Emerging Markets - 13 out of Top 20 IPOs
Capital Markets October 24th, 2007
Despite the sub-prime crisis spreading its wings to the Indian stock market, the country along with its emerging market peers China, Brazil and Russia defied a sharp plunge in the worldwide IPO market in the third quarter of 2007, a study said on Wednesday.
The number of global initial public offerings dropped by 22 per cent in the July-September quarter compared with the previous quarter, according to the quarterly Global IPO Report from international consultancy firm Ernst and Young.
While mature markets experienced a slowdown, emerging markets continued to thrive with record activity and accounted for nearly half of the total IPO proceeds in the quarter, the report said.
Globally, $57 billion were raised in 428 IPOs in the third quarter, and the amount of capital raised fell by 36 per cent compared with the previous quarter. However, the number of IPOs rose by 25 per cent and the value was up by 27 per cent on year-over-year basis, E&Y said.
“IPO activity was driven by the emerging markets, Brazil, Russia, India and China, which together raised $27 billion in a record 118 IPOs and accounted for seven of the 10 largest IPOs in the third quarter,” it noted.
E&Y’s IPO Initiatives Global Director Gil Forer said, “The record number of IPOs in the emerging markets shows that international investors continue looking for high return opportunities, as emerging markets are driving global economic growth.”
As many as 13 of the Top 20 IPOs were from emerging markets, and interestingly only two of those chose not to list on domestic exchanges, Forer added.
Economies 2.0
Whilst India’s growing economy continues to grow and expand, there is a lot to be desired on social developmental issues even as tremendous work is/has been done in this area.
Take for example the recent news of the “conjoined twins 4 year olds” in the lurch as reported by NDTV today.
Excerpts of this news as quoted from NDTV:
Hope for four-year-old conjoined twins Veena and Vani is fast fading away.
Born to daily wage labourers in Andhra Pradesh, the twins have spent most of their lives in hospitals. But now, Hyderabad’s Niloufer hospital, their
latest abode, wants them out.
Niloufer Hospital, which has kept the babies since last April, has asked the parents to take the
twins away. But M Murali, father of conjoined twins says he needs more time and help as he is still not in a position to take care of the children.
Apparently, these children need Rs. 8 crores for treatment in America……however, the Govt. can give only Rs. 2 crores.
NRI COMMUNITY ! LISTENING ???
Satyen,
They should look at going to Singapore. I remember a Nepali couple had twin conjoined daughters and they were helped by singaporeans in terms of money and emotionally taking care of them. Singapore hospitals are well equipped and it is close to India.
Samba
World’s Central Bankers Struggle With Good Times
For Developing Nations,
Flood of Foreign Money
Spurs Inflation Threat
By ANDREW OSBORN in Moscow and JOANNA SLATER in New York
October 24, 2007; Page A1
Like many central bankers in the developing world, Russia’s Konstantin Korishchenko is struggling to cope with a dramatic reversal of fortune.
In August of 1998, he remembers trying in vain to stave off a massive government default as foreign investors deserted the country and the ruble collapsed. Now he faces the opposite problem: Wealth pouring into Russia is pushing the ruble higher and swelling the government’s coffers — harming exports, overexpanding foreign reserves and making it hard to stem inflation.
“In Russia, we have a saying,” says Mr. Korishchenko, now the Russian central bank’s deputy chairman. “Having things too good is also not so good.”
A similar turnaround is playing out from Thailand to India to Brazil and beyond. A decade after some of these countries battled currency crises, they’re struggling with currencies strengthening too fast.
One big factor is the shrinking dollar: Once, central bankers in many of these places stood helplessly as U.S. officials trotted the globe offering advice on how to navigate financial upheaval alongside a rising U.S. currency. Now the fallout of the dollar’s long slide includes the difficulties of overheated investment and mountains of reserves.
The investment wave into emerging markets has been building since 2002. Now it’s a tsunami. Financial flows into these countries in the first half of this year have already exceeded the total for all of 2006, the International Monetary Fund says.
“It is a new world,” says Jim O’Neill, head of global economic research at Goldman Sachs. “When was the last time such a broad group of developing countries faced upward pressure on their currencies? I don’t think in the history of floating exchange rates.”
The investment influx is a better problem to have than the crises of old, say central bankers, but it presents its own complex challenges. Many central bankers — having lived through the crises of the 1990s in the formative parts of their careers — are wary of what they call short-term “hot money” pouring into their economies, lest it rush out again. Meanwhile, as their countries’ currencies strengthen, their exports become more expensive abroad — a serious problem in economies geared toward trade.
