This year is the year of big changes in finance all around from tight markets, liquidity and staff musical chairs and shortage. Its been 2 good years of corn so far and there is a lot of fats built up that had helped fuelled the markets until the subprime concerns stopped the stock market moves.
What is happening now is -> the retail man in the street is losing money as subprime 'meltdown' continue to build up. Liquidity will continue to tighten although the question continues to remain on how much more to go... The meltdown so far is not as 'severe' given the market uptick in the last 2 years and investors still have some 'fat' from there.
Given market uncertainty, one would stand clear for now and just unwind fat positions and switch around stocks which is going on.
Funds managers must be looking through their portfolios on which stocks to clear and hold as fund redemptions will continue given that those with subprime 'failures' are unable to take out their investments given the losses.
On the currency front, the increased risk aversion among global investors as well as capital recall means investors are winding down "carry trades," a reason why Yen had not been doing well until recently. Interestingly NZ$, a favorite of the carry trade as its interest rate is 7.75% higher than Japan's, has slid the most among the 16 major currencies in the past week, falling 3.5% against the yen while the A$ has dropped 2.1%. The Yen is standing at 117.39 to the USD.
A summary of liquidity pumped in by central banks so far has shown that it has hit all markets and not just US.
US:
Bear Sterns (US$1.3bn losses estimated) - Triggered the decline in June after two of its hedge funds faltered as subprime loans default rates. The company pledged US$1.3bn to help stem losses in the funds. They filed for bankruptcy protection on July 31. Investors were blocked from pulling money from a third fund as losses in the credit markets expanded
American Home Mortgage Investment -Margin calls forced the mortgage lender into bankruptcy protection on Aug. 6
Australia:
Basis Capital :have seen its Basis Yield Fund lose half its value. .
Absolute Capital Group Ltd: Suspended withdrawals and froze its Yield Strategies Fund and Yield Strategies Fund NZD, which together have about A$200m (US$177m) under management.
Macquarie Fortress Investments Ltd- The 3rd fund manager in Australia because of loans made against the funds, which have about US$1.3bn invested, they could lose a quarter of their value (or US$300m)
Taiwan Life Insurance Co.- would book a loss of TWD428m (US$13m) for the first half 2007
France-BNP Paribas Asset-management arm freezes three of its asset-backed security funds amid a lack of liquidity with some US$2.2bn losses estimated
Germany -IKB Deutsche Industriebank AG German bank has "felt the impact" of the subprime fallout and now on the receiving end of a bailout that consists of about €3.5bn, or US$4.789bn, to cover possible losses, plus a further financial backstop of €14.6bn to keep afloat IKB and the affiliate that invested in fixed-income securities. An estimated US$5bn losses.
China's 6-listed banks may lose an estimated 4.9bn yuan (US$646m) from their investment in subprime loans
1) Bank of China US$507.8m 2) China Construction Bank US$76m 3)Industrial & Commercial Bank of China US$15.8m 4) Bank of Communications US$33.2m 5) China Merchants Bank Co US$13.6m 6)China Citic Bank US$2.5m
Funds injected by central banks last week
US Federal Reserve Central -> has injected approx US$62m (Thursday: US$24bn / Friday: US$38bn )
European Central Bank -> Funds injected US$279bn (Thursday: US$130bn /Friday: US$84bn /Monday: US$65bn )
Bank of Canada injected on Friday: US$1.6bn
Bank of Japan -> injected US$13.5bn Funds (Friday: US$8.4bn /Monday: US$5.1bn )
Swiss National Bank injected on Friday: Est. US$1.7-2.5bn
Reserve Bank of Australia injected on Friday: US$4.2bn
Monetary Authority of Singapore believed to have injected on Friday: US$1bn
