Global ETF News Older than One Year
Crisis Management and Resolution: Early Lessons from the Financial Crisis
MArch 9, 2011--EXECUTIVE SUMMARY
This paper compares the policy choices in recent and past crises, explains why those choices varied, and assesses the current state of financial and operational restructuring and institutional reform.
While acknowledging the unique and global nature of the recent crisis and varying country circumstances, analysis suggests that the diagnosis and repair of financial institutions and overall
asset restructuring are much less advanced than they should be at this stage and that moral hazard
has increased.
Consequently, vulnerabilities in the global financial system remain considerable and continue to threaten the sustainability of the recovery. These conclusions point to a number of steps to finish the business of financial sector repair and reform.
Establishing the long-term viability of the financial system requires recognizing nonperforming assets at financial institutions and a deeper operational restructuring of debts of enterprises and households. Regarding the persistent weaknesses in bank balance sheets, in-depth diagnoses still need to be conducted, including through strict and transparent stress tests. When the diagnoses call for credible recapitalization plans or restructuring of liabilities, they should be carried out swiftly in ways that do not worsen sovereign debt burdens. Conditions in some countries require government interventions, including targeted programs to alleviate debt overhangs in the household and commercial real estate sectors.
view Crisis Management and Resolution: Early Lessons from the Financial Crisis
Source: IMF
Determinants of Bank Credit in Emerging Market Economies -IMF Working Paper
March 9, 2011-Summary: We examine changes in bank credit across a wide range of emerging market economies during the last decade. The rich time-series and cross-section information allows us to draw broader lessons compared to many existing researches, which focus on a specific set of emerging market economies or on shorter time periods.
Our results show that domestic and foreign funding contribute positively and symmetrically to credit growth. The results also indicate that stronger economic growth leads to higher credit growth, and high inflation, while increasing nominal credit, is detrimental to real credit growth. We also find that loose monetary conditions, either domestic or global, result in more credit, and that the health of the banking sector also matters. Finally, we discuss some policy lessons.
view the IMF Working paper-Determinants of Bank Credit in Emerging Market Economies
Source: IMF
DB Global ETF Research: Emerging Markets : A more selective approach in EMs is needed as DM prospects improve
March 8, 2011--The big migration
*During Q4'10, a substantial migration of assets back into developed markets equity benchmarked ETFs was the biggest story in the ETP market. A lot of this migration was funded by liquidating sovereign fixed income and gold positions, but the shift was also funded to some degree with outflows from diversified global EM indices.
*In the first three quarters of 2010, the ETF market in the US and Europe saw $27.1 billion of inflows into Emerging Market (EM) benchmarked equity ETFs, while Developed Market (DM) equity benchmarked ETFs registered just $11.5 billion. This trend was sharply reversed starting in the beginning of Q4’10, and DM ETFs regained the lost ground. To date (25/2/11), EM benchmarked ETFs received $6.2 billion, while DM benchmarked ETFs received an impressive $48.2 billion.
*Besides the EM/DM reallocations, within EM, ETF investment patterns also registered a distinct shift. Outflows from diversified EM indices, such as the mighty MSCI EM, do not necessarily translate to disenchantment from emerging markets in general. While the first two months of 2011 saw $10.1 billion of outflows from, primarily MSCI EM, global EM benchmarked ETFs, single country and region benchmarked ETFs registered net inflows. These intra-EM reallocations indicate that investors are taking more pointed positions, primarily at the single EM country level.
Emerging Markets remain a compelling story
*The growing importance of emerging markets (EMs) in the global economy is a secular trend which is underpinned by much-improved fundamentals and powerful long-term drivers such as demographics.
*Most of the major EM passed the severe test of the global crisis with flying colors i.e. either with no recession or with a rapid recovery, and without severe impact on domestic banking sectors, let alone full-blown crises.
*China, India, Brazil and Indonesia were among the most resilient countries in terms of growth. Others, like Russia and Korea, benefited from a strong external liquidity position (low external debt and a large stock of FX reserves) as well as enough fiscal space to implement effective stimulus measures. Turkey and Mexico weathered severe crisis-led recessions with prudent economic management and the advantage of a solid banking sector.
