Short view By Philip Coggan - Financial Times
Short view By Philip Coggan
Published: May 25 2006 03:00 | Last updated: May 25 2006 03:00. Copyright by The Financial Times
If one wanted proof of continuing investor nervousness, it was provided by events in early European trading yesterday. The appearance of a cluster of bird flu cases in Indonesia caused a brief sell-off in equities and a move into government bonds.
Bird flu has dropped off investors' radar in recent months and scientists say the new cluster displays no signs the virus is mutating, a crucial development if a human pandemic is to occur. But when investors are on edge, they will take any excuse to sell.
Some of the biggest hits in the past two weeks have been suffered in emerging markets which have suffered from a shift in risk aversion and the fear that tighter monetary policy might slow global economic growth. Investors have been tempted to take profits after seeing emerging markets treble in the past three years.
"We continue to believe that emerging markets may still have some room to sell off before the worst is over, as the complementary excesses of too much foreign hot money and too much domestic monetary growth must still be drained from the system," says Credit Sights, an independent credit research group.
It says a number of countries - including Hungary, Brazil, Colombia, Russia, Venezuela, Turkey and South Africa - "have experienced a significant degree of excess domestic liquidity growth since the end of 2003". Many of those countries have had the most severe currency declines in recent weeks. The excess liquidity created in recent years may be searching for a home outside the domestic market.
Tim Lee of Pi Economics has long seen emerging markets such as Turkey and Hungary as crisis points for the global markets. "We are still in the same bubble that central banks created in the late 1990s," he believes. "The underlying state of the economy and financial markets is pretty weak."
He believes there is a 70 per cent chance the recent sell-off will turn into something substantial while there is a30 per cent probability the crunch will come later in the year. But whatever the prospects for global markets, he believes the Turkish lira is still extremely overvalued.
Published: May 25 2006 03:00 | Last updated: May 25 2006 03:00. Copyright by The Financial Times
If one wanted proof of continuing investor nervousness, it was provided by events in early European trading yesterday. The appearance of a cluster of bird flu cases in Indonesia caused a brief sell-off in equities and a move into government bonds.
Bird flu has dropped off investors' radar in recent months and scientists say the new cluster displays no signs the virus is mutating, a crucial development if a human pandemic is to occur. But when investors are on edge, they will take any excuse to sell.
Some of the biggest hits in the past two weeks have been suffered in emerging markets which have suffered from a shift in risk aversion and the fear that tighter monetary policy might slow global economic growth. Investors have been tempted to take profits after seeing emerging markets treble in the past three years.
"We continue to believe that emerging markets may still have some room to sell off before the worst is over, as the complementary excesses of too much foreign hot money and too much domestic monetary growth must still be drained from the system," says Credit Sights, an independent credit research group.
It says a number of countries - including Hungary, Brazil, Colombia, Russia, Venezuela, Turkey and South Africa - "have experienced a significant degree of excess domestic liquidity growth since the end of 2003". Many of those countries have had the most severe currency declines in recent weeks. The excess liquidity created in recent years may be searching for a home outside the domestic market.
Tim Lee of Pi Economics has long seen emerging markets such as Turkey and Hungary as crisis points for the global markets. "We are still in the same bubble that central banks created in the late 1990s," he believes. "The underlying state of the economy and financial markets is pretty weak."
He believes there is a 70 per cent chance the recent sell-off will turn into something substantial while there is a30 per cent probability the crunch will come later in the year. But whatever the prospects for global markets, he believes the Turkish lira is still extremely overvalued.
posted by Carlos T Mock at 9:34 AM
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