The Walking Dead: Zombie Firms Stifle Economic Recovery Prospects

With the global economy stuck in a low growth trap, it is crucial to understand the factors behind the weak recovery in potential output growth, and particularly the barriers to productivity growth. New research shows that this dynamic can be partly understood in terms of the increasing survival of zombie firms – i.e. those firms that would typically exit in a competitive market but are being kept alive by creditors or policy weakness. Today, a key risk is that zombie firms may depress creative destruction, crowd-out growth opportunities for healthy firms and underpin a period of macroeconomic stagnation, just as they did in Japan in the 1990s (Caballero et al., 2008).

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Happy Valentine’s Day: Cocoa Hits Lowest Since 2008

If you buy a little extra chocolate this year for your Valentine, your wallet will be as happy as your sweetheart.  The S&P GSCI Cocoa is at its lowest level (closing Feb. 10, 2017) since Nov. 13, 2008.  It is down 31.3% since last year and is the single commodity with the biggest loss in the past 12 months.  

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Index Basics: Calculating an Index’s Total Return

Total return indices deserve more attention.  They more closely represent what an investor participant actually takes home: the return of an index, plus dividends paid and reinvested in the index.  Their better-known counterparts, which only track price changes in securities—often called “price return indices”1—get all the fanfare (see “Dow Hits 20,000 for the First Time”).  Total return indices, on the other hand, are often quietly downloaded and placed in a chart halfway through a financial advisor’s presentation.

OECD Survey of Corporate Governance Frameworks in Asia

The OECD has just published its OECD Survey of Corporate Governance Frameworks in Asia. Covering 14 different economies in Asia, the Survey covers various aspects of corporate governance from ownership structures, regulatory issues, board matters, shareholder rights, and the like that are prominent in relation to corporate governance of companies in those countries. The key is that in most of these jurisdictions, there is concentration of ownership (at varying levels) and hence corporate governance issues may be different from that faced in an Anglo-American context. Although the Survey is a top-level one containing an examination of key parameters in corporate governance, it is nevertheless useful for academics or practitioners looking at Asia from a broader comparative perspective.

How Did Indian Equities and Fixed Income Fare in 2016?

What a year 2016 was—from concerns about slowing down of the Chinese economy and a surprise vote by the UK to exit the EU to a continued trend of low-to-negative interest rates among major economies globally, demonetization in India, the shocking victory of Donald Trump in the U.S. presidential election, and finally, the U.S. Federal Reserve ending the year with a hike of 25 bps in short-term interest rates. Throughout the year, market participants kept asking “what next?”

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Webinar Bloomberg – Asia 2017: Navigating Challenges

Asia 2017: Navigating Challenges
Bloomberg Intelligence economist Tamara Henderson discussed the key challenges facing ASEAN and Australia/New Zealand, the likely policy responses as well as implications for growth, inflation and currencies in 2017.
For your convenience, a recorded version of the webinar is available now.
WATCH THE REPLAY

Climate Bonds 2016 Highlights: The big issuers: The big numbers: The trends that count and a 2017 forecast

Climate Bonds 2016 Highlights: The big issuers: The big numbers: The trends that count and a 2017 forecast

A record year with green bond issuance of USD 81bn, up 92% on 2015 figures

The Big Numbers

92% – growth on 2015 making 2016 the most prolific year to date

USD 11.8bn – November issuance, the largest month on record

24 – number of countries with green bond issuers

27% – proportion of Chinese issuers

241 – number of labelled green bonds issued (median size USD133.7m)

>90 – number of new issuers

>50 – number of repeat issuers

USD 4.3bn – largest single green bond ever issued from the Bank of Communications (China)

1st Sovereign – Republic of Poland became the world’s first sovereign issuer

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The New Generation of Green Investors

In recent years, socially responsible investing has gained importance among market participants worldwide.  There has been an increase in the number of those who have become socially conscious and want their investments to go to businesses that acknowledge the relevance of environmental, social, and governance factors to doing business.  Green investment is considered a subset

RETURN OF THE CYCLICALS

Taken together, the U.K.’s vote to leave the European Union and the U.S. presidential election contributed to a shift in the underlying fabric of equity markets starting in the second half of the year.

