The BIS’ Statistical Blip Blasts
The Bank for International Settlements’ Q2 data showed an unaccustomed slowdown in global credit flows to most emerging as well as developed market regions, in particular to larger and Latin American destinations. The 2 percent quarterly drop affected both banks and non-banks, as US dollar liabilities to Brazil and India doubled since 2009 and also jumped to Korea and Turkey. The BRICS’ fall was greatest in line with capital outflows associated with Federal Reserve moves, but Mexico Chile and other countries also contracted 4 percent for the worst performance to date. US bank claims in the area were almost $150 billion early in the year and their high concentration experienced abrupt reversal as the central bank signaled lower Treasury and mortgage security buying. By contrast Asia, Europe and the Middle East-Africa were “relatively stable” as commitments to China grew and Poland ones slipped, while interest remained in lesser-known locations like Angola, Morocco and Gabon. The organization pointed out that greater local office exposure often offset the cross-border cutback in major developing economies despite domestic currency depreciation against the greenback. Through end-September EM currency-denominated international bond issuance at $110 billion roughly equaled the corresponding 2012 period, mainly in the Mexican peso, Brazilian real and Chinese renimbi. One-third came from companies based in developing markets outside the unit’s home, including affiliates and offshore centers. With better credit ratings since 2010, the non-dollar and euro-share has averaged around 10 percent of the total, helping to reduce balance sheet mismatches. The euro has lost ground since the continent’s debt crisis as its EM portion including in Central and Eastern Europe is now below one-tenth.
A dozen countries reporting on OTC derivatives tallied the worldwide amount at almost $700 trillion through Q3 for a 10 percent rise since last January. Interest rate instruments were 80 percent of the sum, with the remainder foreign exchange-related, and the growth segments were swaps, forward rate agreements and options. Credit default swap volume was down $25 trillion through the half-year, although sovereign activity improved 10 percent. Gross market value was off 15 percent to $725 billion, a post-crisis low as centrally-cleared transactions were still less than 20 percent for multiple name contracts. The EM turnover leaders in local and international trading include the Turkish lira and Russian ruble and for thirty main jurisdictions the net-net count is over $1 trillion or 4 percent of GDP, with near 15 percent recent expansion outpacing advanced economies. Exchange rate products are over half of daily dealing, with equity and interest rate ones each around one-fifth, according to regular BIS survey. OTC markets take almost 60 percent of business and reflect increased foreign portfolio investor hedging and speculative demand. Asia, especially Hong Kong and Singapore are interest rate derivative hubs, and the region dominates FX as well, followed by Europe and Latin America with roughly equal 20 percent-plus contributions with the UK and US also hosting the craze.
