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Newly Released Data Reveal Drop in Capital Flows to Developing Countries in 2009
December 16, 2010--Net global capital flows to developing countries fell 20 percent in 2009 to $598 billion (3.7 percent of gross national income [GNI]), from $744 billion in 2008 (4.5 percent of GNI) and were a little over half the 2007 peak of $1.11 trillion.* This according to a new comprehensive dataset launched by the World Bank today on international capital flows titled “Global Development Finance 2011: External Debt of Developing Countries,” which reveals the impact of the financial crisis on 128 developing countries.
Global private flows (debt and equity) declined by 27 percent in 2009 despite a rebound in bond issuance, portfolio equity flows, and (mostly trade-related) short-term debt flows. Foreign direct investment (FDI) inflows across the globe fell 40 percent, to $354 billion - their sharpest drop in 20 years. All the largest recipients of FDI saw net inflow declines in 2009. Net debt flows from private creditors dropped by 70 percent from $182 billion in 2008 to $59 billion the following year, driven by the collapse in medium-term commercial bank lending to public and private borrowers.**
Reflecting increased support to developing countries during the crisis, net capital inflows (loans and grants) from official creditors increased by 50 percent to $171 billion in 2009.*** This was driven by a sharp rise in gross disbursements on new loans extended by the international financial institutions. These rose to $98 billion (from $61 billion in 2008) in calendar year 2009, of which $31 billion came from IBRD and IDA, the highest in the history of these institutions.
In comparison to other regions, Europe and Central Asia has been most severely affected by the global economic crisis. Combined debt and equity flows plummeted 66 percent in 2009 from $411 billion in 2007 (15.8 percent of GNI) to $90 billion (3.6 percent of GNI).
The East Asia and Pacific region recorded a moderate 4 percent rise in net capital flows from 2008 to $191 billion in 2009, although they remained constant in terms of share of GNI (3.1 percent).
The Latin America and the Caribbean region saw net capital flows continue their downward trajectory in 2009. They fell by 6 percent in 2009 to $167 billion but remained at the same level as 2008 in relation to GNI, 4.3 percent.
The Middle East and North Africa region recorded the sharpest rise among all regions for net capital inflows in 2009. Capital inflows rose 33 percent to $28 billion, driven by new official and private borrowing.
South Asia also saw net capital flows increase sharply in 2009. Capital flows were up from the previous year by 26 percent to $78 billion, primarily because of a remarkable $37 billion turnaround in portfolio equity flows.
The Sub-Saharan Africa region received the highest net capital inflows of any region in 2009 in relation to GNI, 5.2 percent. Net capital flows rose 16 percent to $45 billion, driven by a resurgence of portfolio equity inflows and a doubling of net debt inflows from official creditors.
view the Global Development Finance 2011: External Debt of Developing Countries
Results of the FTSE SET Index Series Semi-Annual Review
FTSE SET Large Cap constituents will remain unchanged-13 additions to the FTSE SET Shariah Index-4 additions to the FTSE SET Mid-Cap Index
December 15, 2010--FTSE Group (“FTSE”), the award-winning global index provider, and the Stock Exchange of Thailand (“SET”) have announced that there is no change to the FTSE SET Large Cap Index following the semi-annual review concluded by the FTSE SET Advisory Committee today.
Several other indices were also reviewed with 13 additions to the FTSE SET Shariah Index and 4 additions to the FTSE SET Mid-Cap Index.
Protiviti Financial Services Regulatory Reform Survey
Survey highlights concerns of U.K. and U.S. executives over costs and benefits of regulatory reform initiatives
December 14, 2010--In the third quarter of 2010, Protiviti conducted a survey on regulatory reform and its impact on financial services companies in the United Kingdom and United States. Respondents, who
included chief executive officers, chief financial officers, chief operating officers, heads of
compliance and other financial industry executives, were asked in a series of questions to assess the effects of regulatory reform initiatives in their home countries and globally, specifically looking at the effectiveness of reforms in preventing another crisis, compliance costs
and international coordination. This is the first in a planned series of surveys from Protiviti focusing on financial reform issues.
Following is a summary of the results along with additional commentary from Protiviti.
Regulatory Reforms Will Not Prevent Future Crises, but May Moderate Some of Their Effects
All survey participants were asked which country – the United Kingdom or United States – has taken more effective measures to address regulatory reform. Interestingly, 42 percent reported that neither has taken effective measures, while only 13 percent said that both countries have. Of note, there appears to be a higher level of reform “buy-in” in the United Kingdom, as 45 percent of U.K. respondents believe their country has implemented more effective measures. By contrast, just 21 percent of U.S. respondents said regulatory reform measures in the United States are more effective.