Inflation and geopolitical risks blur the EM short-term outlook
*EM resilience attracted large foreign capital inflows (also pushed by abundant global liquidity) in 2010. Part of those inflows found their way into domestic liquidity, leading to inflationary pressures. The sharp food price increases in H2’10 compounded that effect, resulting in rising inflation in most EMs and particularly in Asia.
*In January 2011, political risks in North Africa increased sharply due to the sudden toppling by popular revolt of decade-long autocratic regimes in Tunisia and Egypt, and – at the time of writing – the descent into chaos of Libya. This reminded investors that political risks are a defining characteristic of EMs in comparison with developed markets.
A more selective approach to EMs
*Changes in the global economic environment as well as inflation and commodity price expectations, are just some of the fundamentals that are causing EM countries to diverge. For example, Brazil had a very good run over the past couple of years but it is now trying to combat economic overheating. At the same time Mexico suffered in the shadow of the US in the global credit but may now benefit from the US rebound.
*On region level, Asia seems to have the front line in terms of investors' preference. At country level, China has been experiencing heavy outflows, while all other Asia EM countries have been registering inflows.
*Frontier market investing is picking up, as more ETF products are coming to the market making it possible for investors to enforce their views on a more granular level. In addition, investors recognize there is value in EMs but given the increasingly closer equity market volatility profile of BRIC countries – as compared to DMs – they are looking at smaller/newer EMs to fulfill higher return expectations.
*The recent events in a number of Middle East / North Africa countries have only helped to show how variables which are taken for granted in developed markets, such as political stability, can change very quickly. These can trickle down to changing expectations, not just in terms of a country per se, but often in terms of commodity prices.
Commodities can both help and hinder EM growth
*Commodities play a significant role in the economic outlook of emerging markets. Currently, commodity-producing countries like Russia, Brazil, South Africa, Saudi Arabia, among many others, are benefitting from increased demand and rising prices. The medium-term effect of commodities’ wealth on exporting countries, however, varies widely, and depends on how revenues are managed. Some countries have typically saved proceeds and subsequently invested them in an equitable way to generate growth in the economy. Others have rapidly spent revenues and suffered from the so-called “Dutch Disease” by which non-commodity exports are hampered by a strong currency.
*Yet another group of countries – commodity importers, such as China, India, Turkey – is currently being negatively affected by rising oil and other commodity prices, which translates into higher inflation, higher fiscal deficits and lower trade surpluses (or higher deficits).
*At the moment, there are two commodity segments which seem to be receiving attention from ETP investors and whose fortunes could end up having a significant impact on growth prospects for a number of EM markets: energy [oil and by-products] and agriculture [on the back of pricing].
To request a copy of the report
Source: Deutsche Bank Global Equity Index & ETF Research
ESG focus shifting to 'other asset classes' – AXA IM
March 8, 2011-- In the environmental, social and corporate governance (ESG) space, the focus is shifting to other asset classes and public policy, according to Matt Christensen, Eurosif's outgoing executive director who has been appointed head of responsible investment at AXA Investment Managers (AXA IM).
"Innovative thinking in the ESG space will probably evolve around fixed income, which is set to become a growth area, as well as alternatives," he told IPE.
Source: IP&E
IOSCO launches consultation on suspension of CIS redemptions
March 8, 2011--The Technical Committee of the International Organization of Securities Commissions (IOSCO) has published a consultation report, Principles on Suspensions of Redemptions in Collective Investment Schemes, which analyses how different jurisdictions’ regulatory regimes address the suspension of redemptions by open-ended collective investment schemes (CIS) and proposes principles which provide general standards for how regulatory regimes should approach and oversee suspension of redemptions.
Proposed Principles for Suspension of CIS Redemptions
The principles generally cover all types of open-ended CIS which offer a continuous redemption right, and apply irrespective of whether they are offered to institutional or retail investors. They are addressed to those entities responsible for the overall operation of the CIS and in particular its compliance with the legal/regulatory framework in the respective jurisdiction and thus for the implementation of the principles. The delegation of activities may not be used to circumvent the principles and there should be compliance with the principles, whether activities are performed directly or through a third party.
