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Emerging Markets

Central bank price controls pose major risks, Nomura says

Sean Darby, asia equity strategist at Nomura submits his thoughts to Asiamoney.com on the risks QE could prompt wide-reaching price controls by central banks.

  • 16 Nov 2010
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There are two wonderful sayings that should be heeded when investors talk about asset bubbles. The first is ‘when all the experts agree, something else is going to happen’. The second is ‘investors buy most at the top and the least at the bottom’.

As the talk of QE reached fever pitch during the last month, companies in Asia have been quietly and steadily issuing new shares or listing their companies on stock markets, encouraged by international money managers scrambling to get in. There are good reasons to expect the next six months to be very different from what investors are currently discounting.

The single biggest variable that investors and authorities have not concerned themselves with is inflation, or rising prices for commodities, goods and services. Asset inflation has come early but the real thing is just arriving.

The chorus of warnings emanating from regional central banks concerning hot money inflows have been largely ignored. The danger for equity investors is that central banks end up using wider-based arbitrary price controls to stem inflation pressures.

Investors may find that much more unorthodox rules are adopted than typical monetary policy, and that these infringe on the ability of companies to raise prices or for foreigners to own particularly sectors or commodities. Price controls may be coming back.

The rising cost of labour, raw materials and rent suggest that company margins have peaked in this cycle and that any incremental growth produces diminishing returns. This is a very good signal for investors to demand much lower multiples than they were at the beginning of the cycle.

Asset Inflation may try to lift share prices, but the real inflation will cut earnings. The price-earnings multiple widely used by investors to gauge value is highlighting quite stretched investor sentiment.

  • 16 Nov 2010

Bookrunners of International Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
1 HSBC 66,677.92 399 10.15%
2 Citi 65,903.33 324 10.03%
3 Deutsche Bank 62,123.51 299 9.45%
4 JPMorgan 57,926.10 280 8.81%
5 Bank of America Merrill Lynch 37,734.03 215 5.74%

Bookrunners of LatAm Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
1 HSBC 6,221.38 14 11.59%
2 JPMorgan 5,140.67 18 9.58%
3 Bank of America Merrill Lynch 4,497.27 18 8.38%
4 Deutsche Bank 4,264.56 14 7.95%
5 Credit Suisse 4,132.73 8 7.70%

Bookrunners of CEEMEA International Bonds

Rank Lead Manager Amount $m No of issues Share %
1 Citi 6,674.27 20 14.95%
2 JPMorgan 5,884.96 16 13.18%
3 Barclays 4,728.57 10 10.59%
4 Deutsche Bank 4,044.06 10 9.06%
5 Goldman Sachs 3,229.17 5 7.23%

EMEA M&A Revenue

Rank Lead Manager Amount $m No of issues Share %
1 Goldman Sachs 182.99 41 13.58%
2 Bank of America Merrill Lynch 90.70 28 6.73%
3 JPMorgan 88.18 43 6.54%
4 Deutsche Bank 85.13 29 6.32%
5 Lazard 80.06 43 5.94%

Bookrunners of Central and Eastern Europe: Loans

Rank Lead Manager Amount $m No of issues Share %
1 ING 382.49 5 8.60%
2 Commerzbank Group 292.65 4 6.58%
3 UniCredit 275.33 3 6.19%
4 SG Corporate & Investment Banking 271.81 3 6.11%
5 Raiffeisen Bank International AG 207.65 3 4.67%

Bookrunners of India DCM

Rank Lead Manager Amount $m No of issues Share %
1 Standard Chartered Bank 1,072.16 12 9.37%
2 Deutsche Bank 1,008.26 15 8.82%
3 AXIS Bank 1,000.88 27 8.75%
4 Barclays 699.87 9 6.12%
5 Trust Investment Advisors 698.72 32 6.11%