- The Asian Development Bank will hold its annual meetings this weekend. The key issues addressed will include the recent rise in commodity and rice prices. Indeed, inflation in the 10 major Asian economies accelerated to 6.9% yoy in March, with food prices rising a whopping 13.5% yoy. In addition, finance ministers from South Korea, Japan and China will also discuss setting up an Asian Financial Stability Forum, similar to the Financial Stability Forum of the G7. The purpose would be to strengthen regional cooperation among the policy and financial supervisory authorities to counter instability of international financial markets.
- Cross-straits trade relations appear to be progressing well ahead of improvement in political relations. China’s General Administration of Customs reported growing brisk trade between Taiwan and China at the start of this year. Sources said that cross straits trade volume rose 23.8% yoy to $20.5 billion in January-February. The total included $3.6 billion exports value from China to Taiwan and $16.9 billion in imports from Taiwan. Machinery and electronics accounted for 66.2% of total bilateral trade and was up 20.9% yoy. Separately, Taiwan’s Mainland Affairs Council Chief Lai Hsin-yuan said that she backed President Ma’s policy of opposing both Taiwanese independence and unification with the mainland. Taiwan has also indicated a plan to scrap the ceiling on Taiwanese company’s investments in China (presently at 40% of net asset value). Local daily reports suggest that the plan could materialize soon after the Presidential inauguration on May 20.
- In addition, S&P raised Brazil’s long-term foreign currency debt rating to investment grade (BBB- from BB+). Moody’s and Fitch still rate Brazil a notch below investment grade. The short-term foreign currency debt (A-3 from B), local currency long-term debt (BBB+ from BBB), and local currency short-term debt (A-2 from A-3) ratings were also upgraded. Ratings are not always reflective of a sovereign’s strength, namely capacity and willingness to service foreign obligations. Nonetheless, the upgrade opens Brazil to a new class of investors. The impact of the rating will bolster international capital inflows and render the recent slight widening of the current account deficit negligible. The timing of the upgrade was a surprise as the most optimistic estimates projected an upgrade towards late 2008. The upgrade was welcomed by markets leading to rallies in Brazilian debt, equity, and currency markets. USD/BRL traded down towards 1.66 following the news. Further near-term downside in USD/BRL is likely on upcoming capital inflows and improved BRL sentiment. Trendline support of 1.64 will likely be tested with a potential move toward 1.60.
The Asian Development Bank will hold its annual meetings this weekend
May 4th, 2008 · No Comments
Tags: Emerging Market Strategy
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