Reason  

Posted by: savinginvestments     

Chancellor Angela Merkel has described the stabilisation of the euro as critical for the fate of Europe. What is at stake is, "more than a currency. We are called on to preserve the European vision," said Angela Merkel in her government statement.   "If the euro fails, then Europe too will fail. But if we manage to avert the danger, the euro and Europe will emerge stronger than before," the Chancellor stressed, speaking in the German Bundestag to justify the 750 billion euro rescue package for the common currency.     Culture of stability for Europe – not a union for transfer payments   The Chancellor roundly rejected the vision of a union for transfer payments as a model for the financial future of the European Union. That would, she said be "politically irresponsible". She outlined what is needed now in the form of three goals – a new culture of stability with stable budgets, rigorous measures to regulate financial markets and the ruthless identification and remedying of all structural weaknesses.   The German government will be pushing tenaciously for a sustainable solution to stabilise the euro. She countered rash criticism. "The German government is perfectly willing to be thought hesitant it that means that at the end of the day the right decisions are made."     Aid with strings attached – no automatic entitlement to assistance   As she explained the 750 billion euro package, Angela Merkel underscored that the assistance would only be made available provided certain conditions are met. These include the recipient countries making their own savings, and also accepting strict monitoring by the International Monetary Fund (IMF).   The Chancellor declared that there is no automatic entitlement to loans. "No cash will be transferred before the purpose is clearly stipulated and agreed," she said. Parliamentary control will remain unaffected. "The right of the German Bundestag to accept or reject the budget has been taken into account in full." The independent role of the European Central Bank (ECB) too, as custodian of the common currency and price stability, remains untouched.     A return to sound budgets   In her impassioned call for sound budget policy, and criticism of mounting public debts the Chancellor did not shy away from a look at her own house. We Germans too have incurred "debts". "We too are living on credit," she pointed out.   That makes the German provisions to limit the total permissible level of new indebtedness indispensable. Germany too must make savings, "intelligently, so as to generate growth at the same time”.     Tough penalties for notorious deficit states if necessary   At European level the Chancellor qualified the watering down of the 2004 Stability and Growth Pact as a "major mistake". This must now be remedied. She made a number of proposals in order to guarantee savings and consolidation measures in the euro-zone states.   If necessary, she stated, it ought to be possible to impose penalties on states that fail to tackle their budget deficit. These could mean that the states lose their voting rights in Europe for a period of time. Properly organised insolvency proceedings for states should also be an option. Although the path to recovery might be long and hard, "this cannot be taken as a reason for failing to do the right thing".     2020 strategy for growth   The 2020 strategy for growth is enormously important for the EU. It is important to push ahead with economic union, stated Angela Merkel. Currency union and economic union must be better dovetailed. Brussels should concentrate on key strategic aspects of future economic policy.     Rigorous monitoring of markets   On the international financial markets the "primacy of politics" must be restored. The laws of the market alone are not in a position to correct the faults on the money markets. Equally though, it would be wrong to attribute the entire blame for the crisis to the financial markets, she said. The markets had, however, blown up the problems.   In her calls for stricter regulation of the financial markets, the Chancellor was once again unwilling to accept any compromises. Germany demands effective measures, within the scope of the G20 or within Europe, she declared.   If necessary, she said, Germany could go it alone with regulation, provided the country was not thus disadvantaged. She gave the example of the ban issued by the Federal Financial Supervisory Authority BaFin on naked short selling for certain financial products, government bonds and credit default swaps (CDS).     The costs of the crisis must be spread equitably   The German government continues to defend the principles of the social market economy. At international level it will be pushing for an international financial activities tax or a financial market transaction tax. The financial markets must bear their share of the costs of weathering the crisis. The people are, she said, entitled to expect an equitable distribution of the follow-on costs.   The German government believes that there is no alternative to the course taken to ensure the sustainable stabilisation of the euro. "The option of pulling out of Europe is no option in this era of globalisation," underscored the Chancellor.   In an unprecedented move, the European Union, the European Central Bank and the IMF have put together a package to stabilise the euro. The package will cost the European side 500 billion euros. This sum will be supplemented by a contribution of the IMF. Of the 500 billion euros, 60 billion will be provided by an EU emergency fund, while the other 440 billion euros will take the form of loan guarantees issued by member states through a special purpose society. Germany's share will be 28 percent. The IMF contribution will bring the value of the package to a total of 750 billion euros.

