Capital pours into emerging-market debt funds
Fixed-income investors put $4.2 billion into emerging-market debt funds from June 30 to Aug. 31, and the investment flood is boosting returns, Morningstar said. For the year, the funds are up an average 12.37% when reinvested dividends are included in the calculation.
In a country’s financial infrastructure, ‘Credit Reporting’ is a vital part and is also an activity of public interest. Studies in developed countries suggest that in an economy, the presence of a robust credit information system helps the spread of outflow of finances.
MSMEs in India are yet to be fully represented in credit bureaus. They are yet to leverage the benefits offered by credit bureaus and credit rating agencies to build, maintain and enhance their financial track records and credit standing.
To enhance the awareness about Credit Reporting, the SME Finance Facilitation Centre of CII is organizing an online session on ‘Credit Information Awareness Training’, in collaboration with the World Bank Group. In this session, a team from the World Bank Group would disseminate this knowledge by:
- introducing new knowledge on this subject
- helping to understand the nuances
- assisting MSMEs to create a financial attitude for themselves
Global asset prices are too high given their less-than-stable foundations, the Bank for International Settlements warned in its quarterly review. “The apparent dissonance between record low bond yields, on the one hand, and sharply higher stock prices with subdued volatility, on the other, cast a pall over such valuations,” according to the report.
Credit portfolio management (CPM) is a key function for banks (and other financial institutions, including insurers and institutional investors) with large, multifaceted portfolios of credit, often including illiquid loans. Historically, its role has been to understand the institution’s aggregate credit risk, improve returns on those risks—sometimes by trading loans in the secondary market, and hedging—and identifying and managing concentrations of risk. In contrast to traditional origination and credit risk-management functions that look only at individual deals or borrowers, CPM looks across the entire credit book. Read more
In a series of posts, we have discussed mounting evidence that, with 90% of U.S. public companies using custom metrics, non-GAAP presentations are becoming a de-facto alternative accounting system. In a May speech, Mark Kronforst, chief accountant of the SEC’s Division of Corporation Finance, stated that SEC requirements to avoid giving undue prominence to non-GAAP results were “not working”.
Excellent account of the super-Lehman bankruptcy of 150 years ago (Overend Gurney)
The failure of Overend Gurney — a discount house which had been larger than its three next largest competitors combined — sent shockwaves through the financial system in
May 1866. The seeds of its demise had been sown many years earlier. Despite its profitable bill broking business, Overend Gurney had been on the brink of failure for some time, incurring enormous losses from the bad loans it had extended with little credit risk assessment.
There’s a lot of discussion of the flattening of the yield curve, and what it portends, in the US (see this post, Irwin/NYT). Interestingly, yield curves are flattening around the world, even in some emerging markets.
Read more: http://econbrowser.com/archives/2016/07/decomposing-changes-in-term-spreads-around-the-world
Mean Reversion: Gravitational Super Force or Dangerous Delusion?
In my last post on the danger of using single market metrics to time markets, I made the case that though the Shiller CAPE was high, relative to history, it was not a sufficient condition to conclude that US equities were over valued. In the comments that followed, many disagreed. While some took issue with measurement questions, noting that I should have looked at ten-year correlations, not five and one-year numbers, others argued that this metric was never meant for market timing and that the real message was that the expected returns on stocks over the next decade are likely to be low.
A year and a half ago, I wrote a blog post about loss aversion and negative interest rates. That post argued that if prospect theory is true, then the most loss averse investors who traditionally invest in bonds would now become risk seeking when confronted with certain loss of principal induced by negative interest rates. I also raised the possibility that the most loss averse investors would switch to equities and the less loss averse investors would stay in bonds. As we look around at investor behaviour under negative rates, we can see evidence of loss aversion at work though perhaps not quite in the way that I hypothesized earlier. Read more