Central banks are calm markets, despite Europe woes

EUROPE is to hit another rough patch. But this time, disorders have just rattled world financial markets. It is a huge change.

Even if the United States events precipitated some of the more acute stages of the financial crisis of 2007-8 - the collapse of Lehman Brothers is a good example - the crisis in Europe was the pivot on which world markets have rotated in recent years.

""We have seen on the global markets for trade in unison to a surprising degree,"said Stacy Williams, a strategist HSBC in London, in a telephone conversation last week." "" Concerns about the risk of a collapse in Europe were the main factor of the phenomenon - risk, risk offshore. "Global markets are closely synchronized, it said, and they are still moving up and down mainly in response to the assessment of risk in the short term.

For the moment, however, they did not respond significantly to the events in Europe, one way or another. It is as if traders may decide to add to their bet or head for the exits. For the moment, at least, the markets are moving laterally.

It is not as if the European economy is suddenly thriving. To the contrary. The Government in London statistics released last week, for example, suggest that the austerity of the United Kingdom program has helped plunge the country into recession. Although there are pockets of prosperity, the economy of the European Union as a contract in the fourth quarter of 2011, according to Eurostat. Many forecasters believe that an economic crisis in the region is in progress.

Economic pain and fiscal austerity led to the fall of the Dutch Government, last week and threaten the chances of Nicolas Sarkozy, President of the France, in the runoff at the end of next week against François Hollande, the Socialist candidate. Yields of sovereign bonds in Spain, located in the heart of the crisis of the euro area, test the level of 6%, a sign of serious trouble. Rescue plans are already underway in Greece, Ireland and Portugal, while the Italy remains in a precarious state.

But how the markets have reacted to all this? With a sigh and a collective shrug. Inventories rose week last in London, Paris and Frankfurt, and with the help of reassuring comments from the Federal Reserve, they did in New York as well.

Larry Kantor, head of research for Barclays, said the Central Bank European is in large part responsible for the benign market response of most recent problems of Europe. By March, he said, the Central Bank injected 1,153 500 billion euros, 1.52 billion dollars in the European banking system, and a large part of this money was used to buy sovereign debt, lowering yields and reduce the pressure on jagged Governments and the whole of the economy of the region.

"In November, there is the risk of a real credit freeze,", said Mr. Kantor. "" Lack of bank loans really"in the eurozone in recession," said. "Injection by the E.C.B. was very important, and it is really much of this scenario disaster off the table."

He said that Europe could fight resolve his financial problems for years, but the "pragmatic approach" of the ECB in its new President, Mario Draghi, has given the markets much comfort.

"In the short term," at least, he said, "many of the tail risk has been removed."

None of which is to minimize the fundamental problems to come to Europe, where friction is growing on the wisdom of the dominant orthodoxy of fiscal austerity is to reduce government debt loads.

In France, Mr. Holland including promotes a more Keynesian solution, involving Government stimulus to promote growth and Government revenue. Mr Draghi, who was firmly in the camp of austerity, last week shifted his rhetoric, calling for a "Compact growth" in parallel with the budgetary Treaty of the European Union, which limits budget deficits and the national debt.

"We must intensify our reflections on the long-term European vision actively as we have in the past to other defining moments in the history of our Union," Mr. Draghi said members of the European Parliament in Brussels. But he indicated that he was contemplating "structural reforms", intend to make economies more competitive, rather than more of the Government spending. This is an approach that also promotes the German Chancellor, Angela Merkel.

Of course, the United States must cope with similar problems, but its economy, although really robust steps, now is growing faster than most of Europe. Gross domestic product increased at an annual rate of 2.2% in the first quarter, according to the Department of Commerce of the published figures Friday. Is that Wall Street had anticipated.

The economy is low enough that the Fed Wednesday policy makers reiterated their commitment to maintaining short-term interest rates, now close to zero, at "exceptionally low levels" for an extended period. They embark on the new programs unorthodox to stimulate the economy, but according to calculations by Barclays, various quantitative expansion efforts the Fed has expanded its balance sheet by $ 2.35 billion.

The balance sheet operations, low interest rates, had an extremely stimulating effect, amounting to the equivalent theoretical rate of interest reference Fed about negative 4 per cent, according to Thomas Lam, Economist at OSK - DMG to Singapore group.

Clearly, the Fed policy makers remain on high alert, even if their assessment of the domestic economy was slightly more optimistic than their previous forecast in January. On average, they predicted last week that G.D.P. would increase from 2.65% in 2012, an increase in the percentage of 0.2 of a point of their estimate of January. The rate of inflation will remain below the target of 2% for the year the Fed, they thought, and the unemployment rate slightly, drop to 7.9% of its current 8.2 per cent, according to Fed figures compiled by UBS Investment Research.

"" In a press conference Wednesday, Ben s. Bernanke, the Fed Chairman, said the Central Bank"did not hesitate" to take other measures to support the economy. Mr. Kantor said markets could display this promise as "a sort of extension of the Bernanke put"-a guarantee of intervention should data deteriorate considerably - which should give traders some consolation.