Tags: Merkel, Angela, Speech, Europe, Aid, Fund, Bill
Blog Comments (0)     

Reason  

Posted by: savinginvestments     

Solid Q1 GDP growth released on Thursday underscores the Bank of Japan's rosy near-term economic assessment, giving confidence to BOJ board members about keeping their longer-term sustained economic recovery scenario.   But as the board holds a two-day policy meeting ending on Friday, it is nervously monitoring and assessing the impact of developments in financial markets overseas in light of the Greek debt crisis.   Japan's economy expanded for the fourth straight quarter in January-March, led by a continued recovery in exports as well as gains in consumer spending and business investment, the Cabinet Office said today.   Gross domestic product grew 1.2% in the January-March period from the previous quarter, or at an annualized pace of 4.9%, up from a revised +1.0% q/q and 4.2% annualized in the fourth quarter (from +0.9% q/q and +3.8% annualized).   Today's GDP figures support the idea among BOJ officials that the central bank should upgrade its overall economic assessment, possibly by using the term "recovering" in describing the continued improvement.   In April, the BOJ said, "Japan's economy has been picking up."   If the BOJ used the term "recovering" or "expanding," it would be the first time since March 2008, when it said, "Japan's economy is expanding moderately as a trend."   The BOJ's two-day policy-setting meeting will kick off this afternoon and the meeting results, including the latest economic assessment, will be released around 1230 JST (0330 GMT) on Friday.   On the downside, a continued drop in the Nikkei stock index may prevent the board from revising up its economic view this month.   "Strong GDP data would not be a surprise as the economic data already released have indicated strong GDP figures," a person close to the BOJ said earlier this week.   Private-sector economists expected real GDP to have risen more than 5% on an annualized basis in the first quarter of 2010 given signs of a recovery in business investment and consumer sentiment.   Another person close to the BOJ said before the GDP data release, "The board's assessment of the current economic assessment is very optimistic in the wake of stronger economic improvement in emerging countries, although global financial markets remain volatile."   The person added that a key point at the policy meeting is how board members will assess the impact of recent volatile financial markets when reviewing their longer-term outlook.   The BOJ board has regarded a worsening of financial markets in Europe as a key downside risk to Japan's economy, anticipating continued fragile share prices overseas.   The first person said, "Fortunately, the financial turmoil in Europe hasn't filtered through to emerging countries, which are large trading partners for Japan. Unless the board changes its view on a continued recovery in emerging countries, its baseline scenario will be maintained that the pace of economic recovery is likely to rise gradually."   The second person said that the BOJ board doesn't see an imminent need to modify its baseline view presented at the last policy meeting on April 30, although global stock prices have slumped and remain volatile.   He added that whether emerging economies, mainly China, will continue to expand even a slower pace later, holds the key to the BOJ's outlook.   The BOJ said on April 30, "Japan's economy from fiscal 2010 through fiscal 2011 is likely to be on a recovery trend."   It also said that Japan's exports are likely to continue increasing against the backdrop of strong growth in emerging and commodity-exporting economies, and business fixed investment is also likely to pick up with the recovery in corporate profits.   The central bank said, "the pace of increase in private consumption and housing investment is likely to accelerate. Taking these points into account, the growth rate of Japan's economy is expected to be at a level above the potential growth rate in fiscal 2010, and to accelerate in fiscal 2011."   As for the U.S. economy, the BOJ board maintains the view that the pace of economic improvement will be modest as balance-sheet adjustments at financial institutions and households continue to pose a threat to economic growth.

