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S&P/TSX 60 ESG Index Launched by  S&P Dow Jones Indices, RobecoSAM and Toronto Stock Exchange

S&P Dow Jones Indices, one of the world’s largest providers of financial market indices, RobecoSAM and Toronto Stock Exchange (TSX) have announced the launch of the S&P/TSX 60 ESG (Environment, Social and Governance) index.

The Index is designed to track the performance of the constituent companies of the S&P/TSX 60, Canada’s leading equity benchmark, while taking into account each company’s sustainability performance relative to the corresponding industry-specific standards. RobecoSAM, the investment specialist focused exclusively on Sustainability Investing, evaluates companies’ sustainability profiles using their proprietary assessment methodology.

 The S&P/TSX 60 ESG index is designed for market participants who currently use the S&P/TSX 60 and are looking to deepen the scope of their stock analysis to include sustainability criteria. The construction methodology is based on the S&P/TSX 60, while companies’ sustainability profiles are evaluated using the RobecoSAM Corporate Sustainability Assessment (CSA). Companies are then re- weighted according to their sustainability score, meaning those with a higher score are weighted higher in the S&P/TSX 60 ESG index than in the S&P/TSX 60.  

Alka Banerjee, Managing Director of Global Equity Indices, S&P Dow Jones Indices: “We are excited to expand our ESG offering with the launch of the S&P/TSX 60 ESG index. This index provides investors in the Canadian equity market with an objective, investible benchmark against which they can measure their sustainability investment portfolios. With the launch of our latest ESG index, S&P Dow Jones Indices continues to play a leading role in providing investors with the benchmarks needed to gauge the environmental consciousness of some of the world’s most followed companies.”

 Guido Giese, PhD, Head of Indices, RobecoSAM: “The launch of the S&P/TSX 60 ESG index marks an important step towards enabling investors in the Canadian equity market to benchmark their portfolios against an index that is grounded in sophisticated ESG information. Expanding our offering is also a response to an overall increasing interest in regional sustainability indices and we are pleased that we can satisfy investor thirst for an investible, regional ESG benchmark.”  

Eric Sinclair, President, TMX Datalinx and Group Head of Information Services, TMX Group: “We are very pleased to launch the S&P/TSX 60 ESG index, which recognizes Toronto Stock Exchange issuers for their ESG efforts and performance. As interest in ESG continues to grow, we believe investors should value this index offering.”

Invex Bank Signs an Agreement with BlackRock to Increase its Global Investment Range

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Invex Banco firma un acuerdo con BlackRock para aumentar su oferta de inversión global — CC-BY-SA-2.0, FlickrOne point during the press conference held in order to announce the deal. Courtesy photo. Invex Bank Signs an Agreement with BlackRock to Increase its Global Investment Range

In order to increase the range of worldwide investments available to its clients in Mexico, Invex Bank has signed a licensing agreement with BlackRock, as was stated by the Mexican company in a press conference held in Mexico City on Tuesday.

Invex clients will be able to invest in the global market through INVEXTK, its equity fund, with the support of international markets’ specialists from the world’s largest asset management company.

“This new partnership is part of our objective to position ourselves as the best private bank in Mexico; therefore we’ve decided to offer our clients the best investment strategies, hence the desire to work hand in hand with BlackRock, one of the best specialists in this field on a worldwide scale. From now on, we plan to double our hold of equity funds before the end of the year, and continue offering investors the best in solid, clear, and transparent products,” said Jean Louis Guisset, managing director of Invex Private Banking.

Meanwhile, Juan Hernandez, Sales Director for iShares at BlackRock, said: “At BlackRock we are delighted with the signing of this partnership, which will enable us to help more Mexicans in the international diversification of their investments. We believe that participating in this type of joint strategies is essential in order to continue sharing the benefits of having a diversified portfolio with Mexican investors.”

The INVEX fund will follow the recommendations of BlackRock’s model portfolio, consisting of iShares ETFs, in an active strategy with monthly tactical rebalancing. Invex Bank partners with BlackRock in order to reinforce the importance of international diversification for its clients.

Invex is a Mexican financial institution which has been in the market for over 20 years, and has divisions in Private Banking, Corporate Banking, Investment Banking, Funds, Trust, International, Infrastructure, Leasing, and Cards. Invex has stood out for its sound track record and for maintaining steady growth.