The typical response by central bankers has been to try to prevent their currencies from strengthening too quickly. To do that, they buy dollars. That’s a prime reason why emerging markets have more than doubled their reserves since 2004 to a forecast $4.1 trillion this year, according to the IMF.
That accumulation causes problems. Countries are sitting on massive U.S. dollar assets that they may not need. Those holdings, including U.S. Treasury bonds, are losing value thanks to the greenback’s swoon. At the same time, to decrease inflation pressure, some developing countries are issuing local bonds to take money out of circulation, and paying higher interest rates on those debts. “It certainly looks like they’re wasting a lot of money,” says Kenneth Rogoff, an economics professor at Harvard University, especially in poor countries in need of infrastructure.
Slowing the appreciation of a currency also hampers a country’s ability to fight inflation, partly because prices of imported goods don’t fall as much as they could. That’s important because inflation is perking up in a range of developing countries. In Russia, for instance, price increases could top 10% in 2007, breaking an eight-year trend of declining annual inflation rates.
“There are no easy solutions,” says Raghuram Rajan, a finance professor at the University of Chicago and a former IMF official. “In general people are worried about losing their competitive edge…especially if demand from the U.S. slows down and you’re fighting one another for the crumbs.”
The situation is complicated by China keeping a tight rein on its yuan, through restrictions on capital flows and massive government buying of dollars. Countries that compete with China for exports are reluctant to let their currencies strengthen rapidly.
In a bid to reduce the heat, some countries including Thailand and Colombia have slapped restrictions on foreign investment. Most others are trying to manage the pressure on their currencies by soaking up dollars, and parking them away in their vaults, even as the dollars fall in value. Some, like India and Korea, are trying to get money flowing in the opposite direction, encouraging local investors to buy overseas.
They’re also rethinking how they manage reserves. Next year, for instance, Russia will take a small portion of its reserves and seek to invest it more aggressively, going beyond bonds issued by governments and into global stocks. China has already made a similar move. Earlier this month, Brazil said it was looking at setting up a new fund to invest some of its $163 billion of reserves differently, too.
At the start of 2004, one Brazilian real bought about 34 cents, while now it fetches roughly 55 cents, an increase of more than 60%. In the same period, the South Korean won has risen 30% against the dolllar, the Thai baht 26%, the Russian ruble 18%, and the Indian rupee 15%. Those figures would likely be higher if those governments didn’t intervene in the currency markets to slow the increase. The Chinese yuan has appreciated 10% against the dollar in the same period.
The rising currencies also bring benefits to these countries. They make it easier for governments and companies to borrow in their own money, instead of in dollars. They also make imports less expensive, a boon for economies that are looking to modernize. In Brazil, a more-robust real has opened the window for manufacturers and others to invest in new machinery and equipment from abroad. Hospitals have gone on a buying spree. Pent-up demand has driven up imports of CAT-scanners and other hospital equipment by about 20% a year.
Still, such beefed-up buying power isn’t enough to ease the larger worries about massive inflows and strengthening currencies. Some countries are beginning to react more assertively to try to manage the problem.
In India, the rupee’s rise has cut into the profit margins of the country’s vaunted software exporters, leading some tech executives to complain the currency change is happening too fast. “It is the suddenness at which [the exchange rate] changed that is the worry,” said S. Ramadorai, Chief Executive Officer of Tata Consultancy Services, India’s largest software company, in a July interview. Mr. Ramadorai said the company was questioning whether it should do such a large proportion of its work in India as a result.
The Indian government introduced tax breaks in July aimed at helping local manufacturers hurt by the stronger currency. (Brazil and Thailand announced similar measures this summer.) In early September, Y.V. Reddy, India’s central bank governor, warned an audience in Stockholm of a “dilemma” for emerging economies in “grappling with inherently volatile, increasing capital flows.”
Later that month, the central bank tried a different tack. It removed some of the barriers to investing overseas, in a bid to get more money flowing out, rather than in, to ease the upward pressure on the rupee. It didn’t work. The money pouring into India kept increasing, swamping any movements in the opposite direction. In just two weeks at the end of September, India’s foreign exchange reserves increased by $16 billion, or nearly half the rise for all of last year.
On October 16, Indian officials went a step further. The stock market regulator announced a proposal to restrict a popular method used by foreigners to invest in the country’s stock market. P. Chidambaram, India’s finance minister, told an investment conference in New York on October 18 that the measures to damp investment would be needed “until we gain mastery of the situation.” He added, “Liquidity from developed economies is spilling over into India.”