Tags: Japan, Economy, Review, 2010
Blog Comments (0)     

Reason  

Posted by: savinginvestments     

The research by the IFA promotion website showed that by the final quarter of 2009 people in the UK were borrowing 62p for every pound they saved.   Based on these figures, Unbiased is predicting that increased public borrowing and lower savings levels will continue as a trend throughout the year.   Its Savings Brake research showed that by the end of 2008 the British public were conscious of their debt levels and working hard to repay what they owed, with £1.68 being repaid for every pound they saved.   However, these virtuous repayment habits of 2008 failed to continue, with the borrowed amount creeping higher by the start of 2009 and increasing throughout the year.   According to the survey, in 2009 Brits borrowed a staggering £28.2bn worth of non-mortgage debt, a stark contrast to the £39.3bn that was repaid during 2008.   New savings levels have almost halved during 2009, with only £71.6bn being saved, compared with a massive £113.4 billion in 2008.   Even more worryingly, overall savings levels decreased year-on-year, with a total of £144.9bn of new savings in 2007, falling to £113.4bn in 2008 and £71.6bn in 2009.   Karen Barrett, chief executive of Unbiased.co.uk, said: "While we may be officially out of recession, these latest figures highlight that consumers are back behaving as they did before the onset of the credit crunch, even though the economy is still not back to full strength.   "The credit crunch appeared to have a dramatic 'shock' effect on the public, who were jolted into paying off their debts, but it appears this has failed to effect long-term borrowing and savings habits. There is no indication that we will see an improvement of financial behaviour in 2010.   "While many believe we are over the worst, there is still a lot of consumer confusion out there right now, and it is vital people seek professional advice from an IFA to enable them to strike the best balance between borrowing, saving and other aspects of their finances throughout these difficult times."

Tags: Money, Savings, Borrowing, UK
Blog Comments (0)     

Reason  

Posted by: savinginvestments     

From April 6 2010, savers will be able to save up to £10,200 tax-free as outlined in today's budget report.   This is the second time the ISA limit has been raised in nearly a decade and more rises are to come, following Alistair Darling's announcenment that the limit will rise with inflation, which could see the limit increased by a further £200 if the predictions of a 2% rise in inflation hold true.   Darius McDermott, MD of Chelsea Financial Services agrees that this "ensures that future allowances will not be eroded by inflation" however, sees the linking of ISA allowance with inflation as no more attractive to investors; it "will only serve to keep the tax wrapper from obolescence."   So it seems that only current investors are being hit with good news from the budget report, which seems to be the general concensus amongst the financial community who view the raised limit solely as a token gesture to make up for hard hitting taxes for high earners. But they themselves are the high-earners who have been hit, so it is no wonder there will be reports of bitterness from the financial directors and experts.   But it seems this is definitely a good signal for everyone else. A survey undertaken on the 13th of March showed that only 1 in 10 people knew how much they could save tax-free into an ISA each year. Far from being confusing to customers, which the big-shots have all been saying, the breaking down of age barriers with different ISA limits is sure to make it easier for people to understand how much they can save tax-free. If many are confused, it is only because information regarding the limits have been misleading and not properly communicated to the customer by the banks or building societies.   Although some are viewing today's budget in a grim light, the majority of those will find a lot of benefit in simplifications and allowances such as the rise in tax-free limits for ISA savers.

Tags: ISA, Savings, Accounts, Budget, Darling, Limit, R...
Blog Comments (0)     