Mexico’s Intercam Pays Special Attention to Retraining its Sales Force

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Eduardo Garcia Lecuona, the founder and president of Intercam, believes that once Mexicans become familiar with the extent and the ground rules of the reforms undertaken by Enrique Peña Nieto’s government, the country will experience a big recovery. Although the Mexican economy has slowed in the first half of the year, other experts agree with his opinion.

During an interview with Funds Society, the executive reviewed the current Mexican financial situation and the history of the group, which is currently at the consolidation stage; at a turning point in the formation of the financial group three years after buying the missing piece in order to become a financial conglomerate. The purchase of Banco Regional de Chihuahua in Monterrey marked a before and after and provided a boost to its structure, which today consists of a brokerage firm, a funds management company, and a bank.

For Garcia Lecuona, Intercam is now at the consolidation stage, where the only thing left is to continue growing. Currently, with75 open offices and 800 consultants throughout the Republic of whom 150 are private bankers, the group does not contemplate its growth outside of Mexico. A few years ago they did contemplate their entry into Chile, but eventually discarded the idea because it seemed a very expensive market. However, the executive admits that they do not lack the appetite, but that they prefer to focus on Mexico for now.

Retraining the sales force

Garcia Lecuona explained that they have had to pay special attention to retraining its sales force because the amendment to the securities’ market regulations will change the rules of the game, making the market more transparent, but requiring greater accountability, and where, among other things, the interests of the manager and the client must be aligned. In this new scenario, “you have to verify the client’s risk profile from investment services… The dealer broker and the executive have much more responsibility in working with the client,” he pointed out.

Likewise, Garcia Lecuona said that what the client is looking for is the service, and does not understand the setting as much from the point of view of the regulations, but that does not mean that they have to stop paying their complete attention.

Regarding the current situation in Mexico, Garcia Lecuona acknowledged that the year has started very slowly, but hoped that as the rules of the second legislation of the new reforms become known, it will begin to show in the economy.

“Mexicans are seeing the impact of the reforms. Once we understand the rules, the recovery will be extensive.” Likewise, the executive stressed that in Mexico the security issue is not completely resolved. For Garcia Lecuona this has been a major deterrent to investment in recent years.

As to where higher growth is being recorded, Garcia Lecuona highlighted that in recent years, thanks to the Group’s extensive branch network, from Intercam, they have been serving Canadian and U.S. clients who chose Mexico for retirement in areas like Los Cabos or San Miguel de Allende, to name a few. This segment is amongst those in which they are encountering greater impetus. Additionally, they are experiencing growth in the support of companies and entrepreneurs with international business activity with local vision.

Intercam’s History

Intercam was founded in 1987 by Garcia Lecuona, an ex-banker from Citibank who managed the company in its infancy as a transnational banking business until in 1992, with the signing of the FTA between the U.S. and Mexico, trade between the two neighbors exploded, and thanks to the international payments of its client base, many of whom were exporters, Intercam recorded a tremendous growth during the 90s.

Another major step came in 2004 with the purchase of a fund management company through which Intercam began selling its own products; it began with two general debt funds, one in pesos and the other one in dollars, but it also began to distribute third party funds. “We started with the open-architecture model, which brought more customers to our business.” From 2004 to 2008 they entered the wealth management business offering consultancy services to those clients for whom they performed business transactions. Back then the group’s average client had approximately $50,000 invested in funds, while currently their average client has over $400,000. They now have six funds of their own and distribute more than 68 funds including bond, variable, and hedge funds from Mexican mutual funds companies.

The brokerage house came in 2006 and in 2010 they began operating the Intercam broker dealer in Miami, with which they began to attract a further private banking segment and serving clients in Latin America who were seeking opportunities to diversify their investments.

Assets began to grow significantly and the company entered the institutional management business, attracting afores and insurance companies, clients with greater sophistication in managing their assets. For the past few years they have been annually renewing a mandate with FIRA, a Government Trust Fund for Rural Development, which only works with five fund managers.

Currently, Intercam boasts 68,000 clients, 53,000 of whom are companies and 15,000 private investors.

CorpBanca Responds to Amended Complaint Filed by Cartica

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CorpBanca has responded to the amended complaintregarding the proposed merger of CorpBanca and Banco Itaú Chile brought by Cartica Management, LLC in the United States District Court for the Southern District of New York. CorpBanca will file a pre-motion letter seeking permission to file two separate Motions to Dismiss Cartica’s newly filed complaint, saying that Cartica now seeks money damages that would be to the exclusive benefit of Cartica and no other CorpBanca shareholders. Cartica filed the amended complaint after the Court held a conference to discuss proposed motions by the defendants to dismiss the lawsuit.

