Financial markets
Rescuing the rescuers
Having saved the banks, governments now find themselves under the wary eye of the markets
May 27th 2010 | From The Economist print edition
IF BULLISH investors had been given two Christmas wishes at the end of 2009, they probably would have asked for booming profits and a continuation of ultra-low interest rates. Their wishes have been granted. According to Morgan Stanley, the first-quarter profits of companies in the S&P 500 have been more than 12% better than expected. Meanwhile, few expect the Federal Reserve, the European Central Bank (ECB) or the Bank of England to raise rates this year. Some think rates will stay where they are in 2011, too.
So why is the MSCI World index of global equities down by more than 10% this year, with emerging markets showing double-digit losses and European bourses shedding more than 20% in dollar terms? On May 25th the FTSE 100 index closed below 5,000 for the first time since last October. The next day the Dow Jones Industrial Average closed below 10,000 for the first time since February.
This latest setback may simply be a reaction to the phenomenal rally that has taken place since March 2009. Back then, fears of a second Depression were widespread. As confidence returned, the S&P 500 index jumped by 80% to its most recent high in late April. Eventually, all the good news was priced in and there were signs of complacency: in early May a survey by Investors Intelligence, a research firm, found that three times as many American financial advisers were bulls (54%) as were bears (18%).
May has seen the re-emergence of a number of worries that had been beneath the surface. The latest is geopolitical risk, in the specific form of rising tension in the Korean peninsula. Reports that Kim Jong Il, the North Korean dictator, had placed his forces on a war footing caused Asian markets to fall sharply on May 25th. The erratic actions of North Korea, a country with too many weapons and not enough food, are akin to Middle East politics: a wild card that can occasionally upset investors.
However, investors' biggest financial concern is sovereign debt, notably that of some southern European countries. In recent weeks the European Union has been forced both to rescue Greece and to unveil a general bail-out package, worth up to €750 billion ($920 billion) including a contribution from the IMF, for struggling countries. Investors seem to be in two minds on sovereign debt. They worry that individual countries may default if they do not cut their deficits and that banks holding their debt will be clobbered. They think that Greece's debt crisis has been postponed rather than solved. But investors are also concerned that, if several governments try to tighten fiscal policy at once, the global economy will take a hit.
Europe is expected to experience sluggish growth in the medium term as it struggles with its debts. But in recent weeks worries have also emerged about growth in Asia and America. In Asia, the question is whether China's attempts to rein in its housing market will prompt a broader slowdown (see article). In America, momentum seems to have faded a little after a strong performance in the last quarter of 2009. Some data, such as initial jobless claims and the Conference Board leading indicator, have been disappointing.
All this has led to a sell-off of the "risk basket"—those assets that seem most correlated with global growth, such as the Australian dollar, copper and emerging-market equities (see chart 1). Oil has been another casualty, with crude prices falling by around 20% in May alone. This week the price of a barrel dipped below $70. Investors have headed away from risk, flocking into the bonds of what they deem the safest governments: German ten-year bond yields fell to 2.58% on May 25th, the lowest in recent memory, while the yields on ten-year American Treasury bonds dropped to close to 3%.
Blaming the markets
A further complication of the debt crisis is that governments have turned from trying to support financial markets to blaming them for the world's ills. Rather than accepting rising government-bond yields in southern Europe as a rational response to worsening public finances, politicians believe that troubled countries have been unfairly targeted by speculators. That seems to explain Germany's hastily imposed restrictions on short-selling of government bonds and on buying sovereign credit-default insurance without owning the underlying bond. In response to market criticism of the ban, Wolfgang Schäuble, Germany's finance minister, quipped: "If you want to drain a swamp, you don't ask the frogs for an objective assessment."
However, it seems unwise for European governments to start bashing the very people from whom they need to borrow hundreds of billions of euros. Investors do not need to sell bonds short—bet on a falling price—to cause governments trouble. All they need to do is to shun bonds in governments' frequent auctions (Germany, Italy and Portugal all held auctions on May 26th, for example). A failed auction would quickly cause bond yields to soar, increasing the cost of servicing those huge deficits.
The impression of erratic government policy has been bolstered by the tortured negotiations over America's finance-reform bill (see article) and Europe's Alternative Investment Fund Managers Directive. Taxes on banks and financial transactions are being discussed. Such measures may never be agreed on by the G7 or the G20, but given the financial industry's unpopularity, countries or regions may act on their own. On May 26th the European Commission proposed a levy on banks to pay for future failures. Mr Schäuble has said that the German government will seek a "European solution" to a transactions tax if the G20 cannot agree on one. Last autumn there was a sense that global governments were co-ordinating their actions; now they seem to be dashing off in different directions in an attempt to appease their voters.
Viewed politically, in fact, the recovery in profits that has given encouragement to the bulls has been a mixed blessing. With growth in the rich world sluggish, the corollary of the rise in profits has been a fall in the share of income going to labour, because of job losses and stagnant wages. To the ordinary voter, the picture seems perverse: the bankers and bosses who caused the crisis and were then bailed out by taxpayers are now reaping a disproportionate share of the rewards. Meanwhile, public services and public-sector pensions and wages face deep cuts—seemingly at the insistence of the same financial elite. No wonder voters are angry.
Watch the banks
Although falling stockmarkets may capture most headlines, a less obvious alarm signal is probably more unsettling. This is the sharp rise in the rate at which banks borrow and lend to each other, known as LIBOR (London Interbank Offered Rate). On May 26th three-month dollar LIBOR was 0.54%, its highest since last July (see chart 2). Although this is still a long way below the near-5% reached in 2008, the trend is worrying. It indicates that the health of the banking system is once more being called into question.
Indeed, much bigger rate moves are priced into the forward market. And Pavan Wadhwa, a strategist at JPMorgan, points out that Libor measures the funding cost for only 16 big banks; smaller banks have to pay a premium. The Eurodollar future that shows the cost of borrowing dollars for the average bank in the three months between September and December is already 1.1%. European banks, which seem desperate to get their hands on the American currency, have to pay a further half a percentage point, making their total cost 1.6%.