Reason  

Posted by: savinginvestments     

1 MySupermarket.co.uk Fill a virtual trolley with your regular shop, wait for the site to tell you which of Asda, Tesco, Sainsbury's and Ocado can provide the lot for the lowest price, then order it all online.    2 MoneySavingExpert.com Run by penny-pinching price-watcher Martin Lewis, this site is heaving with information on top deals for everything from credit cards to health cover. Its forum, meanwhile, is full of tips from people even more frugal than Lewis.    3 ReadItSwapIt.co.uk Never buy another book. List the literature on your bookshelf that you’d happily exchange (you can simply type in the ISDN code of each volume) then go hunting in other members’ collections for swapsies. All you pay is the postage — about 90p for each paperback.    4 HomeExchangeNow.co.uk This huge site has more than 25,000 international listings for people looking to swap homes for a holiday. Granted, there is an annual £70 fee, but you could save thousands.    5 MyVoucherCodes.co.uk Of the many sites promising access to the thousands of money-saving online promotional codes, this one is the slickest and — with a claimed 4.5m visitors every month — one of the most popular.    6 PetrolPrices.com.uk Not much use if you’re in rural Argyll — it's either the local garage or the one in Inveraray — but for better-connected motorists this postcode-based search engine could save tidy sums when filling up. Registration required.    7 Quidco.com Sign up with Quidco and when you buy online with any of 1,200 registered retailers, from Argos to Apple, you get back up to 10% of the cost in cash, straight to your bank account — minus £5 for your joining fee.    8 FatFingers.co.uk Cruel but inspired, FatFingers helps you profit from people whose eBay listings contain a spelling mistake, so hiding them from regular searchers. Type in “Rembrandt”, and that “Rembrant original” with no bids could be yours.    9 LiftShare.com If your intended travel path is a popular one — from London to Manchester, say — and you are flexible on dates and feel comfortable sharing a car with a stranger, there's a chance you’ll find a member willing to take you for a share of the fuel costs. Registration is free.    10 Skyscanner.net Plenty of sites promise to trawl through the thousands of discounted flights available online, but none does it with the ease of use of Skyscanner. And you won’t get bombarded with car hire and hotel deals either — unless you want them.

Tags: Money, Saving, Websites, Best
Blog Comments (0)     

Reason  

Posted by: savinginvestments     

The ‘lost generation' has been hit hard by the economic downturn as young adults have struggled to get jobs and make ends meet, so they are having to rely on their parents more than ever for support.   According to research from the fourth annual Scottish Widows Savings and Investment Report, adult children are continuing to ‘sap' their parents' savings and investments and while the average amount being handed out has increased significantly, the number of parents able to give has fallen. Almost half (47%) of parents with children over 16 have given or loaned money to their adult children or grandchildren; this is a drop of 9% from 2009, but the average ‘Savings Sap' is £13,660 (up from £11,800 last year), revealing those parents able to give are being forced to give more as their children struggle. The overall saving sap fund has decreased to over £64.3billion, from £72.5 billion last year.   Many young adults are forced to borrow from their parents just to get by, over a third (35%) are digging into their parents pockets to fund day to day spending and living expenses, compared to nearly a quarter last year (24%) Over a third (38%) needed the parental handouts to pay off debt and 34% needed the cash for a house purchase. Whilst one in ten of those using mum and dad's (or grandparents) money are doing so in order to train for a new career as many people have had to reassess their career options.   Iain McGowan, savings expert at Scottish Widows comments: ""Our "savings sap" research highlights the "double whammy" of the recession where children are relying on their parents. On the one hand, "generation Y" is looking ever more to its parents for help as it struggles to get jobs, credit and mortgages - and to clear debt. At the same time, the "Bank of Mum and Dad" is not as readily available as it once was, often for the same reasons. This means that fewer parents can afford to give or loan money, while those who can, are being asked to provide more. The overall effect though is a fall in the "savings sap fund" in these challenging economic conditions. "   The immediate effect the saving sap fund has had on parents is also alarming. 82% of parents who gave money to family members had to dip into their savings to do so, and worryingly 54% of these do not think they will be able to top up their savings. Handing money out to their kids has also led over a fifth (22%) of parents to cut back on day to day spending, one in ten have increased their own levels of debt including mortgaging or remortgaging their property, nearly a third are saving less (31%), and 12% have stopped saving altogether. If parents didn't have to hand out their hard earned cash, 32% would have been likely to save it toward their retirement.   The research also reveals that over half (52%) of all parents with children aged 16 plus that have already given money to their children are expecting to give again in the future. This group of parents think that they will have to donate on average another £14,159, over £1,500 more than was predicted last year (£12,564), which on top of the £13,660 they have already given means that they are only half way through their giving cycle. However, not all parents are in a position to give their children or grandchildren a helping hand. Nearly a third (31%) of those who have not given any money to their children or grandchildren could not afford to, and 18 % had no savings to give.   Iain McGowan continues "With many parents only half way through their giving cycle, this is a worrying situation to be in. Parents will not only be extremely vulnerable to any unforeseeable circumstances such as salary cuts, but the extra handouts to their kids can also affect them in retirement, meaning they may have to work longer, or make their retirement savings stretch further. The earlier parents and children get into the habit of saving the better. Saving regularly into a tax efficient savings vehicle such as an ISA can help to build up a "Sap Fund" and make a big difference."

