Home » Posts tagged 'capital outflow'

Tag Archives: capital outflow

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Post Archives by Category

Foreign Investors Bail out of Canada’s Money Machine

November 17, 2015

Foreign Investors Bail out of Canada’s Money Machine

First net outflow from Canadian securities since 2008.

On first sight, it wasn’t that bad. Statistics Canada reported today that in September, foreign (non-resident) investors purchased C$3.3 billion of Canadian securities – adding C$3.2 billion in equities and C$0.9 billion in bonds to their holdings while getting rid of C$0.8 billion in money market instruments.

But in July and August, foreign investors had dumped large quantities of equities. While they bought Canadian bonds during those two months, it wasn’t enough.

So for the third quarter overall, foreigners dumped C$9.2 billion of Canadian equities; “the highest such decline since the first quarter of 2013,” Statistics Canada pointed out. They also dumped C$4.5 billion of money market instruments (private corporate paper and federal government business enterprise paper). And they picked up C$12.8 billion of bonds.

This makes for a total outflow of C$0.9 billion in the third quarter, the first such outflow of foreign investment from Canadian securities since 2008.

The data is very volatile, as the chart by NBF Economics and Strategy, a division of the National Bank of Canada, shows. But it had been volatile only with positive numbers, with increases of foreign investment, ever since that ignominious year 2008. So when this net quarterly outflow does occur, as it did in 2008 and in Q3 2015, it’s a sign of something larger:

Canada-net-foreign-inflows-into-canadian-securities

“Canada seems to be less alluring to foreign investors these days,” NBF explains.

It doesn’t help that Canadian stocks, as measured by the TSX, are dominated by the energy and mining sector and by former hedge-fund and mutual-fund darling and now deposed Canadian superstar Valeant. So the TSX has gotten clobbered, down 14% since April.

And the Bank of Canada has been in interest-rate-cutting mode this year. Its intention has been to beat down the Canadian dollar even more, which it accomplished. In late October, it hit $0.748, its lowest level against the USD since July 2004.

…click on the above link to read the rest of the article…

The Last 30 Years of Global Economic History Are About to Go Out the Window

October 18, 2015

The Last 30 Years of Global Economic History Are About to Go Out the Window

Over the last 30 years, a near constant flow of cash has inundated China and other emerging markets. It has lifted those economies, pulled hundreds of millions of people out of poverty, and dictated corporate expansion plans worldwide.

That wave is now ebbing.

Net_capital_flows_to_emerging_market_economies__Annual__Forecast_chartbuilder

This year will see the first net outflow of capital from emerging markets in 27 years, according to the Institute of International Finance, a trade group representing international bankers. The group expects more than $500 billion worth of cash previously invested in things like Chinese factories, Brazilian government bonds, and Nigerian stocks to cascade out of such markets this year.

What’s going on? In a word: China.

In a profound change of narrative for both the global economy and markets that are closely tied to it, the story of fast Chinese growth—a story that has soothed investors and corporate managers around the world since the 1980s—is looking increasingly tough to square with the evidence. And it’s even tougher to imagine anything else like China—a billion new consumers joining the global economy—emerging any time soon.

GDP growth in the People’s Republic fell to 7% per year in the second quarter, according to official numbers—some of the most most sluggish growth since the 2008 global financial crisis.

And most analysts say even those numbers should be taken with a handful of salt. For instance, economic forecasting firm Capital Economics estimates that GDP in the first half of 2015 grew not at 7% year-over-year, but at just above 4%.

Of course, the slowdown in China isn’t confined to China. Over the last 30 years, countries worldwide have built their economies to service the needs of the People’s Republic. Brazil would be a case in point.

Weak Chinese demand hurts China’s suppliers…

…click on the above link to read the rest of the article…

Time To Get Real About China

May 23, 2015

Time To Get Real About China

The present Chinese leadership appears to be trying to gain (regain?) more -if not full- control over the country’s economic system, while at the same time (re-)boosting the growth it has lost in recent years.

President Xi Jinping, prime minister Li Keqiang and all of their subservient leaders – there are 1000′s of those in a 1.4 billion citizens country- apparently think this can be done. Yours truly doubts it.

As I’ve repeatedly said over the past years, I don’t think that they ever understood what would happen if they opened up the country to a more free-market, capitalist structure. That doing so would automatically reduce their political power, since a free market, in whatever shape and form, does not rhyme with the kind of control which the Communist Party has been used to for decades, and which the current leaders have grown up taking for granted.

I don’t think they’re fools or anything, just that their -preconceived- ideas of power don’t rhyme with the kind of economy Beijing, starting with Deng Xiao Ping, has created. In particular, they have allowed other segments of society to accumulate great wealth, and with wealth comes power.

And in fine Pandora’s Box fashion, it’s very hard, if not impossible, to reverse the process. This failure to grasp to what extent these ‘market liberation’ policies have had a Sorcerer’s Apprentice effect, may, if not must, lead to utter chaos and worse…

A closely related failure is that the rulers have allowed the shadow banking system to grow to ginormous proportions. Likely, in their eyes this ‘merely’ helped the economy grow at double digit speed for years, and they could stop it at will.

…click on the above link to read the rest of the article…

China Could Face “Sharp” Rise In Capital Outflows If Stocks, Economy Lose Momentum

April 25, 2015

China Could Face “Sharp” Rise In Capital Outflows If Stocks, Economy Lose Momentum

We’ve written quite a bit over the past two months about capital outflows from China. Last week for instance, we documented how the country saw its fourth consecutive quarter of outflows in Q1, bringing the 12 month running total to some $300 billion. Why, beyond the obvious, is this a problem for China? Because pressure is mounting to devalue the yuan as the currency’s peg to the recently strong dollar is becoming costly for the country’s export-driven economy.

Here’s Soc Gen’s Albert Edwards on the subject:

In the current deflationary environment the Chinese authorities simply can no longer tolerate the continued appreciation of their real exchange rate caused by the dollar link.

And from Barclays:

Amid slowing inflation and rising outflows, the costs of limiting CNY weakness are growing – including the unintended effect of placing more stress on CNY market liquidity and interest rates, rendering liquidity easing efforts less effective.

And here is how we summed up the situation last month:

China is suddenly finding itself in an unprecedented position: it is losing the global currency war, and in a “zero-sum trade” world, in which global commerce and trade is slowly (at first) declining, and in which everyone is desperate to preserve or grow their piece of the pie through currency devaluation, China has almost no options.

At issue is the fact that expectations about the direction of the yuan may be contributing to capital outflows and any indication on the part of Beijing that devaluation is in the cards could exacerbate the problem. Now, data from SAFE suggests nearly $24 billion left China in March alone. Here’s more, via Bloomberg:

 

…click on the above link to read the rest of the article…

Olduvai IV: Courage
Click on image to read excerpts

Olduvai II: Exodus
Click on image to purchase

Click on image to purchase @ FriesenPress