While the Brexit vote created huge uncertainty in global markets, the U.S. election and an upbeat assessment by the Fed had an opposite effect: Institutional investors shifted their strategies toward U.S. companies that benefit from economic growth and away from minimizing risk, notes Raman Aylur Subramanian, MSCI’s head of equity applied research, in his latest post.

The result: We saw a rotation to cyclical sectors and factors out of their defensive counterparts as well as a move to small-cap stocks and away from large caps.

For the analysis, click here.

Latest memo from Howard Marks: Expert Opinion

In August, I mentioned that I had chosen the title “Political Reality” for my memo in part because of my liking for oxymorons.  I classed that title with other internally contradictory statements, such as “jumbo shrimp” and “common sense.”  Now I’m going to discuss one more: “expert opinion.”  Read more

Aswath Damodarn – The Promise and Perils of “Big Data”!

Each year, for the last 25 years, I have spent the first week playing Moneyball, with financial data. I gather accounting and market data on all publicly traded companies, listed globally, and then try to extract whatever lessons that I can from the data, to use in investing, corporate finance and valuation for the rest of the year. I report the data, classified by industry group and by country, on my website, in the hope that others might find it useful. While, like last year, I will be summarizing what I see in the data in a series of posts over the rest of January, I decided to use this one to both provide some perspective and cautionary notes not only on my data but on numbers, in general.

 

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Banking union, securitization rules priority of EU Council

As Malta assumes presidency of the Council of the EU for the next six months, its officials said the most important financial-services priorities are pressing ahead with the creation of a Europe-wide banking union and resolving disagreement among EU states over rules for securitization. Other major initiatives include revised banking rules and policies on tax avoidance.

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Why the leverage ratio distorts market-making

Big increases in the capital requirements of bank-affiliated dealers have drained liquidity from over-the-counter markets, especially for products that occupy a lot of space on dealer balance sheets, such as bonds, swaps, repos and foreign exchange contracts.

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Research: Securitized loans less risky despite asymmetry

Research by the Bank for International Settlements finds evidence for asymmetric information in the securitization market, but not to levels that compromise credit standards. Securitized loans overall show higher quality than non-securitized loans.

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Who’s Afraid of the Fed? Not Investors in Junk Bond ETFs

Inflows into junk-bond exchange-traded funds surged last month, outpacing investment-grade for the first time in 2016. The flip occurred as the Federal Reserve voted to raise interest rates, threatening the value of the underlying debt. Investors’ sudden fondness for high-yield securities likely stems from the market’s increased tolerance for risk since the election of Donald Trump, said Eric Balchunas, an ETF analyst for Bloomberg Intelligence. “There’s a new variable in town and it’s massive.”

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China starts to put brakes on credit creation

China’s central government and the People’s Bank of China are showing a change in attitude and a slowdown on their policy of encouraging credit growth, which has been in place for years, according to several market analysts. A move toward tighter regulation, a squeeze on liquidity and rising inflationary pressure are said to be the main factors behind the shift.

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S&P Webcast : Asia-Pacific Sovereigns Rating Trends: 16 January 2017, 11AM SGT

Title: Asia-Pacific Sovereigns Rating Trends: January 2017

Please join us for a webcast and Q&A on 16 January 2017 on APAC  Sovereign Rating Trend.

Date and Time: 16th Jan, 2017 , 11:00 a.m. Hong Kong/ Singapore Time

 Key Discussion Points:

  • The number of Asia-Pacific sovereign ratings with negative outlooks remains at a level not seen since mid-2010, when the region was coming out of the global financial crisis.
  • 2017 economic prospects for much of the region are unlikely to be more supportive than in the past few years.
  • Political developments in the advanced economies add further uncertainties.
  • The implications of these and other developments for sovereign ratings in Asia-Pacific.

Speakers:

  • Kim Eng Tan , Senior Director, Sovereign Ratings
  • Craig Michaels, Director, Sovereign Ratings
  • YeeFarn Phua, Director, Sovereign Ratings


Register now.
 

You will receive the replay as long as you register, even if you end up missing it.

Important Note:You will need computer speakers or headphones to listen to the webcast. You may submit your questions for the speakers in real time via the web interface. Please test your system here at least 15 minutes before the scheduled start time.