Central banks have tried to ease the pain. A swap deal between the Federal Reserve and the ECB, intended to last until January 2011, allows banks to borrow dollars for seven days at 1.25%. But the rise in Libor creates a number of potential difficulties. Mr Wadhwa points out that, as banks become more concerned about their own borrowing costs, they become more reluctant to lend. That was precisely what caused the interbank markets to freeze in 2008. Meanwhile, an increase in Libor squeezes the profits of even healthy banks, since they had been borrowing cheaply from the money markets and investing in higher-yield assets such as government bonds.
There is a strange symbiosis between governments and banks. It may have been governments that rescued banks in the autumn of 2008. But governments rely on banks to market and indeed to buy their debt. The one cannot survive without the other. A big reason why EU politicians raced to push through the €750 billion bail-out package was that a default by a southern European government would create a severe funding crisis for banks. Royal Bank of Scotland reckons that foreign banks own about €1 trillion of the sovereign debt of Greece, Portugal and Spain. There would be a risk of another crisis in the style of 2008, in which the markets would be uncertain which banks were most exposed to the defaulting assets, and would therefore apply a general boycott.
Spain has been in the spotlight in recent days. The government has had to rescue CajaSur, a small savings bank, and four other savings banks have chosen to join forces (see article). An IMF report on Spain, published on May 24th, gave warning that the risks for banks "remain elevated and unevenly distributed across institutions" and recommended consolidation "to reduce overcapacity and produce more robust institutions." The Spanish stockmarket is one of Europe's worst performers, having fallen by around a third, in dollar terms, since the start of 2010.
Andrew Smithers of Smithers & Co, a firm of consultants, points out another problem. If governments now strive to reduce their fiscal deficits (and contingent liabilities), this limits their ability to bail out the private sector, including banks. In addition, recent political discussions about financial reform have centred on the desire to avoid future bank bail-outs; Barack Obama has said as much. Markets may be taking politicians at their word.
These tensions illustrate a contradiction at the heart of the market's rally from the lows of March 2009. Governments and central banks have supported the recovery with huge fiscal deficits and near-zero interest rates. Yet the sheer scale of these measures should have given investors cause for concern, as they indicate how fearful the authorities had become.
At some point, if the economy recovers, the stimulus will have to be withdrawn, leaving the markets facing higher interest rates and tighter fiscal policy. And if the stimulus fails to work, market hopes of future profits growth (double-digit gains are expected in 2011 and 2012) would clearly be disappointed. Governments have shown they can support consumption in specific areas, such as the cash-for-clunkers subsidy in cars or the homebuyers' tax credit. But sales have fallen back quickly once the subsidies end.
Lacking strong demand at home, governments are tempted to let their currencies depreciate so that their exporters can grab a bigger share of the global market. The problem is that not all currencies can fall at once. Britain stole a march when the pound fell sharply in 2008. Now the euro is taking a battering, hitting a four-year low against the dollar. With China seemingly unwilling to let the yuan appreciate, the danger is that a series of beggar-thy-neighbour competitive depreciations create protectionist pressures. This is a particular danger in America, where congressional elections take place in November.
Governments ought also to consider the creditors' point of view. Deficit countries are all competing for the good opinion of global savers. Depreciation may help the domestic economy, but it inflicts a loss on foreign holders of local-currency government bonds. Rationally, investors should eventually respond by demanding higher yields to compensate for the currency risk. It seems rather surprising, for example, that Britain can still borrow for ten years at 3.5% when its central bank has been so relaxed about letting its currency depreciate and its budget deficit is among the highest in Europe.
In addition, government borrowing could crowd out the private sector. That may not be a problem at the moment, when companies and consumers are so reluctant to borrow. But it could become one if deficits do not fall substantially in the medium term, beyond a mere reflection of a cyclical improvement in the economy. "We've long held the view that risk assets could see crowding-out over the next few years as there is more and more Western government debt to finance," says Jim Reid, a strategist at Deutsche Bank. "It makes perfect sense that risk assets would trade at lower levels than they would do if governments had less [debt] to issue."
But the absence of crowding-out at the moment is hardly a matter for rejoicing. It simply indicates that the private sector is not yet ready to shoulder the burden of recovery from the public sector. Demand for credit remains low. Companies have issued just $47 billion of bonds so far in May. They are on course for the lowest monthly total since December 1999, according to Bloomberg. And earlier this month Volkswagen was forced to postpone a bond issue of nearly €700m, backed by Spanish car loans. Yields on corporate bonds have been rising again, discouraging companies from raising money. Broad-money supply was flat in the euro zone in the 12 months to the end of March. America's measure of broad money rose by only 1.6% in the year to April, and fell slightly in the second half of that period.
The bears come out of the woods
The latest market setback has given heart to those bearish commentators who were looking out of touch towards the end of last year. Albert Edwards of Société Générale has long believed in an "ice age" in which deflationary pressures drag down equity valuations, as they have in Japan over the past 20 years. He believes the recovery will be short-lived. "Renewed recession awaits," he says. With core measures of consumer-price inflation in both America and the euro area below 1%, "the icy tentacles of outright deflation are now just within reach."
Bears would also argue that shares do not look cheap. This may seem remarkable, given that profits are close to a 50-year high as a proportion of American GDP and the S&P 500 index is back at levels it first reached in March 1998. But chart 3, from a website updating "Irrational Exuberance", a book by Robert Shiller of Yale University, shows the best long-term valuation measure, the cyclically adjusted price-earnings ratio. On this indicator, which smooths profits over a ten-year period, shares are still trading at 20 times earnings, more than double the ratio of the 1930s or early 1980s. "These types of brutal downdraughts coupled with intense volatility are generally the hallmark of overvalued markets as we saw in 1990, 1998, 2000 and again in 2007," says David Rosenberg of Gluskin Sheff, a Canadian asset-management firm.
But the bulls will continue to take comfort from those low rates and booming profits. Company finances are improving. The default rate on speculative corporate bonds has been steadily declining; according to Standard & Poor's, only 7% of issuers defaulted in the past 12 months, down from almost 10% in the year to November. With companies still churning out cash and paying dividends, bulls say investors will eventually be tempted to put their money back into the stockmarket, especially given the tiny yields on cash. Some see good signs in the mad dash into Treasuries: American mortgage rates will drift lower, supporting the housing market.
