bn net inflows went into equity ETFs/ETPs, of which US$4.2 Bn went into ETFs/ETPs tracking North American indices, while ETFs/ETPs tracking emerging market indices saw net outflows of US$5.3 Bn. Fixed income ETFs/ETPs saw net inflows of US$1.0 Bn, of which US$0.5 Bn went into high yield bond ETFs/ETPs while government bond ETFs/ETPs saw net outflows of US$0.1 Bn. Commodity ETFs/ETPs experienced net inflows of US$3.5 Bn, of which ETFs/ETPs providing exposure to agricultural commodities saw net inflows of US$1.5 Bn and US$0.8 Bn net inflows went into broad commodity exposure ETFs/ETPs in February 2011.
Of the US$4.2 Bn of net new assets in United States listed ETFs in February 2011, Vanguard gathered the largest net inflows with US$2.5 Bn, followed by iShares with US$1.2 Bn net inflows, while State Street Global Advisors saw US$1.6 Bn net outflows.
European ETF industry:
The European ETF industry had 1,116 ETFs with 3,884 listings and assets of US$299.1 Bn, from 40 providers on 23 exchanges. This compares to 901 ETFs with 2,490 listings and assets of US$220.1 Bn from 35 providers on 18 exchanges, at the end of February 2010.
US$2.1 Bn of net new assets went into European listed ETFs/ETPs in February 2011. US$0.6 Bn net inflows went into equity ETFs/ETPs, of which US$0.9 Bn went into ETFs/ETPs tracking North American indices while ETFs/ETPs tracking emerging market indices saw net outflows of US$0.7 Bn. Fixed income ETFs/ETPs saw net outflows of US$0.4 Bn, of which government bond ETFs/ETPs saw net outflows of US$1.0 Bn while US$0.4 Bn went into money market ETFs/ETPs. US$1.7 Bn net inflows went into commodity ETFs/ETPs, of which US$0.7 Bn went into ETFs/ETPs providing broad commodity exposure and US$0.5 Bn went into ETFs/ETPs providing energy exposure.
Of the US$1.3 Bn of net new assets in European listed ETFs in February 2011, iShares gathered the largest net inflows with US$1.0 Bn, followed by UBS Global Asset Management with US$0.5 Bn net inflows, while Lyxor Asset Management had the largest net outflows with US$1.0 Bn.
Asia Pacific (ex-Japan) ETF industry:
The Asia Pacific (ex-Japan) ETF industry had 217 ETFs with 324 listings and assets of US$54.0 Bn, from 62 providers on 13 exchanges. This compares to
138 ETFs with 226 listings and assets of US$38.4 Bn, from 49 providers on 13 exchanges, at the end of February 2010.
Japan ETF industry:
The Japanese ETF industry had 81 ETFs with 84 listings and assets of US$32.4 Bn, from seven providers on three exchanges. This compares to 70 ETFs with
73 listings and assets of US$24.1 Bn from six providers on two exchanges, at the end of February 2010. There are 178 ETFs which have filed notifications in Japan.
Latin America ETF industry:
The Latin American ETF industry had 26 ETFs, with 365 listings and assets of US$10.2 Bn, from four providers on three exchanges. This compares to 20 ETFs, with 223 listings and assets of US$9.3 Bn from three providers on three exchanges, at the end of February 2010.
Canada ETF industry:
The Canadian ETF industry had 169 ETFs and assets of US$40.3 Bn, from four providers on one exchange. This compares to 132 ETFs and assets of
US$29.7 Bn from four providers on one exchange, at the end of February 2010.
Crisis Management and Resolution: Early Lessons from the Financial Crisis
MArch 9, 2011--EXECUTIVE SUMMARY
This paper compares the policy choices in recent and past crises, explains why those choices varied, and assesses the current state of financial and operational restructuring and institutional reform.
While acknowledging the unique and global nature of the recent crisis and varying country circumstances, analysis suggests that the diagnosis and repair of financial institutions and overall
asset restructuring are much less advanced than they should be at this stage and that moral hazard
has increased.
Consequently, vulnerabilities in the global financial system remain considerable and continue to threaten the sustainability of the recovery. These conclusions point to a number of steps to finish the business of financial sector repair and reform.
Establishing the long-term viability of the financial system requires recognizing nonperforming assets at financial institutions and a deeper operational restructuring of debts of enterprises and households. Regarding the persistent weaknesses in bank balance sheets, in-depth diagnoses still need to be conducted, including through strict and transparent stress tests. When the diagnoses call for credible recapitalization plans or restructuring of liabilities, they should be carried out swiftly in ways that do not worsen sovereign debt burdens. Conditions in some countries require government interventions, including targeted programs to alleviate debt overhangs in the household and commercial real estate sectors.
view Crisis Management and Resolution: Early Lessons from the Financial Crisis
Determinants of Bank Credit in Emerging Market Economies -IMF Working Paper
March 9, 2011-Summary: We examine changes in bank credit across a wide range of emerging market economies during the last decade. The rich time-series and cross-section information allows us to draw broader lessons compared to many existing researches, which focus on a specific set of emerging market economies or on shorter time periods.