With election campaigns in the United States as well as in Europe, major new economic initiatives are unlikely for now, if they amount to fiscal austerity or stimulus. If markets remain calm in the meantime, it may be mainly through the influence of the central banks.

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For frontier markets for the next big thing in investment

Emerging markets portfolio managers specialize in the search for the next big thing. But after the conversion of many economies in Asia and Latin America during the two decades and strong yields and dominant popularity of their markets, which are left to find?

What stock markets in Africa, the countries of the Middle East and Asia, as well as to the Viet Nam, in Bangladesh and Sri Lanka? Investment advisers who focus on developing countries argue that many of these so-called border, especially in Africa, markets offer opportunities similar to markets emerging of previous generations.

"Africa will be the next great growth story that has largely unknown," said Larry Seruma, Manager of the Nile Pan Africa Fund, a mutual fund U.S. holding shares in companies that are based in the region or that are of important cases. "It can supplant the Brazil, China and the Russia if its potential is realized," he said.

It is a big if, and consider problems of Africa he only seem larger. There is misery, disease and hunger, aggravated by the other scourges that limit opportunities for Africans to improve their conditions of life: political instability, inadequate education and in some cases long military conflict.

But the case for the region and border markets elsewhere are precisely that they only set on the path of economic and social progress and still have a long way to go. It is the same journey made by the major emerging economies of today. There are barely four decades since Chinese farms were decollectivized, for example, and less than two decades the Brazilian inflation was running at more than 40 per cent per month.

"Frontier markets are often in a State of economic development much earlier than the major emerging markets and may have only recently opened to foreign investment," said Mark Mobius, one of the pioneers of investment in developing countries, who heads operations in emerging markets in Franklin Templeton, the fund company. "This helps explain their high growth potential." New markets were generally more space to grow, and the research of acute potential growth in global instability encouraged many investors to expand their horizons. »

A recent report by Citigroup has identified 11 economies should show exceptional growth in the century, including two of the usual suspects, China and the India. Most of the others are frontier markets - Bangladesh, Iraq, Mongolia, Nigeria, Sri Lanka and Viet Nam - otherwise minor emerging markets that managers of the border sometimes Portfolios invest in, as Egypt and the Philippines.

Calls to invest in places as they expect that they become future markets. Today and yesterday, it is another story. The MSCI index markets lost border approximately two-thirds of its value in the global collapse of 2008 and 2009.

This is a little more global harm than the index of MSCI emerging and mature markets, but where frontier markets are really suffering in comparison is in the period since then. The resumption of border markets was much less deep, leaving the index at least half of its 2008 high, while the other two indices have recovered almost all of their lost ground.

Pradipta Chakrabortty, a manager of Harding Loevner New Frontier market fund, attributed the weakness, especially in Africa, of the political unrest of the revolts of Arab spring and a series of economic and financial difficulties, steps over there, but to the North.

"Africa has many capital from Europe," he said. "It all started in 2010 flowing into frontier markets, but recovery is suppressed in the egg of the sovereign debt crisis".

Mr. Chakrabortty pointed out, however, that some investors deep pockets continue to funnel money markets of the border. Chinese companies make huge purchases of industrial and agricultural assets in places such as Africa and the Viet Nam.

Whenever investors decide to join them, there are three themes that fund managers expect returns of drive for the coming years: the growth of a consumer society of middle class, with all services and products which are its attributes; production and export of natural resources. and the development of infrastructure, including transport and communication networks necessary to the success of companies involved in the other two themes.

Mr. Chakrabortty is some of the best opportunities of these days in Africa and the Middle East and the Viet Nam and Bangladesh, where labour is cheaper than elsewhere in Asia. His portfolio is invested strongly focused on consumption of stocks such as Safaricom, a provider of telephone services Kenya and Equity Bank, also in the Kenya. Other selections include Squire Pharmaceuticals in Bangladesh and First Bank of Nigeria.

Mr. Mobius sees encouraging prospects for the border of the markets almost everywhere. He was "optimistic about the potential for growth in the long term in many countries" in Africa and said that "we must not forget countries of Latin America, such as the Colombia and Peru, the countries of Europe, such as the Romania and countries in Asia such as the Viet Nam, Pakistan and Sri Lanka."

Mr. Seruma focuses on Africa, but he does not feel the need to invest it to capture the promise of the continent. Its portfolio includes funds such as oil in Africa, who discovered the Kenya reservations, but have a shares listed on the Canada and Tullow Oil, which is registered in Britain and has assets of energy in Ghana and Uganda.

The Fund also has hybrids developed border as East African Breweries, which is half owned by the conglomerate global beverage Diageo and the Nestlé Nigeria. Among stocks African pure love are Guaranty Trust Bank in Nigeria and Flour Mills of Nigeria, a producer of basic food.

"As more capital gets employees" markets follows, "you will see the return to catch up with the rest of the world", Mr. Seruma predicted. For how long it will take to become a big thing, it is uncertain. "We must focus on the history of long-term growth", he said "" and be a patient investor.""

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