When investors get a few days without bad political news, bulls argue, the markets will rebound. Ian Harnett of Absolute Strategy Research spies a buying opportunity in the turmoil, because the underlying economic situation is improving and the monetary authorities may provide further support, such as asset purchases by the ECB. A slowdown in Europe is not as important as it used to be, given Asia's strength. On May 26th the OECD raised its forecasts for global GDP growth to 4.6% for this year and 4.5% for 2011. That is largely because of optimism about China, India, Brazil and, to some extent, America; its predictions for euro-area growth rose only from 0.9% to 1.2% this year and from 1.7% to 1.8% next.
Markets are thus trying to make sense of a world in which political and regulatory risks are balanced by strong profits growth and low interest rates. No wonder they have been volatile. That is also the picture that emerges from the VIX, a measure of volatility that shows how much investors are prepared to pay to insure themselves against extreme market outcomes. After a long period of calm, the VIX has soared again (see chart 4). Investors are clearly expecting a bumpy ride.
Economic and financial indicators
May 27th 2010
From The Economist print edition
In America, an index of consumer confidence compiled by the Conference Board, a research firm, rose to 63.3 in May from 57.7 in April—the third increase in as many months.
Britain's GDP growth for the three months to the end of March was revised up by 0.1 percentage points to 0.3%, mainly because industrial production had expanded faster than first estimated.
Canada's inflation rate rose to 1.8% in April from the previous month's 1.4%. Its central bank targets an inflation rate of 2%.
In April, inflation also picked up in emerging economies in Asia. In Singapore it shot up to 3.2% from 1.6% a month earlier. Hong Kong's rate quickened to 2.4% from 2% in March. In Malaysia, consumer prices rose by 1.5% in the year to April, up from 1.3% in the year to March.
In Singapore, industrial output rose by a giddy 24.3% in April alone. The 12-month rate of increase leapt to 51%.
Thailand's economy grew at an annualised rate of 16% in the three months to the end of March.
In the Philippines, industrial production rose by 23.1% in the year to March, and GDP grew by 7.3% in the year to the end of the first quarter.
South Africa's GDP grew at an annualised rate of 4.6% in the first three months of this year.
GDP forecasts
May 27th 2010 | From The Economist print edition
The OECD has become more optimistic about the economic prospects of its mostly rich members. It reckons that their economies will grow by 2.7% this year, an increase of 0.8 percentage points from what it thought likely in November last year. Not surprisingly, Greece is the country whose prospects have darkened most dramatically. The think-tank now expects the Greek economy to contract by 3.7% this year, three percentage points worse than it had earlier predicted. The only other OECD economies that will shrink this year are Iceland and Ireland (not shown) and Spain. The euro area will grow much more slowly than America, Australia, Canada or Japan, each of which should see GDP rise by at least 3%.
Telecommunications
May 27th 2010 | From The Economist print edition
The International Telecommunication Union (ITU), an industry group, reckons that at the end of 2009 the world had two mobile-phone subscriptions for every three people. That does not mean that two-thirds of the world's population has a mobile phone: some people have more than one; in developing countries many people share; and unused SIM cards sometimes remain active. The rapid spread of mobile phones contrasts sharply with the decline of fixed-line phones. The number of landlines per 100 people peaked at 19.5 in 2006, and had fallen to 17.8 by the end of last year. As recently as 2002, less than a tenth of the world's population used the internet. According to the ITU, more than a quarter now do.
Brazil suggests IMF include yuan, real as conversion currencies
08:30, May 28, 2010
Brazilian Finance Minister Guido Mantega on Wednesday suggested the International Monetary Fund (IMF) include China's yuan and Brazil's real as conversion currencies for Special Drawing Rights (SDR) of the institution.
Mantega made the suggestion to IMF chief Dominique Strauss-Kahn, who was on a regular visit to the country.
"We believe that our currencies have already become important," Mantega said at a joint press conference after their meeting here.
Mantega said the suggestion was not meant to diminish the importance of the U.S. dollar but to increase resource options for the IMF.
Mantega also stressed the need to accelerate reform of the IMF to give more decision-making powers to developing countries.
"The emerging countries are under-represented in the Fund and the institution recognizes that," he said. "There is reform forecast for 2011, but we are trying to bring it forward to 2010. It is more than fair that countries adding resources to the IMF have their participation increased."
Strauss-Kahn said SDRs might have a major role in international reserves of the countries, although not in the short term.
He believed the dollar would remain the dominant currency, due to the size of the U.S. economy.
SDRs run between central banks and can be cashed with the endorsement of the IMF, but currently only four currencies can be converted: U.S. dollars, Japanese yen, British pounds and the euro.
Source:Xinhua
IMF official: SDRs could be used as crisis response
By Ana Nicolaci da Costa
BRASILIA (Reuters) - The International Monetary Fund could consider a new allocation of special drawing rights to help ease the euro zone debt crisis that has rattled global markets for months, an IMF director said on Thursday.
Special drawing rights are an international reserve asset created by the IMF that are used as a unit of payment on IMF loans and are made up of a basket of currencies.
Last year, the IMF transferred an allocation of $250 billion in special drawing rights to its 186 country members, in efforts to spur global liquidity amid the financial crisis -- tapping a resource that hadn't been used in 30 years. That is something the IMF could do again, said Paulo Nogueira Batista, who represents Brazil and eight other countries at the IMF board.
A fiscal crisis in the euro zone has shaken financial markets in recent weeks and there are fears that the fiscal austerity dictated by a $1 trillion rescue plan agreed by the European Union and the IMF could compromise an already hobbled recovery.
"One possibility is to propose a new allocation of SDR's," Batista told Reuters during a visit to Brasilia. "This would give an injection of international liquidity."
The IMF saw its international clout revived with the global financial crisis of 2008, as advanced economies scraped for funds to attenuate the worst slump in the global economy in decades.
The global financial crisis, which originated in the U.S. housing market, sparked a growing discussion among policy makers and academics that the world should no longer rely on a single, dominant currency, such as the dollar, as it has done since the end of the gold standard.
Nobel Prize-winning economist Joseph Stiglitz even called for a new global reserve system, saying the least ambitious option could be a system based on the SDR's.
The SDR is made up of a basket of euro, yen, sterling and dollars. Part of efforts to diversify global reserves could be done by broadening the currencies that make up the SDR basket, Nogueira said.
