Capital Flows to EM 2013

by Michael J. Howell23. January 2014 13:44
2013 saw another net outflow of money from EM Financal assets. We reckon around US$31 billion left EM stocks, bonds and credit markets last year. This compares to a net outflow of US$166 billion in 2012 and a net outflow of US$21 billion in 2011. For the record 2009 and 2010 were big positive years for EM seeing nearly US$600 billion flow in. We may be near the bottom in some EM markets. However, our overall EM risk appetite index at minus 6 stands well-above its minus 40 index lows, but admittedly still below the normal plus 40'ish peaks. In short, we should still wait a little before venturing back.

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by Michael J. Howell11. November 2013 19:48
It's happening again. Key EM forex markets are weakening again in November. Indeed, we fear they should. Our data collection shows that private sector liquidity aka 'good money' flows into EM are weak, and far below equivalent data for the West. These poor fundamentals point to further EM forex losses and investors should note that every EM crisis is first-and-foremost a currency crisis. See our latest EM monthly for details.

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Latest GLI (Global Liquidity Index)

by Michael J. Howell14. October 2013 22:00
Global Liquidity is a measure of World capital flows and a barometer of upcoming risk. It remains elevated and still generally supportive of asset markets, but the high 60.0 index (0-100 'normal') reading of our GLI (Global Liquidity Index) at end-September 2013 hides two important facts. First, the developed markets (70.8) enjoy much stronger liquidity conditions than Emerging Markets (16.0). Second, private sector liquidity (78.1) remains well in excess of Central Bank liquidity (37.4). These observations are important because they are not only almost opposite to the consensus view, but they seem to be driving markets. Most investors believe that Emerging Markets enjoy structurally strong private sector or 'good' money flows while Developed economies are largely being supported by cyclical Central Bank QE or 'bad' money flows: the reality is that the opposite is true. ['Bad' here refers to the negative effect on currencies]. This 'Quality Theory of Money' lies at the heart of our regular capital flow analysis and it explains why the gold price and EM currencies are simultaneous fragile.

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Emerging Markets??

by Michael J. Howell21. June 2013 07:48
Emerging Marets are in the eye of the storm. This not a surprise but it is important to understand why, not least because investors currently have relatively low exposure. Our long standing mantra is that every EM crisis is first-and-foremost a currency crisis. EM have suffered this year from a lack of capital inflow. Tensions have been worsened by a tight Chinese monetary stance that shows few signs of abating, and the collapse in the Yen. Traditionally (pre-mid 1990s) the Yen was the key driven of the Asian business cycle. This troubling backdrop has forced EM policy-makers to tighten their own policies to protect currencies, but in the process they are causing significant domestic economic slowdowns, that in turn add further downward pressure on currencies. Viz Turkey and Brazil. Liquidity levels on our indexes are very low, circa 35 index level (0-100 'normal' range). They need to jump before we recommend returning. This probable influx of Central Bank cash will further weaken EM currencies and trouble EM bonds, and the sell-off in EM credits may spread out into Eurozone credit markets which also look highly exposed. The second half year 2013 looks a better time to re-enter EM assuming currencies have adjusted, since by then there should be strong signs of cyclical rebound in the US and Japan.

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New Global View Published "The End of Emerging Markets???"

by Michael J. Howell4. April 2013 18:28
Special report looks at the three important headwinds facing EM in 2013-14 - (1) China (2) Japan and (3) the US. Does this explain the loss of momentum in EM capital inflows and the tailing-off in domestic monetization?

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Poor News....Capital Flows to EM

by Michael J. Howell27. March 2013 11:36

Latest End-February data on net capital flows to EM do not make great reading. The late-2012 rally in net inward funds has died out. Both Jan and Feb saw net out flows totalling US$0.5 trillion at an annualised rate. Excluding the BRICs, other EM managed a small US$0.1 trillion annualised net inflow. China looks bad. We have had 10 of the last 12 months showing large net outflows. The only brigt spots are India where inflows continue strongly, Indonesia, Czech, Poland, South Africa and Turkey. Capital inflows are important for monetary conditions since they often lead EM Central Bank policy actions. As we have warned, the strong US dollar is starting to weigh heavily.

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Emerging Market Strategy March 2013 Published

by Michael J. Howell7. March 2013 14:31

Latest Report 'The Waiting Game' has been published. Main point is sign of rebounding EM liquidity vs. threat from stronger US dollar. Contact us for more information

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More Money For EM...Again

by Michael J. Howell19. December 2012 23:40
Turkey, Thailand, India, Hong Kong and Russia top list of net financial inflows for month of November 2012. Money coming back into Emerging Markets again. Pace of outflows from Brazil slowing significantly.

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EM Another Bullish Sign?

by Michael J. Howell12. December 2012 20:29

EM markets have out-performed on cue since the announcement of QE3. We maintain our view that 2013 will prove another good year, underpinned by the latest Fed announcement and by the visible pick-up in our indicators of EM Central Bank Liquidity. EM Central Banks remain 'tight' on our measures, but these indexes are definitively turning higher. Chinese PBoC liquidity injections have risen moderately but consistently every month since May 2012, and our index of EM Central Bank Liquidity stands at its highest level for a year and more than double its low point value. This is consistent with the monetization of renewed capital inflows: a feature consistent with QE3. Bottom line is that EM equities are highly pro-cyclical. With the Workd economy near a turning point in 2013 and policy-makers focussed on getting more growth not less inflation, EM will outperform.

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Christmas Turkey!

by Michael J. Howell5. December 2012 12:57

Our latest monthly capital flow data show that Turkey is currently enjoying the greatest pace of foreign money inflow of any economy on out database. It confirms the general picture noted some weeks ago of returning investor interest in EM.

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