CorpBanca issued the following statement:

“CorpBanca continues to firmly believe that Cartica’s claims are entirely without merit, and that Cartica’s interests are not aligned with those of other CorpBanca shareholders. Cartica originally pretended that it was filing its complaint on behalf of minority shareholders to obtain more information about the transaction. In fact, CorpBanca has supplied an abundance of disclosures about the proposed merger throughout the process, including the transaction documents, the risks and benefits of the deal, and the prospects for the post-merger bank. CorpBanca’s shareholders have all material information they need to cast a fully informed vote.

Faced with all this information, and CorpBanca’s letters to the Court explaining the significant flaws in Cartica’s Complaint, Cartica has revealed its true colors and motivations: To seek money for its trading in CorpBanca shares over the last six months, exclusively for its own benefit and to the detriment of the other shareholders. Cartica’s new claim, which was omitted from its press release, demonstrates that Cartica is looking for special treatment and a coerced payout on its investment in CorpBanca.

Cartica has publicly stated that it supports a merger between CorpBanca and Itaú. Yet, it asks the Court to enjoin the transaction and has now added Itaú to the lawsuit. This is nothing more than a desperate attempt to proliferate its self-serving campaign. Cartica is trying to prevent other CorpBanca shareholders from casting their votes in favor of the transaction. And it now appears to be using this lawsuit to try to hold up the deal in order to extract a payment from CorpBanca. This is not shareholder activism in the name of good corporate governance but rather an orchestrated scheme to threaten a valuable merger for a personal profit.

The new story in Cartica’s amended complaint also raises concerns about Cartica’s trading practices. Cartica says that it purchased additional shares of CorpBanca during the last six months based on information it obtained in a private meeting with CorpBanca’s majority shareholder CorpGroup. While no material non-public information was disclosed at any time by CorpBanca or its majority shareholder in its discussions with Cartica, the activist hedge fund apparently attempted to trade on these discussions to its own advantage and to the detriment ofother CorpBanca shareholders from whom it bought shares. While Cartica tries to hold itself out as a long-term investor and champion of minority shareholders, the truth is that it has been actively trading CorpBanca shares the whole time, and this suit is a little more than an effort to justify its speculative and misguided trading strategy to its investors.

With respect to the claims in Cartica’s amended complaint, CorpBanca strongly believes that Cartica’s suit continues to lack merit. Cartica’s request for additional disclosures, including request for immaterial and extraneous details, and in many cases, nonexistent materials, amounts to nothing more than an endless paper chase. CorpBanca has published massive amounts of information with respect to the proposed merger, far in excess of that required by law, including the Transaction Agreement, the Shareholders Agreement, the loan agreement, an SEC filing describing the benefits and risks of the deal, financial information on both CorpBanca and Itaú, pro forma financial statements regarding the merged bank, fairness opinions rendered by two leading global investment banks in connection with the deal, and a 100-page disclosure document describing in detail the deal, its structure, terms, background and conditions.

With respect to its securities claim, Cartica continues to complain about CorpBanca’s business decisions in Chile, which are outside the jurisdiction of a U.S. federal court. Yet, Cartica has never filed any case in Chile regarding CorpBanca’s business decisions, the only proper place for such a dispute. With respect to its claims of deficiencies in 13D filings by CorpBanca’s controlling shareholder, Cartica is seeking additional information about Corp Group’s agreements with Itaú that were disclosed to the public long ago.

CorpBanca strongly believes that the proposed transaction is in the best interests of CorpBanca shareholders and that Cartica’s interests are not aligned with those of other CorpBanca shareholders. CorpBanca remains firmly committed to the dismissal of Cartica’s self-serving lawsuit.”

Henderson Strengthens the US-Based Credit Team With Double Hire

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Henderson refuerza su equipo de crédito con dos nuevas incorporaciones — Wikimedia CommonsPhoto: Ed Yakovich. Henderson Strengthens the US-Based Credit Team With Double Hire

International asset manager Henderson Global Investors has added two investment grade credit analysts to its fixed income team based in Philadelphia.

