Investors prefer emerging markets over US, BIS says

MANILA, Philippines - The Bank of International Settlement (BIS) said investors continued to expect strong growth in emerging markets as they cut back their growth forecasts for the United States.

Likewise, central banks in emerging market economies tightened monetary policy further, reacting to inflationary pressures from strong growth and past increases in commodity prices.

The BIS is an international organization fostering international monetary and financial cooperation, and serves as a bank for central banks. The Bangko Sentral ng Pilipinas (BSP) is a member of the BIS.

In its quarterly report, the BIS said that investors have recovered from the March 11 Japan disaster and the initial impact of the Middle East and Northern Africa (MENA) events.

“Since late March, investors have refocused on global growth and inflation prospects as well as possible monetary policy responses,” the report stated.

Bond yields in major developed economies declined on weaker prospects for both global growth and inflation. Prices of many commodities reached a plateau or even fell, lowering the near-term inflation outlook.

“Widening growth and interest rate differentials between emerging and developed economies resulted in a broad-based depreciation of the US dollar and capital inflows to emerging market bonds and equities,” it added.

The BIS said that market participants since May have became increasingly concerned about an eventual restructuring of Greek government debt. Spreads on Greek sovereign bonds widened to record highs. Fears about the wider impact of such an event also fed into higher spreads for other countries and into a marked depreciation of the euro.

Meanwhile, the so-called central bank of the world’s central banks said that new methodologies have lead to downgrades.

It observed that credit rating agencies are putting more emphasis on systemic risk, the volatility of profits, and especially the potential for public support in their ratings of financial institutions.

“As a consequence, the recent downgrading of the banking sector is likely to continue,” it further noted.