Estimating a Structural Model of Herd Behavior in Financial Markets-IMF Working paper
December 13, 2010-- We develop a new methodology to estimate the importance of herd behavior in financial markets: we build a structural model of informational herding that can be estimated with financial transaction data. In the model, rational herding arises because of information-event uncertainty. We estimate the model using data on a NYSE stock (Ashland Inc.) during 1995.
Herding often arises and is particularly pervasive on some days. The proportion of herd buyers (sellers) is 2 percent (4 percent) and is greater than 10 percent in 7 percent (11 percent) of information-event days. Herding causes important informational inefficiencies, amounting, on average, to 4 percent of the expected asset value.
view the Estimating a Structural Model of Herd Behavior in Financial Markets paper
OECD composite leading indicators point to stable pace of expansion
December 13, 2010--OECD composite leading indicators (CLIs), designed to anticipate turning points in economic activity, suggest a stabilisation in the pace of expansion across the OECD.
Similar to last month’s assessment, growth prospects vary across major economies. But tentative signs of convergence in economic cycles are appearing in many countries. The October 2010 CLIs for the United States and China, and to a lesser extent France, show signs of improvement compared to last month, while the CLIs for Germany and Japan show moderation towards a stable pace of expansion. The CLI also continues to point to expansion in Russia.
Downturn signals are still evident for Canada, Italy and India, while Brazil remains in a slowdown phase.
The OECD Development Centre’s Asian Business Cycle Indicators (ABCIs) suggest that the strong recovery seen in ASEAN economies in the first half of 2010 is gradually losing momentum.
DTCC Launches New OTC Equities Derivatives Automated Cash Flow Matching and Netting Service
December 13, 2010--The Depository Trust & Clearing Corporation (DTCC) announced today that it has launched a new automated, global over-the-counter (OTC) equity derivatives cash flow matching and netting service (CFM), with all of the 14 major dealers (G14) live on the platform.
"In an environment where risk mitigation is paramount, the OTC derivatives community has placed great priority in promoting improved certainty in the market," said Lawrence Waller, Managing Director, J.P. Morgan. “The new automated cash flow matching and netting process for OTC Equity Derivatives facilitates seamless and timely settlement. J.P. Morgan is pleased to be working with the DTCC and our peers to bring such global solutions to market."
The creation and use of the CFM system was part of a commitment the G14 made to global regulators in their March 1, 2010 letter to the US Federal Reserve to strengthen the operational infrastructure of the OTC derivatives market. DTCC’s Deriv/SERV subsidiary was selected as the vendor and launched the service in collaboration with major market participants upon being selected by the industry following a RFP (Request for Proposal) process managed by the International Swaps and Derivatives Association (ISDA®) The CFM system is the first of its kind in the OTC equity derivatives space. The initial service supports various equity derivative products, such as vanilla options and swaps traded between the G14 dealers.
BlackRock New Report * ETF Landscape Industry Highlights, End of November 2010
December 10, 2010--The ETF Landscape industry highlights, as at end November 2010, are as follows:
Global ETF and ETP industry:
The global ETF industry had 2,422 ETFs with 5,413 listings and assets of US$1,231.0 Bn, from 133 providers on 46 exchanges around the world.
The global ETF and ETP industry combined had 3,461 products with 7,160 listings and assets of US$1,392.4 Bn, from 165 providers on 50 exchanges around the world.
United States ETF industry:
The United States ETF industry had 893 ETFs and assets of US$838.7 Bn, from 28 providers on two exchanges.
US$11.0 Bn of net new assets went into United States listed ETFs/ETPs in November 2010
US$9.1 Bn net inflows into equity ETFs/ETPs, of which US$6.4 Bn went into ETFs/ETPs tracking North American indices and US$2.1 Bn into ETFs/ETPs tracking emerging markets indices. Fixed income ETFs/ETPs saw net outflows of US$0.3 Bn, where government bond ETFs/ETPs saw net outflows of US$0.5 Bn, while active fixed income ETFs/ETPs saw net inflows of US$0.4 Bn. Commodity ETFs/ETPs experienced US$2.5 Bn net inflows, of which precious metals ETFs/ETPs saw net inflows of US$1.2 Bn, and US$0.5 Bn went into broad commodity ETFs/ETPs, in November 2010.
Of the US$9.5 Bn of net new assets in United States listed ETFs in November 2010, Vanguard gathered the largest net inflows with US$6.8 Bn, followed by Van Eck Associates Corp with US$0.7 Bn net inflows, while PowerShares saw US$0.4 Bn net outflows in November 2010.
European ETF industry:
The European ETF industry had 1,052 ETFs with 3,577 listings and assets of US$261.8 Bn, from 38 providers on 22 exchanges.
