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Pound is becoming an emerging market currency

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ursaminortaur
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Pound is becoming an emerging market currency

#320997

Postby ursaminortaur » June 24th, 2020, 11:17 am

Bank of America analysts are now categorising Sterling as being like an emerging market currency.

https://www.ft.com/content/4fd04fd9-7209-4b7c-97a1-97466f226159


Pound is becoming an emerging market currency, says BofA analyst
Brexit has permanently altered investors’ views on sterling, warns strategist
.
.
.
The pound is now an emerging-market currency in all but name, according to analysts at Bank of America, who say that Brexit has turned it into a mirror of the “small and shrinking” UK economy.

In the four years since the UK voted to leave the EU, trading conditions in the pound and the big swings in exchange rates make it a better match with the Mexican peso than the US dollar, said Kamal Sharma, a currency analyst at BofA. He said that movements in the currency since the June 2016 Brexit vote have become “neurotic at best, unfathomable at worst”.

The bank’s analysts noted that the difference between rates at which investors are willing to buy and sell sterling remains bigger than in other major currencies, even after the broader market has settled in the wake of the coronavirus-related panic in March.

Implied volatility, a measure of investors’ expectations of the scale of future price moves, has also remained higher in the pound than for major peers. BofA said that underlined a lack of clarity over the currency’s prospects.

odysseus2000
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Re: Pound is becoming an emerging market currency

#321026

Postby odysseus2000 » June 24th, 2020, 12:27 pm

ursaminortaur wrote:Bank of America analysts are now categorising Sterling as being like an emerging market currency.

https://www.ft.com/content/4fd04fd9-7209-4b7c-97a1-97466f226159


Pound is becoming an emerging market currency, says BofA analyst
Brexit has permanently altered investors’ views on sterling, warns strategist
.
.
.
The pound is now an emerging-market currency in all but name, according to analysts at Bank of America, who say that Brexit has turned it into a mirror of the “small and shrinking” UK economy.

In the four years since the UK voted to leave the EU, trading conditions in the pound and the big swings in exchange rates make it a better match with the Mexican peso than the US dollar, said Kamal Sharma, a currency analyst at BofA. He said that movements in the currency since the June 2016 Brexit vote have become “neurotic at best, unfathomable at worst”.

The bank’s analysts noted that the difference between rates at which investors are willing to buy and sell sterling remains bigger than in other major currencies, even after the broader market has settled in the wake of the coronavirus-related panic in March.

Implied volatility, a measure of investors’ expectations of the scale of future price moves, has also remained higher in the pound than for major peers. BofA said that underlined a lack of clarity over the currency’s prospects.


I doubt it is Brexit that has brought forth such words, more the lack of leadership and inability to complete the separation from the EU coupled with the shambolic political situation, such feeling enhanced by the badly fought war against c19 and the high UK casualties.

As such I would ignore the BofA statement and cite the analysts as clowns.

Mexico has a GDP of $ 1.2Trillion, https://www.google.com/search?client=sa ... 8&oe=UTF-8

the UK a GDP of $2.9 Trillion https://www.google.com/search?client=sa ... 8&oe=UTF-8

If you look at the GDP per capita with Mexico having 128 million people, the UK 67 million, the gulf between the UK and Mexico is very large.

Regards,

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Re: Pound is becoming an emerging market currency

#321040

Postby 1nvest » June 24th, 2020, 12:48 pm

The UK's population compares to the combined population of 15 EU member state countries - over half its total number of states. The combined UK and Swiss capitalist market (outside of the EU) is 40% of Europe. And that's with the UK relatively low after Brexit uncertainties valuation declines.

Perhaps the other countries within Europe that are outside of the EU should insist that the EU be rebranded due to its misleading naming.

For 4.5 decades the UK helped subsidise the uplift of many EU member countries, put itself being disadvantage in competing alongside others who were being subsidised at its cost. Rightfully the UK divorce claim as part of leaving should be massive given all of the infrastructure it has helped instate across Europe. Freed from that liability and with the reinstatement of certainties, the Pound will rebound. Problem is we don't want a strong Pound, as the EU is seeking to export its problems via printing Euro's, recent/current levels are about right given the circumstances and in order to keep the Pound down would otherwise involve much more British QE type actions otherwise having been required.