Brazil's finance minister, Guido Mantega, on Wednesday said he was proposing to the head of the IMF, Dominique Strauss-Kahn, that special drawing rights be convertible into the Chinese yuan and the Brazilian real.
"It is not inconceivable that the basket of currencies that make up the SDR be broadened to include currencies such as the Chinese yuan and the Brazilian real," Nogueira said.
Brazil's clout on the world stage has been growing, thanks to the country's economic prowess and President Luiz Inacio Lula da Silva's diplomatic efforts.
As part of efforts to project itself as a global player, Brazil has sought more representation in international institutions like the IMF, but Nogueira said the process was moving too slowly.
"It's a battle. The Europeans are very resistant to change," Nogueira said, adding that he was speaking in a personal capacity.
The IMF steering committee supported an agreement struck by the Group of 20 leading industrialized and developing economies to shift at least 5 percent of the IMF's voting power to developing countries. Officials from emerging countries have said that was not enough.
Asked whether he thought developing economies would achieve the 7 percent shift in voting power they were after at the IMF, Nogueira said: "It will be very difficult."
(Editing by Leslie Adler)
An over-extended United States urgently needs partners
By Richard N. Haass | Commentary by | Thursday, May 27, 2010
We are in a protracted period of international transition, one that began more than two decades ago with the end of the Cold War. That era of strategic rivalry between the United States and the Soviet Union gave way to one in which Washington possessed far greater power than any other country in the world and enjoyed an unprecedented degree of influence.
That American unipolar moment has given way to a world that can be better described as non-polar, in which power is widely distributed among nearly 200 states and tens of thousands of non-state actors ranging from Al-Qaeda to Al-Jazeera, and from Goldman Sachs to the United Nations.
But what distinguishes historical eras from one another is less the distribution of power than the degree of order between states and within states. Order never just emerges; it is the result of conscious efforts by the most powerful entities in the world.
While the United States remains the world's most powerful single country, it cannot maintain, much less expand, international peace and prosperity on its own. It is over-extended, dependent upon massive daily imports of dollars and oil, and its armed forces are engaged in demanding conflicts in both Afghanistan and Iraq. The US also lacks the means and the political consensus to take on much more in the way of global responsibility. It also lacks the means to compel other countries to follow its lead.
Moreover, contemporary problems – for example, thwarting the spread of materials and weapons of mass destruction, maintaining an open world economy, slowing climate change, and combating terrorism – cannot be managed, much less solved, by any single country. Only collective efforts can meet common challenges; the more global the response, the more likely that it will succeed.
In short, the United States requires partners if the 21st century is to be an era in which the majority of people around the world enjoy relative peace and satisfactory standards of living. But the partnerships that prevailed during the Cold War – between the US, Western Europe, and several Asian countries, including Japan, South Korea, and Australia – are no longer adequate. These countries lack the resources and often the will to manage most of the world's problems.
So the old partners need new ones. Emerging powers have the potential to fill this need. The question is what such powers, for example China, India, Brazil, and others, are prepared to do with their growing strength.
What makes a country great is not the size of its territory, population, army, or economy, but, rather, how it uses that power to shape the world beyond its borders. Countries that are strong but still developing tend to regard foreign policy as little more than a hand-maiden of domestic policy and as a means to gain access to markets and resources that are essential for rapid development.
This outlook is understandable, but shortsighted. Rising powers can neither insulate nor isolate themselves from what happens beyond their borders. Whether or not they acknowledge it, they have a stake in world order.
Consider China, by many measures the most significant emerging country in the world. It wants to maintain preferred access to Iran's energy resources, but if conflict results from Iran's nuclear aspirations, China will be paying much higher a price for those resources. The prospect of a threat to the stability of the greater Middle East and to the flow of oil should give China an incentive to support robust sanctions against Iran. But it is not clear whether China's leaders will recognize this and act in their country's own long-term self interest.
The point is not to single out China. Similar questions apply to India and Brazil. And it is not just the developing and emerging countries that must reconsider their approach to the world. The United States must do so as well. While much has been said and written about Washington's call for China to become a global stakeholder, China will not simply sign on as a pillar of an American-defined world. It wants to help set the rules and build the institutions for enforcing them.
It is up to the United States to work with China and others to do this, and this requires America's openness to the preferences of others and to their having a larger role.
The empowerment of the G-20 is a step in the right direction, but many more changes are needed, including restructuring the United Nations, the International Monetary Fund, and the World Bank so that they, too, reflect the new global distribution of power. In return, new arrangements should call on emerging countries to contribute more to addressing climate change, paying for peacekeeping and state-building endeavors, promoting free trade, and sanctioning those who support terror or develop weapons of mass destruction.
This era's major states, developed and emerging states alike, have the ability to reach an accord on today's defining issues. Their willingness to do so will determine when and how this period of global transition ends and what succeeds it.
Richard N. Haass, a former director of policy planning at the US State Department, is president of the Council on Foreign Relations and the author of "War of Necessity, War of Choice: A Memoir of Two Iraq Wars." THE DAILY STAR publishes this commentary in collaboration with Project Syndicate © (www.project-syndicate.org).
Brazil, India and Turkey emerge
By Tim Gray, contributorMay 27, 2010: 7:26 AM ET
(Fortune) -- The pros' advice couldn't be plainer: Investors need exposure to the regions outside the United States where more and more of the world's economic growth will be found in the years ahead. Yet most Americans stick close to home. Less than a third of the savers in Vanguard's retirement plans invest in international stock funds when they're available, according to a recent study by the mutual fund giant. Even fewer, one in 10, put money in emerging-markets funds -- that is, those specializing in developing countries such as Brazil, China, and India.
Granted, investing abroad at the moment feels scarier than vacationing in Baghdad. From Greece to Spain and beyond, Europe has been enduring a financial crisis so severe that it threatens to unravel the common currency known as the euro. In the best case, Europe faces a period of slow growth as it tidies its finances. On top of that, China -- supposedly this century's engine of global growth -- looks troublesome too.
That's why prudent investing in emerging markets is more important than ever. The wisest strategy is the safest and the broadest: Put a modest sum in a multicountry emerging-markets fund, says Rich Evans, a professor of business administration at the University of Virginia whose research examines investment decision-making. "In an optimal portfolio for somebody who has an average risk tolerance," he says, "you could expect to see 5% to 10% emerging markets."