Timothy Gage joins from Franklin Square Capital Partners and Jonathan Mann from JP Morgan Chase & Co. Both will report to Andrew Griffiths, Henderson’s Global Head of Credit Research, and begin in June and July respectively.

Educated at the University of Pennsylvania, Gage has 16 years’ experience in the credit markets having spent time at Morgan Stanley Investment Management, BNP CooperNeff Advisors and Susquehanna International Group.

After graduating from Columbia College in 2010, Mann spent a year at Lord, Abbett & Co. after which he joined JP Morgan Chase & Co.

The pair joins an existing team of six high yield professionals. Their main responsibilities will be to oversee specific industry sectors and US domiciled non-financial companies across the investment grade corporate bond universe. This team forms part of a broader global credit team based in London.

Stephen Thariyan, Global Head of Credit, said, “In February 2013 Henderson’s Philadelphia office was established – the fact that we are able to add to that team so soon is testament to our performance for our clients in the last year. It also signals the increasing demand for global fixed income product in the market. To attract two analysts of such a high calibre indicates our growing presence in the global credit sector. ”

Emerging Markets Enter a New Investment Reality

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Investors have become more discerning about investing in emerging markets as their economies reform at varying speeds, according to findings from the annual independent survey released by CREATE-Research and commissioned by the Principal Financial Group^® and Principal Global Investors.

“Emerging markets are no longer seen as a homogenous group. Different countries are developing at different speeds,” said Barb McKenzie, chief operating officer of Principal Global Investors. “Those identified as embracing a reform agenda are recognized as being more attractive. Survey respondents expect these economies to converge structurally and financially with developed economies in the near-term.”

Nearly 35 percent of survey respondents believe China will deliver strong returns over the next three years, while only 15 percent believe Brazil can do so. Similarly, more than 50 percent of respondents believe China will make significant progress in implementing necessary economic reforms, whereas only 6 percent believe Russia can do so.

The report, Not All Emerging Markets Are Created Equal, explores the extent to which emerging economies and developed markets will converge or diverge over the rest of this decade. It seeks to uncover how emerging economies resemble their developed peers in terms of economic well-being and investment approaches, and analyzes factors that are likely to affect convergence.

The findings are based on a survey of more than 700 pension plans, sovereign wealth funds, pension consultants, asset managers and fund distributors across 30 countries with combined assets under management of $29.7 trillion. The survey was followed by 110 interviews.

From buy-and-hold to tactical

Marked volatility in emerging markets has caused investors to become more discerning, changing the landscape of emerging markets investing to be considered tactical rather than buy-and-hold. According to the survey, those investors viewing emerging market assets as an opportunistic play has increased from 30 percent to 48 percent for equities, and from 15 percent to 51 percent for bonds, since 2012.

“While emerging markets in the East continue to converge with developed markets in the West, it is clear from our research that emerging economies will no longer move in lock step,” said Prof. Amin Rajan, CEO of CREATE-Research and author of the report. “This could be the age of stock-pickers, as catchy acronyms such as BRICS become irrelevant.”

United States drives global economy

Survey respondents view the United States as the key driver of the global economy over the next three years:

Forty-seven percent of investors believe the U.S. recovery will deliver the best returns
Nearly 65 percent of investors believe the U.S. government will make significant progress in rebooting its economy
Thirty percent of investors think the outlook for Europe remains decidedly cloudy, with isolated pockets of revival expected only in Scandinavia and the United Kingdom

Key findings by investor segment

Themes emerging from the survey relative to each investor segment include:

Defined benefit plans: aging member demographics are driving the transition from asset accumulation to liability matching, with opportunistic investors looking toward distressed debt, emerging marketing equities, ETFs and emerging market corporate bonds
Defined contribution plans: inadequate plan balances are intensifying the search for higher returns with the most opportunity seen in ETFs and active equities and bonds
Retail investors: becoming ultra-cautious as they approach or reach retirement with a focus on cost, convenience and capital preservation when choosing investment products
High-net-worth investors: pursuing a range of goals including inflation protection and regular income via real assets and low volatility via balanced and capital protection funds

“The research clearly shows a change in the landscape of emerging markets investing as investors become more discerning,” said Julia Lawler, senior vice president at The Principal^®. “The demographics of aging populations with an eye toward retirement coupled with investors interested in a buy-and-hold approach are leading a fundamental change in asset allocation decisions.”

