Emerging Markets Has Liquidity Bottomed?

by Michael J. Howell10. July 2014 16:25

The CrossBorder Capital index of Total EM Liquidity appears to have bottomed according to latest June 2014 data. The CBC index is a broad measure of money flowing into EM financial markets and leads business activity and asset prices. This is good news for investors in EM shares and should help to stabilise and refresh EM economies over the next year. The CBC EM Liquidity index hit 24.1 in June or up from 20.4 in May (‘normal’ range 0-100). Admittedly, it remains depressed, but it is finally climbing after 2-3 years in the doldrums. Weak liquidity has been the key reason why EM shares have underperformed for so long. More liquidity may now allow EM markets to ‘catch-up’.

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GLI Latest

by Michael J. Howell10. July 2014 16:22
The Global Liquidity Indexes (GLI) measure broad monetary flows through World financial markets. They are leading indicators of future asset prices and economic activity. Our 80 country GLI aggregate inched down in June 2014 to an index of 47.8 ('normal' range 0-100) from 48.3 in May. The GLI can be broken down into an Emerging Market (EM) component, which is low but managed to rise to an index of 24.1 last month and a Developed Market (DM) component, which still stands at high index levels of 65.4. The DM index dipped a tad last month but is largely unchanged since end-2013, whereas the EM index gained 3.7 points from May and is 7.8 points up over six months.

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Global Liquidity Update

BoJ Blasts

by Michael J. Howell24. June 2014 16:11
Latest weekly data from Tokyo shows that the Bank of Japan significantly upped its net liquidity provision to Y153 trillion from Y136 trillion, and compared to only Y108 trillion four months ago. The BoJ's effective balance sheet is now expanding again at a 70% annualised clip over the past 3 months. Yen down...stocks up?

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Emerging Market Liquidity (EM GLI) June 2014 Update

by Michael J. Howell13. June 2014 16:44
There are finally signs that Emerging Market liquidity is bottoming out. According to our latest GLI data, end-May 2014 saw a rise in the EM liquidity aggregate to 22.7 (‘normal’ range 0-100) from 18.5. EM liquidity is still well-below its trend, but at least it is not deteriorating as rapidly. End-May data show a strong rise in Central Bank liquidity to an index 46.5 from 39.6, helped by recent currency strength which has given policy-makers more scope to monetize inflows. Admittedly, EM private sector liquidity at 17.9 continues to look weak.

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Emerging Market Liquidity (EM GLI) June 2014 Update

by Michael J. Howell13. June 2014 16:44
There are finally signs that Emerging Market liquidity is bottoming out. According to our latest GLI data, end-May 2014 saw a rise in the EM liquidity aggregate to 22.7 (‘normal’ range 0-100) from 18.5. EM liquidity is still well-below its trend, but at least it is not deteriorating as rapidly. End-May data show a strong rise in Central Bank liquidity to an index 46.5 from 39.6, helped by recent currency strength which has given policy-makers more scope to monetize inflows. Admittedly, EM private sector liquidity at 17.9 continues to look weak.

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Global Liquidity Index (GLI) June 2014 Update

by Michael J. Howell13. June 2014 16:40
The Global Liquidity Cycle fell again to end-May 2014 to a below-par index value of 47.0 (‘normal’ range 0- 100), according to our monthly GLI (Global Liquidity Indexes). These indexes comprise all Central Bank interventions, all cross-border financial capital flows and all private sector liquidity creation, including shadow banks and corporate cash inflows, across some 80 economies Worldwide. This is now the second consecutive month of below-average World liquidity. Liquidity is a leading indicator that points to heightened tensions in financial markets and real economies 6-12 months ahead. The GLI has fallen noticeably since late-2013.

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New Report: Running Out of Dollars?

by Michael J. Howell3. June 2014 20:37
US Tapering, Chinese Tightening and Japanese and European 'Torporing' are squeezing Global Liquidity. On top, the narrowing US foreign deficit is shutting off even this depleted flow from moving overseas. We argue that liquidity risks are rising, possibly magnified by shadow banks, and certainly reflected in collapsing bond risk premia this year. Bottom line, a strong dollar means less Global Liqudiity and greater market risks.

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Emerging Markets Liquidity/ Capital Flows May 2014 Data Release

by Michael J. Howell15. May 2014 21:34
Emerging Market Liquidity remains weak according to our latest GLI data. End-April saw aggregate EM liquidity fall to an index score of 18.5 from 22.9 in March (‘normal’ range 0-100). EM liquidity is therefore below its trend and decelerating. Notably, Chinese liquidity slumped to an index value of 28.7. Typically, this is an unattractive investment environment and foreshadows an upcoming period of economic weakness.

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The Drain from Ukraine!

by Michael J. Howell13. May 2014 23:17
Russia's finances are looking grim. Our latest capital flow data shows that a net US$80 billion has left Russia over the last 12 months, with US$120 billion at annualised rate exiting last month alone. The net result is that our measures of Russian internal liquidity measures have halved in recent months to an index score of 28.4 ('normal' range 0-100) at end-April. The exiting cash has seemingly avoided the US dollar, possibly for fear of tougher US sanctions on Russian money, and instead piled into the Euro and sterling. This may make a Eurozone rate cut next month more certain, and it has catapulted capital inflows into the UK higher. On our CBC indexes, these now stand at 80, ('normal' range 0-100). For the brave, Russian assets must be a long-term buy. For the faint-hearted, stick with high-end London real estate!

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Japanese Liquidity....Bad Signs!

by Michael J. Howell13. May 2014 17:19
According to our latest GLI index data, Japanese Liquidity has definitively weakened (64.8, or down from 91.1 last September, 'normal' range 0-100) over the past six months, led downwards by falling private sector cash flows (76.8 to 37.2 over same period). This may explain the weakness in Japanese equities. The implication is that either Abenomics is not working, or China’s economic slowdown is imparting a negative drag. This requires the BoJ to renew its easing and push the Yen lower.

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