The Vanguard Emerging Markets Stock Index Fund (VEIEX) offers a broad cross section: It typically holds shares of about 850 companies across the globe and charges a rock-bottom expense of 0.4%. Over the decade ended April 30, it averaged 11.2% annual returns. For fans of actively managed funds, a highly regarded option is T. Rowe Price Emerging Markets Stock Fund (PRMSX), run by Gonzalo Pangaro. It focuses on industry leaders with strong earnings but reasonable prices. In Brazil, that approach has led Pangaro to Petróleo Brasileiro (PBR), the giant oil and gas company, and Vale (VALE), one of the world's biggest producers of iron ore. At the end of the first quarter he had parked about 17% of the fund's assets in Brazil and 9% in India, with another 18% in China. (The Vanguard fund has a similar weighting among those three countries.) Over the past 15 years the T. Rowe Price fund has returned an average of 10% a year, beating 80% of its peers. Its expense ratio, while not dirt cheap at 1.32%, is well below the average of 1.8% for emerging-markets funds followed by Morningstar, the investment-analysis company.
If you already have such a holding, putting a small amount in a single-country mutual fund or an exchange traded fund (ETF) can boost returns, although it's crucial to remember that when it comes to these markets, higher rewards mean higher risk. Here are three to consider:
Brazil: Discipline in a land of plenty
What happens when you elect a leftist labor leader as President? You get a revolution. In Brazil's case, that meant a market revolution that has energized the country's economy and is delivering 6% annual growth. Luiz Inácio Lula da Silva, known as Lula, took office in 2002 and undertook a wave of pro-market reforms, ensuring the independence of the central bank, restraining the budget deficit, and avoiding the dreaded "resource curse" to effectively exploit the country's oil and other natural resources. Finally, Brazil's 10-year-old Novo Mercado stock exchange "has greatly tightened up corporate-governance rules to protect investors," says Chris Alderson, president of T. Rowe Price International. One way to profit from the country's growth is iShares MSCI Brazil Index Fund (EWZ), an exchange-traded fund (which is bought and sold like a stock). This one holds shares of about 80 of the largest Brazilian companies and comes cheap, with an expense ratio of 0.65% (iShares, an arm of BlackRock, generally offers the lowest-fee ETFs for individual markets). The Brazil fund has returned 30% a year, annualized, over the past five years.
ndia : The young Asian powerhouse
"India has fabulous demographics," says Alderson of T. Rowe Price. Some three-quarters of the population are under 30, which creates a virtuous cycle as people get educated, land good jobs, spend, and invest. "India has 250,000 students coming out of top-quality business schools every year," Alderson says. "It's like Silicon Valley in the U.S. -- lots of smart young guys who are very entrepreneurial." By contrast, developed economies, especially in Japan and Western Europe -- and even China (because of its one-child policy) -- will be burdened by aging populations and shrinking workforces. The iShares S&P India Nifty Fifty Index Fund (INDY) is young too -- the ETF started late last year -- but its stakes in the largest 50 companies trading on India's National Stock Exchange give investors a taste of that economy. The fund has an expense ratio of 0.89%.
Turkey: The world's crossroads
Finally, if you have some money you're willing to put at risk -- it shouldn't be more than a tiny part of your portfolio -- Turkey looks to be one of the more promising "frontier" markets. The International Monetary Fund estimates that the nation's economy will grow 5% this year. The Turks are "low-cost manufacturers," says Rusty Johnson of Harding Loevner, a money-management firm that specializes in international investing. He notes that the country's central location gives its companies excellent access to markets in Western Europe, Russia, and the Persian Gulf. The iShares' MSCI Turkey Investable Market Index Fund (TUR), launched in 2008, typically holds about 90 companies and carries an expense ratio of 0.65%. Last year it rose 108%. No matter how good the prospects, investing in the developing world isn't for the meek; periodic plunges are inevitable. "Emerging markets over the last 10 years have been a volatile ride, and I don't think that's going to change," says Pangaro of T. Rowe Price. But for all the bumps, the ride can still be worth it.
Brasil minimiza divergencias comerciales con Argentina y niega represalias
28/05/2010
Río de Janeiro, 27 may - El asesor de la Presidencia brasileña para Asuntos Internacionales, Marco Aurelio García, minimizó hoy las divergencias comerciales con Argentina y negó que el Gobierno de Brasil pretenda tomar represalias si se restringe la importación de alimentos en ese país.
"No hay clima para represalias. La pelea entre Brasil y Argentina sólo tiene consistencia en el fútbol", afirmó el asesor de Lula en declaraciones a periodistas en Río de Janeiro después de participar en la apertura del Foro Brasil-Unión Europea.
García agregó que Lula tuvo el pasado lunes una "calurosa reunión" en Buenos Aires con la presidenta argentina, Cristina Fernández, durante las celebraciones del Bicentenario de la independencia de es país.
"Si mañana tienen un nuevo encuentro, evidentemente abordarán ese asunto pero sin ningún ánimo de represalia", agregó al referirse al viaje que hará Fernández el viernes a Río de Janeiro para participar, junto con Lula y otros mandatarios, en el III Foro de la Alianza de las Civilizaciones.
El funcionario también minimizó las declaraciones de la víspera del secretario de Comercio del Ministerio de Desarrollo, Industria y Comercio de Brasil, Welber Barral, quien advirtió que el Gobierno brasileño puede responder con acciones similares a las posibles medidas de Argentina para restringir la importación de alimentos.
"El principio del Gobierno brasileño en sus relaciones internacionales es la reciprocidad. Brasil también tiene un mecanismo electrónico de control de importaciones", dijo Barral al ser consultado sobre las medidas que Argentina podría adoptar, que oficialmente no han sido anunciadas.
Según versiones de presa, el Gobierno de Argentina estudia restringir el ingreso en su país de alimentos que compitan con la producción local, incluyendo los procedentes de sus socios del Mercosur (Brasil, Paraguay y Uruguay).
El asesor de Lula dijo que Argentina puede retrasar la concesión de algunas licencias de importación, pero eso "no configura una guerrilla y mucho menos una guerra de posiciones".
