Tuesday December 3, 2013
The Global X FTSE Andean 40 Index ETF (NYSE: AND) is trading down 20% over the past 52 weeks due to lower consumption and commodity prices. For instance, Chile's central bank recently lowered its growth estimate for 2014 to between 3.75% and 4.75% while cutting interest rates by 25 basis points to 4.75% in order to lighten the drop.
For many emerging markets including the Andean region, the withdrawal of stimulus from the U.S. Federal Reserve is the largest overhanging risk. Low interest rates in the U.S. have helped bolster many emerging markets and a higher dollar could impact spending power abroad. External financing conditions could also tighten and put a damper on growth prospects.
Friday November 29, 2013
is expected to announce a significant uptick in its latest gross domestic product report, potentially making it larger than South Africa's economy on paper. According to some economists, the revised estimates could be between $340 and $420 billion compared to South Africa's $384 billion aggregate output last year. Nigeria's economy is also growing at a much more rapid pace, thanks to its young workforce and ever growing oil industry.
Investors looking to capitalize on Nigeria's growth may want to take a look at the Global X Nigeria Index ETF (NGE), which is trading up just under 10% over the past three months.
Monday November 25, 2013
Iceland experienced the largest banking crisis in history after three of its banks collapsed in 2008. After the collapse, the country was forced to accept a bailout from the IMF and a coalition of nordic countries. The bailout package came with a number of conditions, including austerity measures to keep spending under control and a repayment plan for banks' debts.
Unlike Greece or Ireland, Iceland negotiated with the IMF and its bailout lenders to spare social programs from budget cuts. The country also introduced a debt forgiveness for its citizens and tax cuts for its poor in order to spur consumption. As a result, Iceland was able to return to growth after just two years and is on track to repay its debts more quickly.
While there are many key differences between Iceland and European countries undergoing austerity, there are many lessons that Europe could learn from the way it handled the crisis. Investing in social net programs and forgiving some personal household debt could play a key role in reigniting consumption and returning to economic growth more quickly.
Sunday November 24, 2013
Mortgage real estate investment trusts ("REITs") hold over $500 billion in assets, according to the International Monetary Fund ("IMF"). These REITs invest in mortgages and mortgage-backed securities to capitalize on the difference between their returns and U.S. Treasury returns.
The problem is the potential for higher interest rates set by the U.S. Federal Reserve. Higher interest rates would reduce the attractiveness of these mortgages and mortgage-backed securities. Investors moving out of the market could lead to strong selling pressure in the mortgage market, posing a systemic risk.
Bloomberg recently proposed a solution in an article on the topic: Purchasing serving rights from mortgage originators could help balance those losses with fee income similar to how commercial banks hedge against rising interest rates. But, it remains to be seen if this advice will be taken.