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Following the overthrow of Zine el-Abidine Ben Ali’s government in Tunisia, attention has turned to regimes with similar characteristics in the region.
Investors in Egypt are nervous. The Cairo bourse’s benchmark index fell by around 6% in the week following Mr Ben Ali’s departure, with foreign investors particularly heavy sellers. The Egyptian pound and credit default swaps on government debt have also come under pressure this week.
Bargain hunters edged back into the stock market today, driving a modest rally. This, and recent commitments from large companies to boost direct investment in Egypt, suggests that the recent turmoil is a “a re-rating of assets instead of a fundamental reassessment of exposure to the country”, according to a story over at the parent site.
Few stock exchanges can claim to have had as eventful a 2011 as the Dhaka bourse. Following riots after a steep daily drop last month, the market has been no less fiery so far this year, with authorities suspending trading on Monday after a morning plunge of more than 9% in less than a hour saw investors (again) take to the streets. Just as dramatic, the exchange’s main index soared by more than 15% yesterday (and added another 2% today for good measure).
Following the demonstrations earlier this week, officials relaxed recently imposed rules on banks’ exposure to the stockmarket, a key driver behind Monday’s fall. But this risks re-inflating a dangerous-looking bubble; although down by 7% so far this year, the market gained more than 80% in 2010. Investors’ wild mood swings are unlikely to be tamed by the rather quaint advice issued by the bourse at the start of trading each day:
“Good morning hon’ble Investors; make your investment decision based on company fundamentals, technical analysis, price level, disclosed information; and avoid rumor based speculations.”
At the parent site, we recently published a review of Emily Lambert’s book “The Futures”, which traces the colourful history of Chicago’s futures exchanges. The city’s two main trading venues, The Chicago Mercantile Exchange and the Chicago Board of Trade, merged in 2007 to create the CME Group. Yesterday, the group reported its full-year contract volumes.
As the world’s largest futures exchange operator, the data provides a useful guide to trends in global derivatives trading. Average daily contract volume at the CME rose by 19% in 2010, reversing a 20% decline the year before. The volume of foreign-exchange futures jumped by 47%, making it the group’s fastest-growing category (see related post). Interest rate futures, which account for nearly half of the exchange operator’s daily volume, grew by 30%.
In May, a “flash crash” wiped off nearly 1,000 points—or around 9%—in the value of the Dow Jones Industrial Average in a matter of minutes. The index quickly rebounded, ending the day 3% lower.
Yesterday, the Dhaka Stock Exchange suffered a sudden drop in value, with the broad market index shedding 550 points—around 6%—in early trading. Although the decline unfolded over an hour-and-a-half, it also had an element of “flash”; a group of investors took to the streets and set fires while chanting angry slogans at the exchange’s bosses and national securities regulators.
In the end, the index closed the day down by less than 2%. It was the third consecutive daily decline, a rarity for an exchange that is up by almost 90% year-to-date. (The Dow Jones Industrials is up by only 9% so far this year.)
The Dhaka index added 1.5% in trading today. The streets were peaceful.
Every three years, the Bank for International Settlements surveys the global currency market. Its latest report shows that the average daily turnover in the foreign exchange market reached a whopping US$4trn in April 2010, up 20% from April 2007. The most popular currencies remain the US dollar, euro and Japanese yen, which largely maintained their overall share of trading over the past three years.
Deeper digging into the results uncovers some interesting trends in certain currency pairs. Facing moribund growth at home, investors from the largest developed economies are looking to emerging markets for returns, fuelling rapid growth in, for example, the exchange of American dollars for Brazilian reais and Chinese yuan. Another particularly fast-growing pair, the yen-Australian dollar, reflects a growing appetite for commodities. By contrast, one of the only pairs to see trading volumes fall in recent years is the august “cable”, or trade between US dollars and British pounds.
Soaring temperatures and raging wildfires are making life in Moscow difficult. The effects are being felt on the country’s stock and bond exchanges, as “bankers flee Moscow to escape acrid smoke from wildfires” around Russia’s financial capital. Indeed, the average trading volume in the benchmark MICEX index now stands at around 60% of the levels seen at this time last year.
Small cracks are beginning to show on Goldman Sachs’s remarkable trading record. In the second quarter, Goldman’s traders lost money on ten days, almost as many down days as the previous four quarters combined.
Although the second-quarter result still means that the bank’s traders registered gains 85% of the time, this performance nonetheless looks somewhat lacklustre in relation to previous quarters. Traders recorded “only” 17 days with more than US$100m in daily net trading revenue in the second quarter, half of the average achieved in the previous four quarters. An admirable record, to be sure, but for a bank that relies so heavily on trading—it accounted for 75% of total revenues in the second quarter—any stumble, however small, is keenly felt.
As in previous quarters, American investment banks continued their remarkable run of profitable trading days in the first quarter of this year. Bank of America, Citigroup, Goldman Sachs and JPMorgan recorded positive net trading revenues every day in the first three months of the year. Morgan Stanley, a laggard by comparison, lost money on only four days during the quarter. (Citigroup does not routinely report its daily trading results, but mentioned that it had no losing days in the first quarter.)
“Like peering through a grimy factory window, trading revenue histograms can provide a few clues as to what is happening down on opaque trading floors,” Moody’s writes in a recent commentary. Normally, a lack of negative trading days would be a positive sign of the “strength and diversification of customer franchises and risk management expertise,” Moody’s claims. But the stellar performance of banks’ trading operations is, perversely, becoming a risk as regulators and investors cast aspersions on the motives and methods that these market makers employ to generate bumper profits on their own accounts.
Forbes once called Goldman Sachs “a giant hedge fund with some consulting services attached.”
The bank’s recent trading performance would indeed be the envy of any hedge fund. As the FT points out, Goldman’s traders recorded only one daily loss in the third quarter, versus 36 days of US$100m-plus profits. (The trading record can be found on page 123 in this regulatory filing, published yesterday.)
Digging into earlier filings, it turns out that the third-quarter’s stellar performance was worse than the previous quarter, when the bank closed 46 days with at least a nine-digit profit. In the past six months—130 days of trading—the group has ended the day with a loss only three times.