Tags: Downturn, Parents, Money, Savings, Cost, Living, ...
Blog Comments (0)     

Reason  

Posted by: khuram     
 
Fund manager Christian Cambier, the founder of French boutique Prigest, is tipping Japan to be the most interesting equity market for 2010.
 
Speaking at Citywire's Paris forum, Cambier said Japan is now being widely overlooked by investors.
 
‘Nobody has Japan funds anymore. Everyone is launching new China or India or Brazil funds, but people forget about Japan,’ he said.
 
Cambier runs two funds: Valfrance, a French equity fund, and Royale Pacifique, which invests in both Japan and Hong Kong. Currently with his Royale Pacifique fund he is loading up on Japanese shares, though avoiding those that are domestically focused. His five-year performance with the Valfrance fund leaves him second in the fund manager rankings in the Equity France sector, having delivered a total return of 48.87%.
 
‘I think Japan is the market for 2010,’ he said. ‘It has been the casualty for the last 20 years, but this can change this year. You don’t buy Japan, you buy stocks. When you buy Nestle, you are not buying Switzerland you are buying a great company. Companies like Hitachi have been going down for years and are now fully undervalued.’
 
He points out that the Chinese or Indian counterparts of the Japanese companies Cambier likes - such as construction firm Komatsu - doubled last year and this year it could be the Japanese firms’ turn.
 
A recent trip to Japan convinced him to change the make-up of his portfolio. ‘When I came back from Japan I sold a lot of my Hong Kong equities and bought their Japanese equivalents. If I had a long short fund I would short China and go long Japan.’
 
Meanwhile, Cambier said he would buy sterling, which he thinks is undervalued and cheap, and he is still avoiding financials due to the unpredictability of western leaders.
 
‘Obama, Merkel and Sarkozy are the biggest risks, no-one knows what they will do,’ he said.
 
Tags: Japan, Market, 2010, Equity, Investment, Sterling...
Blog Comments (0)     

Reason  

Posted by: khuram     
 

 
K. Geert Rouwenhorst and Gary Gorton, the Yale University professors whose research earlier this decade helped spur a commodities rush, joined UBS AG's former head of commodities trading to start a new firm.
 
SummerHaven Investment Management LLC may offer managed futures accounts, exchange-traded and mutual funds, as well as private funds. Rouwenhorst is a partner and Gorton a senior adviser to the Stamford, Connecticut-based firm. Ashraf Rizvi, 47, who spent 14 years at UBS, will lead the firm's trading.
 
Gorton, 58, and Rouwenhorst, 49, “are the gurus in the commodity space, there's no question about that,” said Matt Hougan, editor of IndexUniverse.com. “They were essentially the first ones who really made the case for having a strategic long- term exposure to commodities in your portfolio.”
 
Commodities will likely attract a record $60 billion this year as investors seek to diversify their assets, Barclays Capital said in a November report. Total commodity assets under management will probably expand to $230 billion to $240 billion by the end of the year, the bank said.
 
SummerHaven, founded in April, will focus on futures linked to physical commodities in metals, energy, grains, livestock and as well as coffee, cocoa, cotton, sugar and orange juice. The firm won’t trade futures tied to equities, currencies or interest rates, said Kurt J. Nelson, 40, who is a SummerHaven partner and a former UBS colleague of Rizvi.
 
