Southeast Asia’s financial markets have been booming. Many of the region’s exchanges have hit multiyear highs recently with several benchmarks hitting double digit year over year returns. Indonesia was even given investment grade status which is opening up the country to a lot of capital inflows. The Philippines are reported to be the latest country to possible get an investment grade status upgrade in the next year. As the region continues to grow and become a safer place to invest among funds and investors, more countries will be trying to improve their financial markets.
Cambodia is the latest country to open an exchange. They had their first IPO that began trading at 9:09AM as it seems that 9 is a lucky number there. As Cambodia grows, they hope their exchange grows as well as the other countries in the region. Southeast Asia has easily been outperforming China in the past year. The main reasoning behind this is the fact that many of these countries grow domestically. They aren’t as export oriented as China. This gives them true growth and not one so reliant on the rest of the world.
Thursday, April 26, 2012
Wednesday, April 25, 2012
Bondholders Beware
The bond market has had a 30 year bull market run. These bull runs are hard to find and seldom last. One that has lasted this long might never be seen again. It looks like things will turn around in the next couple of years. I have been saying that bonds will be the first thing to take a hit when the economy recovers. As the economy has been gaining steam, yields have been inching up. As we all know, when yields rise, bond prices fall. The Fed has given a time frame for rates to remain artificially low. The question is whether these rates can actually be sustained for the next two years.
Yields could soar if the Fed prematurely came out and raised rates. Bondholders would be crushed as the bottom would fall out among prices. I don’t foresee a quick change in monetary policy as the Fed is consistently quoting 2014 as the earliest year to possibly raise rates. Should the economy or inflation force the Fed to show its hand early, bondholders beware. Even still, Treasuries remain one of the safest places to hide as the economy struggles to provide consistently good news.
Yields could soar if the Fed prematurely came out and raised rates. Bondholders would be crushed as the bottom would fall out among prices. I don’t foresee a quick change in monetary policy as the Fed is consistently quoting 2014 as the earliest year to possibly raise rates. Should the economy or inflation force the Fed to show its hand early, bondholders beware. Even still, Treasuries remain one of the safest places to hide as the economy struggles to provide consistently good news.
Return of the Carry Trade
The 90’s are roaring back in fashion as carry trade opportunities reignite. The carry trade is a way to profit off currencies and rates. Investors borrow money in one country where rates are low and exchange it for currency in a country where rates are high. The carry trade went away and was rarely used when the global economy went into a recession. The easy monetary policies around the world cut down on carry trades. The artificially low rates kept the dollar and euro as currency of choice to borrow from.
Japan is trying to keep the yen artificially low. The yen was the currency of choice back in the 1990s. Investors are borrowing yen and then investing in Mexican pesos, the Brazilian real, or other countries where the interest rates are higher than the rest of the world. This only works as long as Japan keeps flooding the market with yen to keep rates low and the currency from strengthening. As long as the yen keeps falling, investors will profit from the spread in rates and the currency play.
Japan is trying to keep the yen artificially low. The yen was the currency of choice back in the 1990s. Investors are borrowing yen and then investing in Mexican pesos, the Brazilian real, or other countries where the interest rates are higher than the rest of the world. This only works as long as Japan keeps flooding the market with yen to keep rates low and the currency from strengthening. As long as the yen keeps falling, investors will profit from the spread in rates and the currency play.
Monday, April 23, 2012
Creative Collateral
Over 20 years ago, Wall Street was rocked with a 'greed is good' persona. I don't know if I can fully endorse that; however, I do think greed is kept honest. What I mean by this is that over time, the ones who start something out of greed get hooked. Once they get hooked, it is very hard to turn away. It is the very ones who create an empire of out greed who lose everything on the way down. All the firms who made the biggest bets in the housing market were the ones who no longer exist. Greed isn't always good and it definitely doesn't always last.
As is prevalent on Wall Street, short term memory problems persist even today. Bonds and collateralized securities backed by mortgages finally started coming back around. It certainly isn't at the height that it was several years ago. As a result, bankers are creating new types of bonds known as esoteric bonds. These bonds are backed by unusual assets not usually seen in the banking business. Domino's Pizza has backed bonds with revenue from franchises. Drug companies are using patents to back bonds. Some bonds are even backed by time shares.
In this case I have to agree that greed is good. The need to raise money in whatever way possible has created a whole new class of bonds. The diversification of collateral helps to guard against the possibility of another bubble. The only trouble lies with the possibility that the ideas of collateral get out of hand. Could a handful of greed set up this class for another classic downfall or will this greed actually help small business get the types of loans they can to stimulate the economy? Where will it stop? When do bankers say collateral isn't sufficient? Today, everything can be quantitatively measured.
As is prevalent on Wall Street, short term memory problems persist even today. Bonds and collateralized securities backed by mortgages finally started coming back around. It certainly isn't at the height that it was several years ago. As a result, bankers are creating new types of bonds known as esoteric bonds. These bonds are backed by unusual assets not usually seen in the banking business. Domino's Pizza has backed bonds with revenue from franchises. Drug companies are using patents to back bonds. Some bonds are even backed by time shares.
In this case I have to agree that greed is good. The need to raise money in whatever way possible has created a whole new class of bonds. The diversification of collateral helps to guard against the possibility of another bubble. The only trouble lies with the possibility that the ideas of collateral get out of hand. Could a handful of greed set up this class for another classic downfall or will this greed actually help small business get the types of loans they can to stimulate the economy? Where will it stop? When do bankers say collateral isn't sufficient? Today, everything can be quantitatively measured.
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