Source: IOSCO
MSCI to change its methodology for the treatment of special cash dividends in the MSCI Net DTR Indices
March 7, 2011--MSCI Inc. (NYSE: MSCI), a leading provider of investment decision support tools worldwide, including indices, portfolio risk and performance analytics and corporate governance services, announced today that following the feedback received from the investment community, it will change its treatment of special cash dividends for the MSCI Net Daily Total Return (DTR) Indices, effective March 14, 2011.
As a reminder, currently, according to the MSCI Corporate Events Methodology, special cash dividends that are greater than or equal to 5% of the market price of the underlying security are reflected in the MSCI Indices through an adjustment on the ex-date. A Price Adjustment Factor (PAF) using the gross dividend amount is applied for the MSCI Price Indices, the MSCI Gross DTR Indices and the MSCI Net DTR Indices regardless of the withholding tax applied to the special cash dividend, if any.
Effective March 14, 2011, MSCI will enhance its treatment of special cash dividends in the MSCI Net DTR Indices only, by reflecting the net dividend amount instead of the gross dividend amount in the MSCI Net DTR Indices for special cash dividends subject to withholding taxes. In order to do so, MSCI will reinvest a negative amount corresponding to the withholding tax in the MSCI Net DTR Indices only. This negative reinvestment will be reflected simultaneously with the PAF on the ex-date of the special cash dividend.
Source: MSCI
New acceleration in exchange traded derivatives trading volumes in 2010
March 7, 2011--Trading in derivatives contracts on regulated exchanges worldwide surged to the highest levels in nearly a decade in 2010, according to statistics compiled by the World Federation of Exchanges (WFE).
More than 22.4 billion derivative contracts were traded on exchanges worldwide in 2010 (11.2 billion futures and 11.1 billion options) against 17.8 billion in 2009. The growth rate (+25%) is one of the highest observed since 2003. The number of futures traded increased faster (+35%) than options (+16%), according to WFE, which annually conducts a survey for the International Options Markets Association (IOMA). The full report will be available a few weeks after the annual IOMA conference, hosted by NSE of India in Mumbai from 1st to 4th May.
Source: WFE
Opec members rush to raise oil output
March 7, 2011--Influential members of OPEC, the oil cartel, are joining Saudi Arabia in raising output to cool soaring prices and allay fears of a supply crunch in the west.
The behind-the-scenes move by Kuwait, the United Arab Emirates and Nigeria reflects growing unease among OPEC members over the threat to the global economic recovery from crude’s runaway rise amid the worsening crisis in Libya.
Source: CNBC
Additions to Market Indices and the Comovement of Stock Returns Around the World IMF Working paper
March 4, 2011--Using newly-constructed data covering the last decade, we document that, in most of forty markets, when added to the main index, firms’ returns experience an increase in comovement with the rest of the index, reflected in higher beta and greater explanatory power of the market return.
Stock turnover and analyst coverage also typically increase upon inclusion. Using various tests, we find the demand-based view of comovement (the category/habitat theories of Barberis, Shleifer and Wurgler, 2005) to provide a good explanation for many of our findings. Some results, though, suggest that information-related factors are also important in explaining the increased comovement.
Additions to Market Indices and the Comovement of Stock Returns Around the World-IMF Working paper
Source: IMF
Fiscal Expectations Under the Stability and Growth Pact: Evidence from Survey Data IMF Working paper
March 4, 2011--The paper uses survey data to analyze whether financial market expectations on government budget deficits changed in France, Germany, Italy, and the United Kingdom during the period of the Stability and Growth Pact (SGP).
Our findings indicate that accuracy of financial expert deficit forecasts increased in France. Convergence between the European Commission's and market experts’ deficit forecasts also increased in France, Italy, and the United Kingdom, particularly during the period after SGP’s reform in 2005. Yet, convergence between markets’ forecasts and those of the French, German, and Italian national fiscal authorities seems not to have increased significantly during the SGP.
Source: IMF