"Países que tienen una relación como la que tenemos Argentina y Brasil difícilmente van a enfrentar una crisis por esa situación. Por eso no hay ninguna preocupación", aseguró.
Cancelan embarques brasileños hacia la Argentina porque empresarios le tienen ''miedo'' a Moreno
28/05/2010
Buenos Aires — El 70 por ciento de los embarques de alimentos brasileños destinados a la Argentina fueron cancelados este mes por importadores y exportadores por el «miedo» que tienen a las represalias del secretario de Comercio Interior, Guillermo Moreno, afirmaron hoy industriales paulistas.
El director ejecutivo de la poderosa Federación de Industrias del Estado de San Pablo (FIESP), Ricardo Martins, aseguró que los importadores argentinos y los exportadores brasileños le tienen «miedo» a Moreno, quien decide cuáles alimentos pueden ingresar al país y cuáles no.
«La gente tiene mucho miedo del secretario. La gente no quiere hacer nada contra el secretario. Todo va a ocurrir en niveles de Gobierno. A nosotros (los empresarios) no nos interesa nunca este tipo de situación», dijo. El industrial se refirió así a las supuestas «represalias» que el funcionario argentino podría tomar si los importadores argentinos insisten con comprarle a Brasil productos alimenticios que también se producen en la Argentina.
En declaraciones televisivas, Martins dijo que «es insignificante» la representación en el Comercio Bilateral de los productos cuya importación fue trabada por Argentina y agregó:»Por una compra insignificante no hay por que librar una batalla contra Moreno». Si bien minimizó el impacto de las medidas en el comercio bilateral general en una primera instancia, el industrial se quejó de las medidas porque «afectan a las empresas paulistas e incluso a sus socios en Argentina».
Según Martins, el 70 por ciento de los pedidos y embarques que habían sido acordados por importadores argentinos y exportadores brasileños fueron cancelados por los propios interesados, ante el aumento de las barreras aduaneras impuestas por Moreno. El brasileño añadió que los productos más afectados son alimentos como chocolates, galletitas, enlatados (choclo y tomate), bizcochos y snacks, por pedidos que giran en torno a los 150 mil dólares.
«Todos salimos perdiendo si Argentina parte por este camino. Hemos pedido al presidente Lula (Da Silva) que charlara con el Gobierno argentino para evitar una situación de pena para los dos», explicó el industrial paulista. Y en ese sentido, reveló que funcionarios del Gobierno de Brasil han comenzado a reconocer que ese país «puede meter trabas a las mercaderías argentinas» si la Casa Rosada no revisa sus restricciones aduaneras.
En ese sentido, Martins señaló que uno de los productos más afectados será el vino argentino, un producto que sólo con las licencias no automáticas tiene que esperar un mes en la aduana brasileña para poder ser insertado en el mercado interno.
«Cuando se habla de restricciones se dice muy bien, vamos a poner trabas al vino. Por las licencias no automáticas, los importadores ya van a buscar vinos de Chile y otras partes del mundo», indicó el industrial brasileño.
Antes de la reunión entre Cristina y Lula, Brasil insiste en que el freno a la importación tendrá "consecuencias"
Lo hizo el canciller Amorim; "Es muy importante que Argentina comprenda que somos un gran mercado para ellos", alertó; los presidentes se encontrarán esta tarde en Río
Viernes 28 de mayo de 2010 | 09:02 (actualizado a las 09:18)
En la antesala de la reunión con la que el Gobierno busca reducir la tensión con Brasil por las trabas a las importaciones, las advertencias del país vecino por los efectos de esa política oficial no ceden.
"Se dice que hay algunas autoridades argentinas que estimularon a algunos supermercados a comprar productos nacionales. Es algo de lo que no gustamos y va a acabar teniendo algún tipo de consecuencias", advirtió el canciller brasileño Celso Amorim, en declaraciones consignadas por la agencia ANSA.
"Es muy importante que la Argentina comprenda que Brasil es un gran mercado para ellos", añadió. Y remató: "Para decir la verdad, estas cosas no son buenas".
Amorim reforzó así la amenaza de su país de de responder con medidas recíprocas si se confirma el freno argentino a la importación que impulsa el secretario de Comercio Interior, Guillermo Moreno.
No obstante, hacia el final, buscó mostrarse conciliador. "Confiamos que el tema sea resuelto", dijo. En este clima, la estrategia de la Casa Rosada destinada a bajar el tono a la polémica será reforzada en las próximas horas, durante la visita que la presidenta Cristina Kirchner realiza desde ayer a Río de Janeiro, donde tiene previsto reunirse con su par Luiz Inácio Lula da Silva.
Cristina Kirchner participará hoy, junto a Lula y otros jefes de Estado, de la tercera edición del Foro de la Alianza de Civilizaciones de las Naciones Unidas, y a las seis de la tarde mantendrán una reunión bilateral, en la que, aunque no se informó oficialmente, se trataría la cuestión comercial.
El conflicto. La decisión de Moreno de revisar el otorgamiento de permisos sanitarios a todos los productos alimenticios que ingresan en el país quedó parcialmente plasmada en una carta que envió el 23 de abril al director del Instituto Nacional de Alimentos (INAL), pero no fue notificada formalmente como restricción ni a los importadores ni a los socios comerciales del país. Por eso, Brasil dice que sólo si se comprueban las trabas se aplicarán las correspondientes represalias.
Sin embargo, la noticia de que Moreno intervendría en la importación de alimentos ya provocó cancelaciones de algunos contratos que estaban previstos. Empresarios argentinos confirmaron ayer que el mecanismo instrumentado por Moreno se sigue aplicando para algunos productos. La autorización del INAL, que antes se expedía en menos de 24 horas, ahora sólo es automática para los productos autorizados por Moreno. El resto debe pasar una revisión que puede tardar hasta ocho días, según relató un empresario.
Buscan reducir la tensión con Brasil
El Gobierno minimizó las restricciones y destacó la fortaleza del vínculo bilateral; la Presidenta viajó a Río de Janeiro y se verá hoy con Lula
Oliver Galak
LA NACION
El gobierno nacional intentó ayer bajar el tono de la polémica con Brasil por las trabas a las importaciones de alimentos. La estrategia será reforzada en las próximas horas, durante la visita a ese país de la presidenta Cristina Kirchner, que anoche arribó a Río de Janeiro.
