Fixed AER 15-20% and more in countries of emerging markets. How reliable?

Euxinis

Hi,
I'd like to ask about the attitude to the fixed income financial programs (deposits, bonds, CD-s, other) existing in developing countries (Eastern Europe, for example) that offer much more attractive AER (up to 25% and more) than in UK, USA and developed countries in common. :exclamati :exclamati
Some "+ +" and "- -"

Pros:
1. higher returns
2. the same financial market players (international banks)
3. governmental guaranteeing programmes
4. optional insurance
5. different taxation - investor may pay less in other country
Cons:
1. additional costs (transactions, local agent's commisions)
2. questioned reliability of financial system of other state
3. less ammounts (about 10.0000-20.000 USD) guaranteed
4. more complex procedure of investing
So what do you think - is it that risky to deal with more profitable saving/investing instruments in "hot" countries and invest there in regular deposits, CD-s?:think:

Reply please, guys, anything you thing about the topic, I'd be glad to know what you really think about it.

opinions4u

A 15% gain, offset by a 30% currency fall = a 15% loss.

Not for me.

Aegis

Essentially this is currency and inflation speculation. Hugely high-risk, so why only invest in cash abroad if it's already going for that end of the risk scale?

Generally speaking, if cash is offered at that rate, there's a catch. Inflation would probably be skyrocketing to get that sort of return on cash, and therefore you'd have less at the end than when you started even before the currency fluctuations. All in all, you'd probably be safer going into an Emerging Markets OEIC or unit trust. At least they trade in the right currency and have teams of analysts ensuring they don't make this sort of mistake.

Of course, you could also see large downturns with OEICs, but not all that much worse than the ones highlighted above, and the potential return seems to be much higher in general.

Naturally, this is not advice by and stretch of the imagination, just a comment that for the degree of risk you're suggesting you may as well be in something with much more potential.

Euxinis

Aegis wrote: »

Generally speaking, if cash is offered at that rate, there's a catch. Inflation would probably be skyrocketing to get that sort of return on cash, and therefore you'd have less at the end than when you started even before the currency fluctuations. All in all, you'd probably be safer going into an Emerging Markets OEIC or unit trust. At least they trade in the right currency and have teams of analysts ensuring they don't make this sort of mistake.

You mean dealing with Emerging Markets deposits is too risky because of inflation and currency's possible instability, but it can be worth of trying to invest THERE in some fund in target country?
So - there is no problem with other country in general?

Aegis wrote: »

Of course, you could also see large downturns with OEICs, but not all that much worse than the ones highlighted above, and the potential return seems to be much higher in general.

So experienced (local) asset management companies is the key? Have any experience in dealing with that kind of invesment?

Aegis wrote: »

Naturally, this is not advice by and stretch of the imagination, just a comment that for the degree of risk you're suggesting you may as well be in something with much more potential.

And what adout dollar (7-12%), euro (7-12%), or multi-currency deposits? Is in this case currency fluctuations risk excluded?

And sorry, but I don't understand how the local inflation influences the investments. For example - UK resident put 10k GBP on deposit in Ukraine, in a year he withdrew and get back 15k GBP (in case the local currency was stable or deposit was multi-currency), doesn't UK inflation effects assets (~3%)? Or the UA (~10-15%) one? And why? Doesn't inflation reduces the value of money in a country you SPEND it?

opinions4u wrote: »

A 15% gain, offset by a 30% currency fall = a 15% loss.

And if local currency showed stability for years (or even is fixed - tied to USD or Euro)? Or as I mentioned - deposit is is one of the international currencies or multi-currency (or some portolio of deposits in different currencies is formed)?

GeorgeHowell

Worry about the return of your money more than about the return on your money

Aegis

Euxinis wrote: »

You mean dealing with Emerging Markets deposits is too risky because of inflation and currency's possible instability, but it can be worth of trying to invest THERE in some fund in target country?
So - there is no problem with other country in general?

I'm investing in other countries on a monthly basis. However, I have no intention of using cash deposits in any of those countries for the reasons I've already mentioned.

So experienced (local) asset management companies is the key? Have any experience in dealing with that kind of invesment?

Like I said, I'm investing in one on a monthly basis. Two if you include my global equity fund.

And what adout dollar (7-12%), euro (7-12%), or multi-currency deposits? Is in this case currency fluctuations risk excluded?

Where are you looking to get 12% on either dollar or euro savings accounts? I'd be amazed if you can easily find anywhere above a quarter of that amount for dollar investments, and I have little experience with Euros, but still think that's a long shot!

And sorry, but I don't understand how the local inflation influences the investments. For example - UK resident put 10k GBP on deposit in Ukraine, in a year he withdrew and get back 15k GBP (in case the local currency was stable or deposit was multi-currency), doesn't UK inflation effects assets (~3%)? Or the UA (~10-15%) one? And why? Doesn't inflation reduces the value of money in a country you SPEND it?

If you save in a foreign currency, then generally the inflationary effects within that country will have a somewhat direct effect on the foreign exchange rate. For example, if inflation in the Ukraine is 12%, then the Ukrainian Hryvnia will likely drop off in value compared to other currencies. If you are saving in the Ukraine, you will therefore suffer from any inflation that their country suffers from, simply because your money that you have saved will have less purchasing power.

And if local currency showed stability for years (or even is fixed - tied to USD or Euro)? Or as I mentioned - deposit is is one of the international currencies or multi-currency (or some portolio of deposits in different currencies is formed)?

One year ago the USD was trading at about $2 per GBP. Now it's $1.61 per GBP. Any Americans saving in Sterling have just seen their deposits drop by about 20% in USD value.

