Investor Surveys’ End-Year Party Indulgence

2017’s impressive debt and equity market streaks are set to continue indefinitely subject to economic growth and inflation adjustments and other caveats focused on global central bank actions and geopolitics, according to early investor pulse-takings. The best year in a decade shrugged off Trump administration and Federal Reserve moves and China and commodity price worries that will remain prominent, and in 2018 EM currencies may not beat G3 ones, according to a limited Bloomberg poll of money managers. Mexico, Brazil, Indonesia and Russia will be outperformers, while China, Argentina, Poland and South Africa should lag. By the main three regions, Asia is favored over Latin America and EMEA, but the often cited “Goldilocks” combination of output, earnings and monetary impetus will be more selective across asset classes and geographies under still buoyant index results, the analysis finds. Turkey is viewed as the riskiest bet as the failed coup repercussions linger, President Erdogan’s allies are implicated in a US money laundering trial, the economy may be overheating with 8 percent growth the past quarter, and interest rates were hoisted only 50 basis points with double digit inflation amid the President’s charge it is on the “wrong path.” EMTA’s Q3 survey also came out to report steady $1.3 trillion in trading, with Asia outpacing Latin America for the first time in its two decades history. Local debt, at 57% of the total was led by India at $130 billion, followed by South Africa, Brazil, Mexico and China in the $75-$95 billion range. Eurobonds, split 53% and 40% percent between sovereign and corporate, had Argentina and Saudi Arabia prominent in the former category.  Brazil and India instrument dealing was almost equal overall, and China and Mexico ones were tied for runner-up status. Warrant and option turnover was $9 billion for the period and without a detailed breakdown were presumably on Venezuela and other oil exporters with value recovery rights from previous restructurings.

China has not yet entered mainstream domestic bond indices, but should be added next year as the stock market weighting also rises marginally on the MSCI. November economic data were mixed, with retail sales and exports up over 10 percent but fixed investment only ahead 7 percent at the slowest clip in two decades. Foreign exchange sales resumed even though the state allocation body cited currency “balance” and the bank regulator will soon end the waiting period for foreign institution yuan trading licenses. The official growth forecast remains 6.7 percent amid reports that the deleveraging push may soften at the December work conference. Tech firms not as indebted as large government enterprises now account for 15 percent of output and 10 percent of employment according to official research. The securities overseer has denied over 100 IPO applications although state company profitability is the best in five years. Moody’s Ratings has a stable banking sector , with the shadow segment under tougher rules as commercial lending continues to jump RMB 1 trillion monthly approaching a 15% annual pace. After signaling opening after a Beijing visit by US President Trump, Beijing insisted the 5 percent ownership reporting mandate will not change, as Washington’s new national security strategy criticized China’s “aggressive, mercantilist” system hardly putting international stakes first.