La amenaza del gobierno de Luiz Inácio Lula da Silva de responder con medidas recíprocas si se confirma el freno argentino a la importación de alimentos despertó la inmediata reacción de la Casa Rosada. Tres ministros, entre otros funcionarios, minimizaron o negaron las restricciones impulsadas por el secretario de Comercio Interior, Guillermo Moreno, y destacaron la fortaleza del vínculo con Brasil.
"No hay ninguna presentación formal realizada por Brasil sobre restricciones al ingreso de alimentos", dijo en un comunicado la ministra de Industria y Turismo, Débora Giorgi, que acompañó a la Presidenta, junto con su par de Economía, Amado Boudou, y con el canciller Jorge Taiana. Recordó que Brasil es el "principal socio comercial" de la Argentina y destacó que el Gobierno sigue "trabajando de manera conjunta para fortalecer aun más esa relación".
Más temprano, el jefe de Gabinete, Aníbal Fernández, y el ministro del Interior, Florencio Randazzo, habían descartado en declaraciones radiales que se fuera a producir una pelea con Brasil por este tema.
Cristina Kirchner participará hoy, junto a Lula y otros jefes de Estado, de la tercera edición del Foro de la Alianza de Civilizaciones de las Naciones Unidas, y a las seis de la tarde mantendrán una reunión bilateral, en la que, aunque no se informó oficialmente, se trataría la cuestión comercial.
Un dato que refleja cómo la cuestión del intercambio comercial se coló en una agenda que a priori era más institucional es el hecho de que Giorgi fue incorporada a último momento a la delegación argentina. La ministra es la encargada de monitorear el cumplimiento de los acuerdos y la correcta marcha del comercio bilateral con Brasil, aunque Moreno no reporta a su cartera. "Si la subieron a Débora, eso tiene que ver con ir a hacer un planteo claro sobre la situación para evitar malentendidos", explicaron en su entorno.
Los datos del primer cuatrimestre indican que la balanza comercial entre los dos países es deficitaria para la Argentina, en US$ 658,2 millones. El país exporta por 4163,6 millones e importa por 4821,7 millones.
Señales de conciliación
Desde el gobierno brasileño también se emitieron señales conciliatorias. "Si mañana [por hoy] tienen un nuevo encuentro [Lula y Cristina], evidentemente abordarán ese asunto pero sin ningún ánimo de represalia. Nuestra pelea con la Argentina sólo tiene consistencia en el fútbol", dijo el asesor de la presidencia brasileña para Asuntos Internacionales, Marco Aurélio Garcia, aunque luego no se privó de ningunear a Moreno: "Fue una medida aislada de un funcionario de segundo escalón".
El subsecretario de Integración Económica Americana y Mercosur, Eduardo Sigal, dijo en Estados Unidos a la CNN que "no hay ni va a haber prohibiciones" para el ingreso de alimentos, y contó que hace unos días consultó a Moreno por este tema y éste le respondió que "no había ninguna medida tomada tampoco hacia la política interna".
La decisión de Moreno de revisar el otorgamiento de permisos sanitarios a todos los productos alimenticios que ingresan en el país quedó parcialmente plasmada en una carta que envió el 23 de abril al director del Instituto Nacional de Alimentos (INAL), pero no fue notificada formalmente como restricción ni a los importadores ni a los socios comerciales del país. Por eso, Brasil dice que sólo si se comprueban las trabas se aplicarán las correspondientes represalias.
Sin embargo, la noticia de que Moreno intervendría en la importación de alimentos ya provocó cancelaciones de algunos contratos que estaban previstos. "Aunque no existe una norma y menos, un detalle de productos afectados, hay importadores que están cancelando órdenes de compra de Brasil; por ejemplo, de choclo y tomate", señaló en declaraciones radiales el presidente de la Cámara de Comercio Argentino-Brasileña, Jorge Rodríguez Aparicio. Ricardo Martins, director ejecutivo de la Federación de Industrias de San Pablo (Fiesp), estimó que mayoristas y supermercadistas argentinos ya cancelaron el 70% de los pedidos para evitar enfrentarse a Moreno.
Empresarios argentinos confirmaron ayer que el mecanismo instrumentado por Moreno se sigue aplicando para algunos productos. La autorización del INAL, que antes se expedía en menos de 24 horas, ahora sólo es automática para los productos autorizados por Moreno. El resto debe pasar una revisión que puede tardar hasta ocho días, según relató un empresario.
Brasil festejo
Viernes 28 de mayo de 2010
Acoplado al mejor humor de los mercados, el Bovespa trepó 3,16% hasta los 62.091,77 puntos. "Los inversores se están concentrando nuevamente en los fundamentos económicos de Brasil", dijo Marianna Costa, economista de Link Investimentos. "Tenemos grandes preocupaciones respecto a cómo la crisis europea afectará a Brasil, pero por ahora no hay señales de que la economía real será golpeada", agregó Costa.
Otro factor que pesó en el mercado brasileño fue la publicación de la tasa de desempleo. Cayó inesperadamente en abril a un 7,3%, su menor nivel para ese mes desde el comienzo de la medición en el 2002. En la plaza local, las acciones del gigante minero Vale treparon 6,29% mientras que las de la petrolera estatal Petrobras ganaron 2,81%. Los papeles de los sectores siderúrgico y financiero subieron liderados por los de la acerería Gerdau y del Banco Bradesco, que ganaron 5,43% y 3,39% respectivamente. El real, en tanto, se apreció más de 2%. El dólar en Brasil cerró en 1,826 reales.
La relación con Brasil debe ser política de Estado
Fernando Gonzalez Director Periodistico fgonzalez@cronista.com ()
Viernes 28 de mayo de 2010
Las disputas comerciales con Brasil son cada vez más frecuentes. A esta altura, que la Argentina no termine de enhebrar una relación madura, privilegiada y perdurable con el país más importante de la región es algo más que una falla inexplicable del Gobierno actual: es una materia pendiente de la democracia restaurada en 1983.
Brasil es nuestro socio estratégico. Es un país con empresas multinacionales competitivas y con bancos que expanden su potencial financiero hacia nuestras fronteras, como lo hemos comprobado. Es entendible entonces que tengamos fricciones con semejante vecino pero no se entiende que el vínculo bilateral no se haya convertido aún en una política de Estado.
