Skip to main content

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 .


Popular posts from this blog

DAX forecast for coming week ended 15th March, 2013.

This week was very good for Dax, though it is getting resistance at 8100 range. Now it has a chance to test downside again. I think even if Dax tests lower levels, it has more chance to bounce back from around 7800 range and therefore it will again test upside.

On the other hand if it shows flat movements around 8000 range in initial days of the coming week then there is a chance that it may take a decisive call in later days. Considering the recent trends it has the chance to test higher levels may be around 8200 but that will be a very aggressive call after taking in to account the movement from last December. I will worry about the downside when Dax will be testing levels below 7600 ranges.
NOTE: Please see the disclaimer of this blog.

Fed’s rate hike Vs Sovereign rating up gradation

Financial market is very much worried about the rate hike in US, probably this is going to come in coming December. But I think that is not going to change much of the things. Even Fed hikes rate in December it will be not so much, because we are forgetting one thing that interest rate in US is around zero so even they hike rate by 0.25-50% basis points (at most) in this year that will not be enough cause for Dollars to change their locations around the world especially markets have already discounted this coming rate hike in US.

A new disaster is coming in EU banking sector, whom to blame, big Audit firms!

First I was thinking what should be the title of this posting? Will it be good if I write that big audit firms set the time for EU bank collapse! If someone is thinking that financial crisis is over then think twice because the coming EU banking crisis is no way less than 2008 financial crisis. The time bomb will explode at some point of time in future, the time has not yet set for it. In that tsunami, forget about the smaller if any major banks collapse then I will not be surprise.