the least worst choice
A record $18 billion has been deposited into emerging market debt funds in the last 6 weeks, according to a 16 August Financial Times report, which quotes data from Bank of America Merrill Lynch and EPFR (an agency which tracks fund flows to emerging markets). The impact of this is there to see across emerging-economy bond markets, where yields have fallen to multi-year lows.
#NIRPREFUGEES is among the latest hashtags to be doing the rounds on micro blogging site Twitter. The term perfectly explains what has been happening in global markets for some time now—investors abandoning countries that are following or approaching negative interest rate policies (NIRP), in search of higher-yielding assets across emerging markets. Hence the hashtag #NIRPREFUGEES. From bonds to equities, investors are rushing across markets and borders to grab higher-risk but higher-yielding assets before their neighbours do.
A record $18 billion has been deposited into emerging market debt funds in the last 6 weeks, according to a 16 August Financial Times report, which quotes data from Bank of America Merrill Lynch and EPFR (an agency which tracks fund flows to emerging markets). The impact of this is there to see across emerging-economy bond markets, where yields have fallen to multi-year lows.
#NIRPREFUGEES is among the latest hashtags to be doing the rounds on micro blogging site Twitter. The term perfectly explains what has been happening in global markets for some time now—investors abandoning countries that are following or approaching negative interest rate policies (NIRP), in search of higher-yielding assets across emerging markets. Hence the hashtag #NIRPREFUGEES. From bonds to equities, investors are rushing across markets and borders to grab higher-risk but higher-yielding assets before their neighbours do.
While this has been happening for some time now, the numbers are starting to tell the extent to which this is happening.
A record $18 billion has been deposited into emerging market debt funds in the last 6 weeks, according to a 16 August Financial Times report, which quotes data from Bank of America Merrill Lynch and EPFR (an agency which tracks fund flows to emerging markets). The impact of this is there to see across emerging-economy bond markets, where yields have fallen to multi-year lows.
While India has seen its benchmark yield fall by 38 basis points since 24 June (when the Brexit vote sparked a global bond rally), others like Indonesia (10-year yield down 77 basis points) and South Africa (10-year yield down 67 basis points) have seen even steeper falls. In many of these markets, bond yields are trading at the lowest levels in years. For instance, the Indian benchmark 10-year bond is trading at the lowest levels since 2009, despite some recent moderation in the pace of the rally. Likewise, in China the 10-year bond yield is trading near the best levels in 7 years. One basis point is one-hundredth of a percentage point.
What started as a strong gush of money in emerging market bonds, soon found its way into equities as well. This is natural because in a number of these economies, lower yields tend to benefit market leaders like banks while also bringing some strength to emerging-market currencies. The latest edition of the Bank of America-Merrill Lynch fund manager survey shows that fund managers have cut back on the record levels of cash that they were sitting on till last month, to buy into emerging-market equities. According to a 17 August Reuters report, the allocation to emerging-market stocks rose to a net 13% overweight—the highest since September 2014. This was up from 10% last month.
The result has been a strong rally across emerging-market equities. The MSCI Emerging Market index is now up nearly 9% since 24 June, compared to the 2.4% gain seen across the MSCI World Index.
Emerging-market currencies have followed a similar direction with the South African rand, the Korean won and the Brazilian real gaining between 4% and 7%. India, where the central bank has kept the currency on a tight leash, is an exception and has seen an under 1% appreciation since late June.
Comments