La respetada diplomacia de Itamaraty y la vigente burguesía industrial de San Pablo siguen los lineamientos de las políticas de Estado brasileñas, que exceden a los presidentes y a los sucesos políticos y económicos. A nuestros dirigentes los caracteriza el zig zag como línea de conducta.
Cristina Kirchner debería aprovechar este nuevo contacto con Lula para lograr algo más que el habitual intercambio de sonrisas. Es urgente concretar los primeros trazos de una relación mucho más seria con Brasil, para que continúe tras el recambio del poder más allá del 2011.
Brasil ratificó que aplicará "reciprocidad" en el comercio
Viernes 28 de mayo de 2010
"La política comercial de Brasil está basada en la reciprocidad con cualquier socio comercial del país y las medidas de liberalización o de restricción serán siempre proporcionales al trato concedido a los exportadores brasileños". Sin dejar lugar a ninguna otra interpretación, el secretario brasileño de Comercio Exterior, Welbar Barral, ratificó en un comunicado oficial con membrete del Ministerio de Desarrollo, Industria y Comercio Exterior de Brasil, que limitarán compras en la Argentina si se mantiene las dificultades para vender alimentos que impuso el secretario argentino de Comercio Interior, Guillermo Moreno.
"El comercio entre Argentina y Brasil retomó su dinámica y ha crecido más que 50% en este año", señaló Barral.
"Seguimos con las acciones de integración productiva y esperamos lograr más resultados concretos de promoción comercial conjunta en el corto plazo" agregó.
Después, Barral describe que el miércoles hubo en Brasilia una conferencia sobre defensa comercial, de la que también tomaron parte funcionarios argentinos.
"En este contexto, acompañamos con preocupación las noticias en la prensa argentina cuanto a supuestas barreras al comercio bilateral, en un momento de excelentes proyectos conjuntos"; señaló
Barral destacó las declaraciones de la presidenta Cristina Fernández sobre la inexistencia de medidas restrictivas y aceptó que hasta ahora "sólo tenemos rumores sobre suspensión de las importaciones argentinas de productos alimentares".
Señaló que "el comercio fronterizo sigue normalmente, y algunos problemas puntuales están siendo presentados al gobierno argentino en la búsqueda de una pronta solución de eventuales pendencias".
Y culminó con la ratificación: "De toda forma, la política comercial de Brasil está basada en la reciprocidad con cualquier socio comercial del país y las medidas de liberalización o de restricción serán siempre proporcionales al trato concedido a los exportadores brasileños".
"Estamos comprometidos con la meta inflacionaria, tranquilizó el titular del Banco Central de Brasil
EL CRONISTA Buenos Aires ()
Viernes 28 de mayo de 2010
El presidente del Banco Central de Brasil, Henrique Meirelles, advirtió que su entidad aún buscará respetar la meta de inflación del 4,5%, a pesar de que la suba de los precios internos haya superado ya ese nivel. Y advirtió, además, que aunque las exportaciones de su país puedan quedar golpeadas como resultado de la crisis de la zona euro, podría elevar en junio su pronóstico de crecimiento para la economía en 2010.
Consultado sobre los riesgos de sobrecalentamiento, el banquero aseguró: "Estamos comprometidos con la meta inflacionaria para mantener una economía equilibrada, tomando las medidas necesarias".
Además, consideró que el crecimiento de Brasil que pronosticaron para el 2010 desde su institución, en el orden del 5,8%, parecía a esta altura algo "conservador" y que sus analistas estaban preparándose para actualizarlo en junio. Algunos economistas consultados por el banco, esta semana, estimaron que la economía podría expandirse un 6,46% este año. Y el FMI, que se mostró preocupado por un recalentamiento, dijo esta semana que avanzaría 7%.
En el primer trimestre, la economía brasileña creció cerca del 10%, respecto de igual periodo del año anterior. "Nuestra proyección para el 2010 es algo conservadora. El mercado está en torno al 6,5%. Vamos a actualizar nuestro pronóstico el próximo mes", dijo Meirelles a los inversores.
Y opinó que un impuesto a la banca, como se discutirá en la reunión de ministros de Finanzas del G-20, la próxima semana, sería difícil de implementar a nivel global.
RECLAMA AL GOBIERNO MAYORES RUTAS PARA TAM Y GOL
Brasil acusa a la Argentina de frenar la expansión de sus compañías aéreas
EL CRONISTA Buenos Aires ()
Viernes 28 de mayo de 2010
Durante su estadía en Brasil, seguramente Cristina Kirchner deberá dejar en su agenda de temas pendientes a discutir con el presidente Luiz Inacio 'Lula' da Silva un espacio a los reclamos de las aerolíneas del país vecino que acusan a la Argentina de frenar un aumento de los vuelos entre ambas naciones.
Así como las restricciones a las importaciones de alimentos impuestas por Guillermo Moreno encabezan el ranking de preocupaciones con Brasil, los últimos reclamos de empresas como TAM y Gol para que se les permita incrementar la cantidad de frecuencias a la Argentina también promete convertirse en un dolor de cabeza para la administración kirchnerista.
Hace unos días, a través de la estatal Agencia de Aviación Civil de Brasil (Anac), el gobierno de Lula denunció a la Argentina por dificultar la expansión de las aéreas vecinas mediante el incremento de los precios en los pasajes. Según el organismo, la estrategia local de frenar la demanda de más vuelos tiene que ver con la 'protección' que se le da a Aerolíneas Argentinas.
Durante un encuentro de empresarios del sector realizado hace unos días en Río de Janeiro, Solange Vieira, presidenta de ANAC, aseguró que las compañías brasileñas "precisan más vuelos a la Argentina", y reclamó a las autoridades que "autoricen en forma urgente el aumento de rutas".
La responsable del organismo a cargo de la aviación civil brasileña señaló que un incremento de este tipo "permitiría que otras aerolíneas ingresaran al mercado aéreo argentino", teniendo en cuenta que actualmente las únicas autorizadas de Brasil son Gol y TAM. La funcionaria agregó que, "si no existieran las restricciones actuales, el mercado más dinámico para las aerolíneas brasileñas, sin dudas sería el argentino".