US$3.0 Bn of net new assets went into European listed ETFs/ETPs in November 2010. US$2.6 Bn net inflows into equity ETFs/ETPs, of which US$1.0 Bn went into ETFs/ETPs tracking emerging markets indices and US$0.7 Bn into ETFs/ETPs tracking Asia Pacific indices. Fixed income ETFs/ETPs saw net outflows of US$0.5 Bn, where government bond ETFs/ETPs saw net outflows of US$0.4 Bn, while US$0.1 Bn went into high yield ETFs/ETPs. Commodity ETFs/ETPs saw net inflows of US$0.7 Bn, of which US$0.5 Bn went into precious metals exposure and US$0.3 Bn into broad commodity exposure.
Of the US$2.4 Bn of net new assets in European listed ETFs in November 2010, iShares gathered the largest net inflows with US$1.6 Bn, followed by Lyxor Asset Management with US$1.0 Bn net inflows, while Source Markets had the largest net outflows with US$1.6 Bn.
Asia Pacific (ex-Japan) ETF industry:
The Asia Pacific (ex-Japan) ETF industry had 191 ETFs with 297 listings and assets of US$52.5 Bn, from 58 providers on 13 exchanges.
Japan ETF industry:
The Japanese ETF Industry had 78 ETFs with 81 listings and assets of US$30.0 Bn, from six providers on two exchanges.
Latin America ETF industry:
The Latin American ETF industry had 26 ETFs with 355 listings and assets of US$10.3 Bn, from four providers on three exchanges.
Canada ETF industry:
The Canadian ETF industry had 153 ETFs and assets of US$35.6 Bn, from four providers on one exchange.
CESR publishes its supplementary report related to developments of certain third country GAAPs with regard to their equivalence under the Transparency Directive and the Prospectus Regulation
December 10, 2010--This report and its cover letter can be found in the section Standing Committees/Corporate Reporting.
view cover letter
Next-Generation Algorithms: High Frequency for Long Only
December 9, 2010--Executive Summary
As the pace of the market and its participants quickens, finding liquidity will become even more of a challenge. The buy side continues to struggle in routing orders, accessing hidden order flow and extracting maximum liquidity at minimum cost from the public markets.
Unfortunately, traditional algorithms only offer solutions to some of these problems. Indeed, slicing and dicing large orders into small pieces, using SOR technology to seek out liquidity across venues and using limit orders to hide intent are all valuable mechanisms for actively managing orders. However, the level of sophistication required to trade in today’s market has grown tremendously.
This is not a challenge that the buy side should shirk from but rather embrace. The key to navigating today’s market lies in utilizing lessons learned from high frequency trading. More specifically, the buy side should be mimicking their approach to measuring and minimizing transaction costs, technology infrastructure and reacting to risk limits. A new breed of algorithms are entering the market that utilize this very approach. These algorithms are adopting the techniques of trading outfits who look to profit from the market microstructure rather than treat it as an automatic loss. With the arrival of this practice, the execution landscape is now becoming a level playing field rather than a minefield for long only institutions.
In the past, the buy side may have felt they suffered from an unfair advantage.
New MIGA Report: FDI into Developing Countries Expected to Increase by 17 Percent in 2010
December 9, 2010-- Investors are optimistic about prospects for a global economic recovery led by the developing world, notes a report launched today by the World Bank’s Multilateral Investment Guarantee Agency (MIGA) at a Financial Times Summit in London. The report, World Investment and Political Risk, says that foreign direct investment flows (FDI) into developing countries are projected to increase by 17 percent in 2010. Investors from the extractive industries, as well as those based in developing countries, are particularly bullish in their investment intentions. This finding represents the business world’s confirmation of economists’ projections: FDI is expected to recover over the next couple of years, having declined sharply by 40 percent last year.
“This upsurge in FDI into developing countries is welcome news, especially considering last year’s drop,” said MIGA Executive Vice President Izumi Kobayashi. “FDI flows directed to productive assets can spur economic growth and reduce poverty.”
For the second year running, MIGA surveyed multinational executives and found that their top worry when operating in developing countries over the next three years is political risk. Political risk tops business concerns such as market size, lack of finance, and quality of infrastructure. About a fifth of the investors surveyed use political risk insurance to mitigate this risk.
This year’s report also focuses on FDI into conflict-affected and fragile economies, where investors are primarily concerned about adverse government intervention (for example changes in regulations, breach of contract, non-honoring of sovereign guarantees, currency restrictions, and expropriation) rather than overt political violence. In fact, adverse changes in regulations not only rank first among investors’ concerns in conflict-affected and fragile economies, but also are most often responsible for losses in these destinations.