UK position. 500Bn of 2008 debt (Gilts) was replaced by 1Tn of debt costing around half as much to service (2.5% yields instead of 5%). As part of that the BoE printed money to buy up the 500Bn of gilts, and returns all interest paid by the Treasury on those gilts, back to the treasury. So whilst UK debt >1.5Tn, the BoE holds around a third of that, and the ongoing debt costs no more than before to service. In short, sound/solid economics. The EU in contrast printed 2 trillion to bail out bad German bets (debts) post 2008, transferred those debts over to the Eurozone (other members), and has been buying junk bond and even stocks as part of that. Irresponsible/crazy economics that have it well and truly down in the emerging market high risk region. The Pound dates back to 750's. The Euro in contrast is a baby.

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Re: Pound is becoming an emerging market currency

#321099

Postby csearle » June 24th, 2020, 2:35 pm

Moderator Message:
Please continue any overtly political aspects of this discussion here - Thanks Chris

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Re: Pound is becoming an emerging market currency

#321162

Postby GoSeigen » June 24th, 2020, 6:17 pm

1nvest wrote:In short, sound/solid economics


Really?? I suppose you can claim that if you completely ignore the BoE's monetary liabilities and fool anyone who doesn't know better....


GS

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Re: Pound is becoming an emerging market currency

#321172

Postby GrahamPlatt » June 24th, 2020, 7:04 pm

csearle wrote:
Moderator Message:
Please continue any overtly political aspects of this discussion here - Thanks Chris


... “you are not authorised to read this forum”.

Oh. OK then. Suit yourselves.

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Re: Pound is becoming an emerging market currency

#321181

Postby csearle » June 24th, 2020, 7:47 pm

GrahamPlatt wrote:
csearle wrote:
Moderator Message:
Please continue any overtly political aspects of this discussion here - Thanks Chris


... “you are not authorised to read this forum”.

Oh. OK then. Suit yourselves.
You can read it. You need to opt-in via your User Control Panel (Usergroups) though. C.

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Re: Pound is becoming an emerging market currency

#321186

Postby Lanark » June 24th, 2020, 8:07 pm

csearle wrote:
Moderator Message:
Please continue any overtly political aspects of this discussion here - Thanks Chris

That link just says "You are not authorised to read this forum."

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Re: Pound is becoming an emerging market currency

#321191

Postby csearle » June 24th, 2020, 8:31 pm

Lanark wrote:That link just says "You are not authorised to read this forum."
You can read it. You need to opt-in via your User Control Panel (Usergroups) though. C.

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Re: Pound is becoming an emerging market currency

#321225

Postby 1nvest » June 24th, 2020, 11:20 pm

GoSeigen wrote:
1nvest wrote:In short, sound/solid economics


Really?? I suppose you can claim that if you completely ignore the BoE's monetary liabilities and fool anyone who doesn't know better....


GS

Liabilities of the order 8Tn, assets of around 750Bn less (7.25Tn) is fine when the assets are yielding more than being paid against liabilities (UK having a higher credit rating), such that the overall is net positive.

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Re: Pound is becoming an emerging market currency

#321229

Postby dspp » June 24th, 2020, 11:51 pm

1nvest wrote:
GoSeigen wrote:
1nvest wrote:In short, sound/solid economics


Really?? I suppose you can claim that if you completely ignore the BoE's monetary liabilities and fool anyone who doesn't know better....


GS

Liabilities of the order 8Tn, assets of around 750Bn less (7.25Tn) is fine when the assets are yielding more than being paid against liabilities (UK having a higher credit rating), such that the overall is net positive.


It is fine, until the day it isn't.

- dspp

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Re: Pound is becoming an emerging market currency

#321268

Postby odysseus2000 » June 25th, 2020, 8:31 am

National debt and debt to GDP and their relevance to investors tend to go in political cycles. There was for example a lot of talk about debt to GDP when Brown was PM and less talk of it for the Cameron and May administrations and during the current C19 panic it has not been a topic much discussed with the general consensus that what ever is needed must be done. All of this suggests that debt/gdp is more of a political measure than an economic one and one that is then used to justify political policies rather than a metric which is independent of the politicians. There is also a big disconnect between national debt that can be serviced via the printing press and personal debt with none of us having our own printing press. There are also wildly varying debt/gdp measures around the globe