Our results show that domestic and foreign funding contribute positively and symmetrically to credit growth. The results also indicate that stronger economic growth leads to higher credit growth, and high inflation, while increasing nominal credit, is detrimental to real credit growth. We also find that loose monetary conditions, either domestic or global, result in more credit, and that the health of the banking sector also matters. Finally, we discuss some policy lessons.
view the IMF Working paper-Determinants of Bank Credit in Emerging Market Economies
DB Global ETF Research: Emerging Markets : A more selective approach in EMs is needed as DM prospects improve
March 8, 2011--The big migration
*During Q4'10, a substantial migration of assets back into developed markets equity benchmarked ETFs was the biggest story in the ETP market. A lot of this migration was funded by liquidating sovereign fixed income and gold positions, but the shift was also funded to some degree with outflows from diversified global EM indices.
*In the first three quarters of 2010, the ETF market in the US and Europe saw $27.1 billion of inflows into Emerging Market (EM) benchmarked equity ETFs, while Developed Market (DM) equity benchmarked ETFs registered just $11.5 billion. This trend was sharply reversed starting in the beginning of Q4’10, and DM ETFs regained the lost ground. To date (25/2/11), EM benchmarked ETFs received $6.2 billion, while DM benchmarked ETFs received an impressive $48.2 billion.
*Besides the EM/DM reallocations, within EM, ETF investment patterns also registered a distinct shift. Outflows from diversified EM indices, such as the mighty MSCI EM, do not necessarily translate to disenchantment from emerging markets in general. While the first two months of 2011 saw $10.1 billion of outflows from, primarily MSCI EM, global EM benchmarked ETFs, single country and region benchmarked ETFs registered net inflows. These intra-EM reallocations indicate that investors are taking more pointed positions, primarily at the single EM country level.
Emerging Markets remain a compelling story
*The growing importance of emerging markets (EMs) in the global economy is a secular trend which is underpinned by much-improved fundamentals and powerful long-term drivers such as demographics.
*Most of the major EM passed the severe test of the global crisis with flying colors i.e. either with no recession or with a rapid recovery, and without severe impact on domestic banking sectors, let alone full-blown crises.
*China, India, Brazil and Indonesia were among the most resilient countries in terms of growth. Others, like Russia and Korea, benefited from a strong external liquidity position (low external debt and a large stock of FX reserves) as well as enough fiscal space to implement effective stimulus measures. Turkey and Mexico weathered severe crisis-led recessions with prudent economic management and the advantage of a solid banking sector.
Inflation and geopolitical risks blur the EM short-term outlook
*EM resilience attracted large foreign capital inflows (also pushed by abundant global liquidity) in 2010. Part of those inflows found their way into domestic liquidity, leading to inflationary pressures. The sharp food price increases in H2’10 compounded that effect, resulting in rising inflation in most EMs and particularly in Asia.
*In January 2011, political risks in North Africa increased sharply due to the sudden toppling by popular revolt of decade-long autocratic regimes in Tunisia and Egypt, and – at the time of writing – the descent into chaos of Libya. This reminded investors that political risks are a defining characteristic of EMs in comparison with developed markets.
A more selective approach to EMs
*Changes in the global economic environment as well as inflation and commodity price expectations, are just some of the fundamentals that are causing EM countries to diverge. For example, Brazil had a very good run over the past couple of years but it is now trying to combat economic overheating. At the same time Mexico suffered in the shadow of the US in the global credit but may now benefit from the US rebound.
*On region level, Asia seems to have the front line in terms of investors' preference. At country level, China has been experiencing heavy outflows, while all other Asia EM countries have been registering inflows.
*Frontier market investing is picking up, as more ETF products are coming to the market making it possible for investors to enforce their views on a more granular level. In addition, investors recognize there is value in EMs but given the increasingly closer equity market volatility profile of BRIC countries – as compared to DMs – they are looking at smaller/newer EMs to fulfill higher return expectations.
*The recent events in a number of Middle East / North Africa countries have only helped to show how variables which are taken for granted in developed markets, such as political stability, can change very quickly. These can trickle down to changing expectations, not just in terms of a country per se, but often in terms of commodity prices.
Commodities can both help and hinder EM growth
*Commodities play a significant role in the economic outlook of emerging markets. Currently, commodity-producing countries like Russia, Brazil, South Africa, Saudi Arabia, among many others, are benefitting from increased demand and rising prices. The medium-term effect of commodities’ wealth on exporting countries, however, varies widely, and depends on how revenues are managed. Some countries have typically saved proceeds and subsequently invested them in an equitable way to generate growth in the economy. Others have rapidly spent revenues and suffered from the so-called “Dutch Disease” by which non-commodity exports are hampered by a strong currency.
*Yet another group of countries – commodity importers, such as China, India, Turkey – is currently being negatively affected by rising oil and other commodity prices, which translates into higher inflation, higher fiscal deficits and lower trade surpluses (or higher deficits).
*At the moment, there are two commodity segments which seem to be receiving attention from ETP investors and whose fortunes could end up having a significant impact on growth prospects for a number of EM markets: energy [oil and by-products] and agriculture [on the back of pricing].
To request a copy of the report
ESG focus shifting to 'other asset classes' – AXA IM
March 8, 2011-- In the environmental, social and corporate governance (ESG) space, the focus is shifting to other asset classes and public policy, according to Matt Christensen, Eurosif's outgoing executive director who has been appointed head of responsible investment at AXA Investment Managers (AXA IM).
"Innovative thinking in the ESG space will probably evolve around fixed income, which is set to become a growth area, as well as alternatives," he told IPE.