Kimco Sells Four Shopping Centers in Mexico

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Kimco Realty Corp., North America’s largest publicly traded owner and operator of neighborhood and community shopping centers, has announced that as part of its stated strategy to exit Latin America, it has sold four retail properties from its Mexico portfolio for a gross sales price of 1.1 billion Mexican pesos (US $82.1 million). The portfolio sale generated pro-rata proceeds to Kimco of approximately 688.1 million Mexican pesos (US $53.3 million).

The four Mexican assets total 1.2 million square feet and were developed between 2005 and 2009 in the cities of Rosarito, Tijuana, Los Mochis, and Mexicali. Anchor tenants include Wal-Mart (4), Home Depot (2), and Cinepolis (3). The four-property portfolio divestiture follows the disposition of a nine-property Mexican portfolio in the first quarter of 2014.

The sale represents continued progress on Kimco’s goal to simplify its operations by exiting Latin America and focusing primarily on the U.S. and Canadian shopping center portfolios. Kimco is currently negotiating contracts for the disposition of all of its remaining retail Latin American assets.

Kimco Realty Corp. is a real estate investment trust (REIT) headquartered in New Hyde Park, New York, that owns and operates North America’s largest publicly traded portfolio of neighborhood and community shopping centers. As of March 31, 2014, the company owned interests in 835 shopping centers comprising 122 million square feet of leasable space across 42 states, Puerto Rico, Canada, Mexico and South America. Publicly traded on the NYSE since 1991, and included in the S&P 500 Index, the company has specialized in shopping center acquisitions, development and management for more than 50 years.

FINRA Fines Merrill Lynch $8 Million; Over $89 Million Repaid to Clients Overcharged for Mutual Funds

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The Financial Industry Regulatory Authority (FINRA) has announced that it has fined Merrill Lynch, Pierce, Fenner & Smith, Inc. $8 million for failing to waive mutual fund sales charges for certain charities and retirement accounts. FINRA also ordered Merrill Lynch to pay $24.4 million in restitution to affected customers, in addition to $64.8 million the firm has already repaid to harmed investors.

Mutual funds offer several classes of shares, each with different sales charges and fees. Typically, Class A shares have lower fees than Class B and C shares, but charge customers an initial sales charge. Many mutual funds waive their upfront sales charges for retirement accounts and some waive these charges for charities.

Most of the mutual funds available on Merrill Lynch’s retail platform offered such waivers to retirement plan accounts and disclosed those waivers in their prospectuses. However, at various times since at least January 2006, Merrill Lynch did not waive the sales charges for affected customers when it offered Class A shares. As a result, approximately 41,000 small business retirement plans, and approximately 6,800 charities and 403(b) retirement plan accounts available to ministers and employees of public schools, either paid sales charges when purchasing Class A shares, or purchased other share classes that unnecessarily subjected them to higher ongoing fees and expenses. Merrill Lynch learned in 2006 that its small business retirement plan customers were overpaying, but continued to sell them more costly shares and failed to report the issue to FINRA for more than five years.

Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement, said, “Merrill Lynch failed to offer available waivers to customers, including small business retirement accounts and charitable organizations. FINRA’s commitment to investor protection is highlighted by the significant restitution component of this settlement, which reinforces that investors must be able to trust that their brokerage firm will offer the lowest-cost share classes available to them. When firms fail to do so, we will take appropriate action.”

Merrill Lynch’s written supervisory procedures provided little information or guidance on mutual fund sales charge waivers. Even after the firm learned that it was not providing sales charge waivers to eligible accounts, Merrill Lynch relied on its financial advisors to waive the charges, but failed to adequately supervise the sale of these products or properly train or notify its financial advisors about lower-cost alternatives.

In concluding this settlement, Merrill Lynch neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

Prudential Investments Launches Long-Short Equity Fund

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Prudential Investments has launched the Prudential Long-Short Equity Fund, available for the US market. The fund uses long and short positions within the full spectrum of U.S. equity market capitalization. The fund’s managers seek to add value by selecting attractive long positions, while having the flexibility to short sell securities they view as unfavorable. In addition, they can adjust the fund’s net long market exposure to take advantage of market conditions.

“With this new fund, our goal is to provide investors with growth potential from their equity investments, while seeking less volatile return patterns,” said Stuart Parker, president of Prudential Investments.