Looking at some debt to gdp rations we find (pre c19 spending)

% UK debt to Gdp 80.2

https://tradingeconomics.com/united-kin ... ebt-to-gdp

US 106.9

https://tradingeconomics.com/united-sta ... ebt-to-gdp

Japan 238.2

https://tradingeconomics.com/japan/gove ... ebt-to-gdp

Mexico 46.2

https://tradingeconomics.com/mexico/gov ... ebt-to-gdp

Germany

59.8

https://tradingeconomics.com/germany/go ... ebt-to-gdp

Italy

134.8

https://tradingeconomics.com/italy/gove ... ebt-to-gdp

In recent years in the UK when debt/gdp has risen it has been followed by a period of austerity with reduced government spending. Whether this type of policy will be followed after c19 is unclear. Political statements have been that there will be no austerity, but politicians say all manner of stuff and then do something else. For investors the stock market seems able to grow with reduced government spending. Japan has remained strong even with very large debt to gdp so that statements by doomsayers that the UK is doomed because of its debt/gdp ratio are all about them talking their own book than the certainties they imply.

Whether we like high debt to gdp levels or not, the reality is that we have them and they can not be quickly reduced based on previous attempts to do so.

Regards,

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Re: Pound is becoming an emerging market currency

#321276

Postby JamesMuenchen » June 25th, 2020, 8:47 am

Hm. Kamal Sharma. This is the guy who predicted the GBP/USD would go to a low of 1.15 following Article 50, it immediately went on a tear to 1.42.

"Unfathomable" indeed.

Maybe he's just not a very good analyst.

By the way, the biggest feature of "an emerging market currency" is that volatility is affected by events in other markets, eg the Yuan/USD crashed to a 6 year low due to Brexit.

I'm sure all the haters that are parroting this guy know all this already though.

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Re: Pound is becoming an emerging market currency

#321290

Postby dealtn » June 25th, 2020, 9:25 am

1nvest wrote:
GoSeigen wrote:
1nvest wrote:In short, sound/solid economics


Really?? I suppose you can claim that if you completely ignore the BoE's monetary liabilities and fool anyone who doesn't know better....


GS

Liabilities of the order 8Tn, assets of around 750Bn less (7.25Tn) is fine when the assets are yielding more than being paid against liabilities (UK having a higher credit rating), such that the overall is net positive.


When investing it would be extremely rare for me to go ahead without looking at the financials.

My first port of call is usually the Cash Flow Statement. I can't recall ever having ignored the Balance Sheet though.

In assessing the accounts of a country I suspect I would do similar.

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Re: Pound is becoming an emerging market currency

#321305

Postby odysseus2000 » June 25th, 2020, 10:02 am

More upto date % debt/gdp (current 100.9%):

https://www.ons.gov.uk/economy/governme ... /hf6x/pusf

UK debt over time:

https://en.wikipedia.org/wiki/United_Ki ... UK_GDP.png

Uk net worth over £10 Trillion or about £156,000 per capita:

https://www.ons.gov.uk/economy/national ... s/cgda/nbs

Can’t find an ONS estimate for net liabilities of the UK, does anyone have a link?

Regards,

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Re: Pound is becoming an emerging market currency

#321348

Postby dspp » June 25th, 2020, 11:57 am

odysseus2000 wrote:National debt and debt to GDP and their relevance to investors tend to go in political cycles.

Regards,


I don't think it is quite that straightforward. There are a lot of long term data sets here. You will find he discusses net and gross at some point in his books.

https://www.quandl.com/data/PIKETTY-Thomas-Piketty

regards, dspp

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Re: Pound is becoming an emerging market currency

#321358

Postby GoSeigen » June 25th, 2020, 12:31 pm

JamesMuenchen wrote:I'm sure all the haters that are parroting this guy know all this already though.


Come again?

GS

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Re: Pound is becoming an emerging market currency

#321377

Postby JamesMuenchen » June 25th, 2020, 1:30 pm

GoSeigen wrote:
JamesMuenchen wrote:I'm sure all the haters that are parroting this guy know all this already though.


Come again?

GS

I'll try.

The analyst responsible for this news, Kamal Sharma, has taken contrarian positions on the Pound that have proven to be wrong.

EG the prevailing view around Article 50 was that triggering it would remove uncertainty and boost the pound. Sharma took an opposing view and predicted after A50 the Pound would dip (to $1.15). In the event it surged (to $1.42).