‘Commodity Exposure’
 
“We’re there to provide commodity exposure across a variety of products and for a variety of clients,” including retail, endowments and pension funds, said Nelson, who worked at UBS from 1996 to 1998, then again from 2007 to July. In between, he worked for American International Group Inc.
 
Nelson, who assisted in UBS's purchase of AIG's commodity index business before he left UBS in July, declined to disclose SummerHaven's assets under management. AIG is the insurer bailed out by the U.S.
 
Gorton and Rouwenhorst's 2004 paper “Facts and Fantasies About Commodity Futures,” funded in part by AIG, argued that an investment in a broad commodity index would have brought positive returns from 1959 to 2004. Both are professors of finance at the Yale School of Management.
 
Fully-collateralized commodity futures have historically offered the same return for the same level of risk as equities, they wrote. Over a long period of time, commodities rose with inflation, and had a relatively low correlation to stocks and bonds, potentially rising when other assets fell, they said.
 
‘Influential’ Scholarship
 
“I would guarantee that every major endowment and pension fund that has a strategic allocation to commodities, and that's most of them these days, have a copy of their paper on their desk,” Hougan said. “It has been critical to the asset class.”
 
Their scholarship was “influential” in decision-making by pension funds on commodity investments, said Chris Armitage, head of U.K. investment at FourWinds Capital Management, which manages about $1.4 billion in natural-resources funds.
 
The research “filled a void” for those interested in commodity investing that lacked the data to analyze, Rouwenhorst said in a telephone interview. “It dawned on Gary and me some time in 2003 that there seemed to be interest in commodity investing, but nobody had studied the long-term returns of the asset class.”
 
Whether their hypothetical models will translate into real- life profits remains to be seen, said Michael Frankfurter, trading manager of Cervino Capital Management LLC in Santa Barbara, California, a commodity trading adviser and investment adviser with $10 million under management.
 
Commodity Products
 
“They are not traders,” said Frankfurter. “There's a completely different culture between traders and academics. Their formula is a fictional construct. You cannot do that in real life.”
 
While this is Rouwenhorst's first time starting his own firm, he has worked for the last five years with large commodities firms “helping them to implement ideas from research into successful commodity products,” he said.
 
Rizvi will lead the firm's trading, and partner Adam Dunsby, 41, co-founder and principal of Cornerstone Quantitative Investment Group from 1995 to 2008, will do the quantitative modeling, Nelson said.
 
In addition to Gorton, senior advisers include Steven H. Bloom, founder of Sagamore Hill Capital Management LP, and Fumio Hayashi, a former economics professor at the University of Tokyo and research associate at the National Bureau of Economic Research. Hayashi co-authored a paper with Gorton and Rouwenhorst in 2006 titled “The Fundamentals of Commodity Futures Returns.”
 
Tags: Yale, UBS, Professors, Investment, Firm, Alumni
Blog Comments (0)     

Reason  

Posted by: khuram     
 
Companies in Europe and the US have drawn more funds from bonds than from loans this year as as the impact of the credit crunch continues to restrict bank lending.
 
The volume of global corporate bonds (excluding financial institutions) stands at $1.31tn (£812bn) so far this year, ahead of the $1.08tn that companies have raised through bank loans, according to data provider Dealogic. Companies issue bonds to investors, paying them interest and the full amount when the contract expires.
 
It is the first time bond issuance has outstripped lending. The figures contrast dramatically with 2007, when the volume of corporate loans, $4.16tn, was a record four-and-a-half times that of corporate bonds, Dealogic said.
 
"We are going towards a more bond-oriented market, than a loan market, and I don't think it's going to reverse," said Mehernosh Engineer, senior credit strategist at BNP Paribas. "We will see a gradual transition, as banks reduce credit risk. Banks will have to de-leverage because regulators will cap the amount of leverage that banks will take on."
 
