End of QE2…What would it mean for Emerging Markets..???
On November 3, 2010, the Federal Open Market Committee (FOMC) in order to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to purchase an additional $600 billion of longer-term Treasury securities by the end of the second quarter of 2011 i.e. by June 2011, in a strategy called Quantitative Easing 2 (QE2)
Well, the time has come and QE2 is about to end in June. What would it mean to emerging markets-flow of funds or blow to inflows…again what the same will mean to new historical peaked commodities…would they remain firm or show moderation…lets have a look at it…
Enormous flow of funds in emerging equity markets was seen in this period but more importantly it helped risk assets viz. commodities to even outperform other asset classes.
Chinese & the Indian stock market have underperformed the S&P 500, oil and silver markets. CNX Nifty at INR 5478 levels, has de-grown by 10.9% during Oct 2010-May 2011 period, while Silver ($38.16) has gained more then 30% in the same period and has even increased by 100% since late August 2010 to May 2011. QE2 had a positive impact on S&P 500 ($1331.1) which has increased by 16.1% & crude oil ($100.59) was also up by 23.3% in the same period.
As QE2 is about to end in June, it is very much likely that, commodities may start cooling of a bit resulting in easing of margin pressure on companies and thus improving on the corporate earning scenario which has gone hay-wire. It may mean money coming back to emerging markets on improved earnings outlook.
What would it mean…still remains anybody’s guess, but I believe that the same has been priced in…
Fed Watch
End of QE2…What would it mean for Emerging Markets..???-By Neeraj Toshniwal
On November 3, 2010, the Federal Open Market Committee (FOMC) in order to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to purchase an additional $600 billion of longer-term Treasury securities by the end of the second quarter of 2011 i.e. by June 2011, in a strategy called Quantitative Easing 2 (QE2)
Well, the time has come and QE2 is about to end in June. What would it mean to emerging markets-flow of funds or blow to inflows…again what the same will mean to new historical peaked commodities…would they remain firm or show moderation…lets have a look at it…
Enormous flow of funds in emerging equity markets was seen in this period but more importantly it helped risk assets viz. commodities to even outperform other asset classes.
Chinese & the Indian stock market have underperformed the S&P 500, oil and silver markets. CNX Nifty at INR 5478 levels, has de-grown by 10.9% during Oct 2010-May 2011 period, while Silver ($38.16) has gained more then 30% in the same period and has even increased by 100% since late August 2010 to May 2011. QE2 had a positive impact on S&P 500 ($1331.1) which has increased by 16.1% & crude oil ($100.59) was also up by 23.3% in the same period.
As QE2 is about to end in June, it is very much likely that, commodities may start cooling of a bit resulting in easing of margin pressure on companies and thus improving on the corporate earning scenario which has gone hay-wire. It may mean money coming back to emerging markets on improved earnings outlook.
What would it mean…still remains anybody’s guess, but I believe that the same has been priced in…
About toshniwal.neeraj@gmail.com
I am a Certified Financial Risk Manager (FRM) from GARP University (U.S.), have cleared all the 3 levels of CFA (U.S) in one attempt and have done Indian CFA and MS (Finance) from ICFAI. I have 3 years of experience in Indian Capital Markets as Equity Research Analyst.