It’s a marked change from 1997, when Indian policy makers spent several harrowing months making sure the Asian financial crisis didn’t spread to their country. Then, the rupee fell more than 10% against the dollar in six months, and the bank spent as much as $1 billion a month in scarce reserves to defend the currency, recalls Bimal Jalan, the central bank governor at the time.
Thailand, the epicenter of the 1997 Asian financial crisis, has had one of the most dramatic reversals. Back then, Tarisa Watanagase supervised the country’s deeply troubled banks. Last year she was placed in charge of the Bank of Thailand by a new government controlled by the country’s armed forces. On a Monday afternoon last December, the central bank announced an effective tax discouraging foreign investment: It required investors to deposit a portion of the money they brought into the country in interest-free accounts with the central bank for at least a year.
The move was a bid to stem the rise of the baht by reducing demand for it; exporters complained the rising currency was killing their competitiveness. The last time an Asian country had instituted similar controls was in Malaysia back in 1998 — only then, the goal was to keep foreigners from yanking money out. Thailand wanted to hinder them from bringing so much in.
The controls crushed the stock market temporarily, and the government quickly lifted the provision that applied to shares. Once the rules were modified, sentiment toward Thai stocks recovered, and the market is now 38% higher than the day the controls were instituted. But despite the efforts, the baht’s appreciation continues: It has strengthened 14% against the dollar since then. Ms. Tarisa has said she worries the dollar has further to fall, and many of her problems haven’t gone away.
In July, a large, struggling Thai garment factory shut its doors, blaming pressure from the rising baht. Workers protested by blockading a road. “There are strong and vocal constituencies that are averse to currency appreciation,” Ms. Tarisa, who holds a doctorate from Washington University in St. Louis, said in a speech in September. That means a “deft balancing act” for central bankers, she said. “One fine day we can see hot money flowing into the country….Not long after, we can easily witness a reversal of such flows.” The risks and volatility, she added, “are of unprecedented scale.”
Her feelings are echoed by Russia’s Mr. Korishchenko, a genial, bespectacled 49-year old. Sitting in his spacious central Moscow office, where the walls are studded with mounted sets of commemorative coins and banknotes, he describes his main challenges: guarding against sudden swings in the value of a strengthening ruble and keeping a lid on inflation.
Mr. Korishchenko helps oversee the bank’s interventions in the currency markets, which lately involve mostly buying foreign currencies and salting them away in the bank’s reserves. Russia manages the ruble against the dollar and the euro closely. His goal, he says, is to prevent extreme moves in either direction.
A large inflow of money into a country “is an equally bad thing as a huge outflow,” Mr. Korishchenko says. Russia’s foreign exchange reserves have swelled from $12.5 billion in August 1998 to more than $425 billion.
Holding down the ruble’s rise runs up against another policy priority: fighting inflation. Prices for staples like milk and flour are soaring. If the ruble were allowed to strengthen more rapidly, it would make it even cheaper to buy imports, bringing down the prices of many products and increasing competition in the domestic economy. Currency intervention works against that.
Central bank intervention in currency markets fuels inflation in another way. Central bank purchases of dollars in exchange for rubles in theory increases the supply of rubles in Russia’s financial system, further stimulating the economy. Central bankers try to minimize this impact in a technical process known as sterilization, but it’s an imperfect and often costly solution.
“It’s a dilemma,” Mr. Korishchenko says. “In principle the appreciation of the ruble by several percentage points would be a very effective measure in fighting inflation. But from a political and social point of view it is impossible to implement,” largely due to opposition from local manufacturers.
The ruble’s upward trend is already affecting trade, making it more attractive to import goods and more challenging for exporters. Mr. Korishchenko says the oil exporting giant may soon run a trade deficit. Its surplus shrank by 18% between January and August of this year to $82.1 billion. Despite all of the oil it sells overseas, imports outstripped exports.
Last year, the president of the Russian Union of Industrialists complained to President Vladimir Putin about the ruble’s appreciation at a Kremlin meeting. “The national currency is gaining muscle so fast that a good deal of industry cannot adapt,” he said at a conference later.
This month, the IMF, which was at the center of Russia’s 1998 bailout, urged the government to let the ruble rise further to combat inflation. Mr. Korishchenko praises the “dialogue” with the IMF. But he says Russia sets its own agenda.