The fund is managed by a team from Quantitative Management Associates, including Peter Xu, Stacie Mintz and Devang Gambhirwala, who average 22 years of investment experience. With more than a decade of experience managing long-short equity portfolios, QMA has deep expertise in applying adaptive models to an array of investment and asset allocation strategies, including long-only, active extension, market neutral and alternatives strategies.

“In this fund, we are building on what we already do well,” said Stacie Mintz, a managing director and portfolio manager at QMA. “The strategy combines our active, bottom-up stock selection approach with insights from our asset allocation team to create a flexible portfolio designed to help investors in volatile markets.”

QMA, an asset management business of Prudential Financial, had more than $111 billion in assets under management as of March 31, 2014. The business manages equity and asset allocation portfolios for institutional pension plans, endowments, foundations, and subadvisory accounts for other financial services companies.

EM Fundamentals Are Not Fixed

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Los fundamentales en mercados emergentes no están claros — Wikimedia CommonsPhoto: Dietmar Rabich, rabich.de, CC BY-SA 4.0.. EM Fundamentals Are Not Fixed

Textbook economics holds that free capital mobility is a source of stability, because it allows international investors to diversify risk and pursue the most profitable investment opportunities. Yet real world experience suggests that the vagaries of international capital flows can impart a huge amount of instability. The prime reason for this is that self-fulfilling expectations can get stuck on an explosive path and when they do they have the power to alter the underlying fundamentals big time.

When developed markets (DM) expected returns were very low, due to sluggish growth and easy policy rates as far as the eye can see, investors massively flocked towards emerging markets (EM) space in search of higher returns. This pushed up EM asset prices (including the exchange rate) and led to a massive increase in domestic credit growth in various countries. The flip side of this was widening of current account deficits which international investors only seemed happy to finance. The reason is that expectations of future asset price and exchange rate appreciation tend to feed on themselves because such capital inflows cause an endogenous improvement in domestic balance sheets. The value of private sector assets may well increase more than liabilities and solvency prospects seem better than they really are as the credit boom pushes up growth to unsustainable levels. Any attempt by the central bank to slow down growth may well backfire as higher policy rates only attract more capital inflows. In the textbook model, asset price appreciation is a stabilizing force because at some point valuations will become so unattractive that the inflow will dry up. However, in real life such a valuation ceiling does not exist. Asset prices can embark on an exponential growth path for a pretty long time.

Nevertheless, the imbalances that result from this cannot continue to grow forever. When the party stops, policymakers find out there is no valuation floor for domestic assets either. The increase in expected DM returns which started a year ago caused EM capital inflows to dry up. Once again EM central bankers are then presented with a Catch 22 situation. If they do not tighten monetary policy, the outflow may accelerate as exchange rate depreciations will feed expectations of further future depreciation. This happens because domestic balance sheets now suffer endogenous deterioration. Asset values decline while nominal debt levels remain the same and pessimism about growth and solvency prospects will create its own grim reality. In addition to this, runaway depreciation may also cause a substantial rise in inflation (expectations). If this happens, monetary policy will have to be tighter than in the case of stable expectations for a prolonged period of time to tame the inflation beast. Runaway capital outflows can thus easily trigger a self-fulfilling process that severely damages the underlying fundamentals. Once markets are in panic mode, they need a firm and decisive policy slap in the face to break this negative feedback loop.

Yet, one can very well understand why dealing this blow to markets is difficult because tightening policy is also not particularly attractive in an economy with excessive leverage. After all, higher interest rates as well as the concomitant growth slowdown will also conspire to reduce the solvency of the debtors and force them to stand and deliver. Yet, in the end this is often the least painful option, especially if the central bank acts early to stem the depreciation spiral. History shows that the cumulative rise in policy rates needed to break the depreciation feed-back loop is lower the more pro-active the central bank is in nipping the whole thing in the bud. In that case there is at least a reasonable chance that policy can be tightened relatively gradually which gives domestic agents time to adjust. In the case of runaway depreciation expectations draconic adjustments are forced upon them overnight which causes much bigger and longer lasting economic damage.

The good news is that (at least at the time that I am writing this) EM space seems to have succeeded in bringing about this more benign slow adjustment scenario, which is why we believe that the resolution of EM imbalances will not derail the global recovery. Having said that, the risks clearly lie in the direction of renewed EM market panic which could, for instance, be triggered by an increase in political and social unrest.

Willem Verhagen, ING Investment Management