So he takes contrarian positions on GBP, sees them blow up in his face, and then says it's "unfathomable". Which is mince. He was being contrarian, so everyone else fathomed it perfectly well. By definition.

Furthermore, the GBP doesn't really tick any of the boxes that come with being "an emerging market currency".

Lastly, he compares the "big swings" of GBP to the Mexican Peso, a currency that regularly shows double-digit annual change in comparison to the dollar. They are nothing like the same. USD/MXN moved 30% Feb-Mar.

This story is at best an exercise in cognitive dissonance, at worst a smoke-screen for incompetence. But it appeals to certain people who are passionately opposed to Brexit and they are spamming it all over the internet. I've seen it on I think 4 different boards on TLF alone, posted by the usual very anti-Brexit posters like Ursarminortaur and dspp.

So when I wrote I'm sure all the haters that are parroting this guy know all this already though. I was actually being sarcastic, as I'm sure they didn't have a clue, and don't care.

Hope that clarifies.

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Re: Pound is becoming an emerging market currency

#321384

Postby GoSeigen » June 25th, 2020, 1:38 pm

JamesMuenchen wrote:
GoSeigen wrote:
JamesMuenchen wrote:I'm sure all the haters that are parroting this guy know all this already though.


Come again?

GS

I'll try.

The analyst responsible for this news, Kamal Sharma, has taken contrarian positions on the Pound that have proven to be wrong.

EG the prevailing view around Article 50 was that triggering it would remove uncertainty and boost the pound. Sharma took an opposing view and predicted after A50 the Pound would dip (to $1.15). In the event it surged (to $1.42).

So he takes contrarian positions on GBP, sees them blow up in his face, and then says it's "unfathomable". Which is mince. He was being contrarian, so everyone else fathomed it perfectly well. By definition.

Furthermore, the GBP doesn't really tick any of the boxes that come with being "an emerging market currency".

Lastly, he compares the "big swings" of GBP to the Mexican Peso, a currency that regularly shows double-digit annual change in comparison to the dollar. They are nothing like the same. USD/MXN moved 30% Feb-Mar.

This story is at best an exercise in cognitive dissonance, at worst a smoke-screen for incompetence. But it appeals to certain people who are passionately opposed to Brexit and they are spamming it all over the internet.


The analysis of the research may be correct, but doubling down on the abusive comment?

I've seen it on I think 4 different boards on TLF alone, posted by the usual very anti-Brexit posters like Ursarminortaur and dspp.

So when I wrote I'm sure all the haters that are parroting this guy know all this already though. I was actually being sarcastic, as I'm sure they didn't have a clue, and don't care.

Hope that clarifies.


Kindly add me to your list of haters please. If it groups me with dspp and Ursa I'm proud to wear the term.

GS

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Re: Pound is becoming an emerging market currency

#321395

Postby odysseus2000 » June 25th, 2020, 2:05 pm

dspp wrote:
odysseus2000 wrote:National debt and debt to GDP and their relevance to investors tend to go in political cycles.

Regards,


I don't think it is quite that straightforward. There are a lot of long term data sets here. You will find he discusses net and gross at some point in his books.

https://www.quandl.com/data/PIKETTY-Thomas-Piketty

regards, dspp


I am only stating my own experience with regard to the macro and subset business opportunities being influenced by parameters like debt and gdp.

I have never known a time when there has been universal correlation between the government policy and media reporting and all business.

All the times I have experienced there has always been some overreaching agenda set by the Chancellor that the media went with, but with opportunities for investors in business/sectors that act out of phase with the the Chancellors.

For example in times of austerity there have always been some growth business and in times of boom, always some declining business. Then in the by and by after an election or similar a different Chancellor would set some different agenda with different opportunities for investors.

The important lesson for investors imho is to focus on individual business and ignore macro things like debt that hardly anyone understands or cares about. If for example one sees builders putting out poor numbers (as in government curtailing bank lending, but its the poor numbers that matter to builders, not they why) one would avoid builders and look for business such as food, consumer products that are needed whether builders are putting up houses or not. Often equity prices of necessities are bid up when they are the only folk with guaranteed income, thence dividends.

As Jim Cramer, often says, there is always a bull market somewhere

Regards,


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