European companies have traditionally relied more on lending from retail banks to avoid hiring an investment bank and issuing bonds to investors - a move that forces them to open their books and pay bankers' fees. But now, tight bank lending is giving companies no choice: European businesses have raised $504bn in bonds so far this year, more than the $315bn that they've borrowed from banks.
 
The US, once also dominated by banks, has moved towards a more bond-oriented market, allowing retail banks to enter into investment banking activities, such as bond issuance. "Banks became more the distributors of risk than the accumulators," Engineer said.
 
Some companies welcome the change because bonds typically have longer maturities than loans, giving management more time to plan.
 
"There has to be a healthy mix between loans and bonds, but with loans you're less at the mercy of the market liquidity, you are allowed to do more long-term planning and it also gives management a little more flexibility," Engineer said.
 
Bond issuance, however, is mostly for larger companies that can pay the costs of hiring an investment bank to organise the deal and find investors. But smaller companies are forced into the high-yield bond market - facing hefty interest payments - or they need to stay in the traditional bank lending market. "Smaller companies are different, they are still at the mercy of the banking system -and that's always been the case and it will always be," Engineer said.
 
In the UK, bonds account this year for 55% of all corporate financing, up from 19% in 2005, according to the Guardian calculations, based on data from Bloomberg and the London Stock Exchange. The contribution of loans has plunged to 15% this year, from 48% four years ago.
 
Tags: Bonds, Loans, UK, Europe, US, Recession, Impact, ...
Blog Comments (0)     

Reason  

Posted by: savinginvestments     

 
According to a recent report by the Reserve Bank of Australia (RBA), forex volume is down in nearly every major category. “However, turnover declined by over 20 per cent between October 2008 and April 2009 to US$2.5 trillion, to be at its lowest level in over two years, a move reflected in all six markets indicating global, rather than location-specific, causes. The largest markets – the United Kingdom and the United States – experienced the sharpest percentage falls.”
 
The report was based on a survey of the world's six largest forex trading hubs - US, UK, Japan, Canada, Singapore, and Australia - and produced a few interesting revelations. The first is that forex volume peaked well after other capital markets. This can probably be attributed to the notion that there is never a bear market in forex. In other words, after stocks and bonds began to collapse in the summer of 2008, investors embarked on a mission, unprecedented in its speed, to move capital from risky countries to safe-haven countries. This switch, by definition, required the forex markets to facilitate.
 
This point is further illustrated by the fact that, “the decline in turnover of spot and forwards occurred somewhat later than that in foreign exchange swaps and derivatives….Spot turnover reported in October 2008 was likely to have been supported by large cross-border capital flows as investors sought to reduce risk by repatriating foreign investments. In addition, the high frequency and impact of news at the height of the crisis would have generated the need for investors to frequently adjust their positions.”
 
The final revelation is that the change in forex volume was not always commensurate with changes in trade volume. A general relationship between trade and forex turnover has been observed, although speculators ensure that currency is exchanged much more frequently than actual goods and services. The two currency pairs registering the greatest unbalance are the CHF/USD and CAD/USD. Forex volume for the former fell much more sharply than trade, while the opposite is true of the latter. One can only speculate as to why this is the case. As for the CHF/USD, forex volume probably suffered disproportionately more because both the Swiss Franc and US Dollar were perceived as safe haven currencies, in which case it would be relatively less useful to exchange them for each other. In the case of the CAD/USD, meanwhile, it makes sense to view the imbalance in terms of the spectacular decline in trade, which was largely a product of declining commodity prices.
 
It's impossible to predict whether forex volume will remain depressed. Given the efforts underway to increase regulation and curtail leverage, I don’t personally expect volume to recover for a while. As for the implications, the less might be to stick to the majors. If volume is declining, it will probably affect emerging market currencies most. Lower liquidity might translate into higher volatility. However, it's worth pointing out that volatility has been declining ever since it skyrocketed after the collapse of Lehman Brothers last fall. In that case, it might be that investors are behaving more prudently with less funds to trade with.
 

Tags: Forex, Investment, Investing, News, Study, Report...
Blog Comments (0)