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Change in scenarios of Emerging markets, effect of Fed’s treasury purchase .

Buying of $600 billion worth of bond will create lot of moneys in market.  Now how Fed is going to control these moneys ?     Where these moneys will be going ?
Fed purchased $1.7 trillion of assets in past now they are buying $600 billion treasuries. Now through this buying they must have an aim of making their economy stronger.  But the situations in U.S. is different now, banks are not giving any loan to those persons who has no job or homes e.t.c.  Situation in Housing market is still critical where some of the mortgage payments due are more than the market price of the houses. So certainly these moneys will not be going to housing market which is in deep water. Not only Housing market but many banks & business still are in risk. So unless the picture becomes completely clear  I don’t think these moneys are choosing those paths.

First I want to know who are going to make profit through this treasury purchase ?

Though I don’t have the required data but I am sure some big U.S. banks are making profit from this treasury purchase, whether directly or indirectly. Goldman sac,  JP Morgan. BoA, City and Morgan Stanley  these 5 banks have generated $93.7 billion in first 9 months from advisory, debt & equity underwriting and from trading of stocks and bonds. Some where I was reading that  trading through fixed-income  accounted  more than 60% of the total investment-banking  and trading revenue in the first 9 months of this year.  These banks already made huge income when bond prices were in highs. Trading and investment banking accounts  60% - 75%  for some banks. Some of these banks are hugely invested in Emerging markets and attach with different types of advisory and other investment banking works. Their works are closely related with Emerging market stock market.


Though I am not an economist but I have a gut feeling that these moneys are going  to come in Emerging markets whether through the hands of these banks or through other ways.  Now who will bring these moneys is not important the main thing is, they are going to invest it in Emerging markets whether in  stock markets for trading purposes or in other areas.
If these moneys are going to come in Emerging markets, I don’t think every country is going to welcome it. Because these moneys are going to cause their currencies to appreciate more and that may create an asset bubbles. So these countries will react, they will intervene. They may put taxes on these flows and many other types of interventions.
I have already wrote in one of my previous writing that how countries like  Brazil , South Korea is reacting.
Now if we consider Emerging market’s position without this Treasury purchase we can see that moneys are already shifting  in these countries.  Let consider India,  some banks of India  are or already have issued offshore bonds. Let consider State Bank of India  which has issued  750 million  Euro-bond, the largest ever  Euro dominated bond from an Indian borrower. There are lot of other instances like  ICICI bank, Union bank i.e. One thing to look, that these issues are subscribing like a hot cake.
Look like world is still believing  in Emerging market growth story than  other develop countries. But I think biggest constrain for emerging markets like China, India, Russia and others are inflation. Now how they deal with more increase of money supply is a matter to be look in. Fed’s treasury purchase announcement must be dealing with a time period. So it is up to everyone of us to decide what to do and what is coming.
If these moneys are coming for stock markets then we are going to see a huge jump in coming days. But time will say how much the market will correct before that or  the game just have started.



NOTE :  Please see the disclaimer of this blog .


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