The long and short of it is that if you're looking to save rather than invest, stick to accounts in your own currency.

meester

Aegis wrote: »

I'm investing in other countries on a monthly basis. However, I have no intention of using cash deposits in any of those countries for the reasons I've already mentioned.



Like I said, I'm investing in one on a monthly basis. Two if you include my global equity fund.



Where are you looking to get 12% on either dollar or euro savings accounts? I'd be amazed if you can easily find anywhere above a quarter of that amount for dollar investments, and I have little experience with Euros, but still think that's a long shot!

You can get 4% fairly easily. Still doesn't justify the currency speculation.

Euxinis

Aegis wrote: »

Where are you looking to get 12% on either dollar or euro savings accounts? I'd be amazed if you can easily find anywhere above a quarter of that amount for dollar investments, and I have little experience with Euros, but still think that's a long shot!

There are really such stakes. I can name the banks and programmes. Something of my own (small) experience :rolleyes:

Aegis wrote: »

I'm investing in other countries on a monthly basis. However, I have no intention of using cash deposits in any of those countries for the I've already mentioned.

Sorry then, I think monthly scales is not of my qualification... for now:cool:
It looks like a "savings speculations":o , or really top level of a... you know))))

Aegis wrote: »

If you save in a foreign currency, then generally the inflationary effects within that country will have a somewhat direct effect on the foreign exchange rate. For example, if inflation in the Ukraine is 12%, then the Ukrainian Hryvnia will likely drop off in value compared to other currencies. If you are saving in the Ukraine, you will therefore suffer from any inflation that their country suffers from, simply because your money that you have saved will have less purchasing power.

In general theory - yes, of course. But I think that rule doesn't "rule" when investor is from other country. Simply said - you have a deposit CONTRACT (or some kind of arrangement with financial institution), where is stipulated that in the moment of signing you (investor) are obligated to transfer to them some ammount of money. And their (banks) obligation is - to transfer to you in 365 days term a summ in "X" % more (you've given thyem 10k, and they have to return 12k, for example). A simple contract, doesn't differ of one with banks in country of investor, not foreign. You gave 10k - they returned 12k in a year. Investor and creditor are in different countries - who cares? If % is FIXED, what the local inflation has to do with it, if it is not mentioned in contract or general legislation etc? Why 12-15% of Ukrainian inflation and not 3-4% of GG one? If you have 2 simple numbers - money invested and money gained after a year.
I simly don't get it.

Aegis wrote: »

One year ago the USD was trading at about $2 per GBP. Now it's $1.61 per GBP. Any Americans saving in Sterling have just seen their deposits drop by about 20% in USD value.

No comment. Yes, such USD depreciation took place, global forex market tendencies. Pound showed its strength in a period. But it is market. Past is open. Who can predict tendencies in future...

Aegis

Euxinis wrote: »

There are really such stakes. I can name the banks and programmes. Something of my own (small) experience :rolleyes:

Sorry, I don't believe that there's anywhere you can get a cash deposit of 12% on USD. If there is, feel free to point us in that direction, but with a central rate much closer to 0% than to even 10%, I'm afraid I just don't buy it.

Now, there may be corporate bonds running close to 12% or above in those currencies, but those are far riskier than cash savings.

Sorry then, I think monthly scales is not of my qualification... for now:cool:
It looks like a "savings speculations":o , or really top level of a... you know))))

Sorry, I really have no idea what you're saying here.

In general theory - yes, of course. But I think that rule doesn't "rule" when investor is from other country. Simply said - you have a deposit CONTRACT (or some kind of arrangement with financial institution), where is stipulated that in the moment of signing you (investor) are obligated to transfer to them some ammount of money. And their (banks) obligation is - to transfer to you in 365 days term a summ in "X" % more (you've given thyem 10k, and they have to return 12k, for example). A simple contract, doesn't differ of one with banks in country of investor, not foreign. You gave 10k - they returned 12k in a year. Investor and creditor are in different countries - who cares? If % is FIXED, what the local inflation has to do with it, if it is not mentioned in contract or general legislation etc? Why 12-15% of Ukrainian inflation and not 3-4% of GG one? If you have 2 simple numbers - money invested and money gained after a year.
I simly don't get it.

It's due to the fact that they will be returning your deposit in their currency. If you are saving in Turkish Lira, and the inflation in Turkey is 15%, the likelihood is that the Lira will drop 15% or more compared to the Pound because inflation is a localised measure of falling strength of a currency. If that happens, then after your year of depositing at 12% (for example), your overall return is likely to be about -3% just from the inflationary impacts on foreign exchange. If the rate is also affected by other factors, then you might well suffer a much larger drop, which is certainly not a guaranteed REAL return, and is in fact much riskier than most cash depositors are willing to accept.

No comment. Yes, such USD depreciation took place, global forex market tendencies. Pound showed its strength in a period. But it is market. Past is open. Who can predict tendencies in future...

Exactly why I'm saying that it's unwise to be attracted by these fixed rates from abroad. If you lock into them, you're effectively locking yourself into the forex market for the term of your deposit. You stand a very high probability of making or losing MORE based on the currency fluctuations than you would receive on the savings balance.

Euxinis

Aegis wrote: »

Sorry, I don't believe that there's anywhere you can get a cash deposit of 12% on USD. If there is, feel free to point us in that direction, but with a central rate much closer to 0% than to even 10%, I'm afraid I just don't buy it.

Now, there may be corporate bonds running close to 12% or above in those currencies, but those are far riskier than cash savings.

Corporate bond there are with rates closer to 15-17%. If invest larger ammounts - they may reach 25-30%. And I wouldn't say these bonds are of third-sort and unreliable emitters. Ordinary corporate bonds with ordinary liquidity, used by much of investment funds, private and institutional investors for diversifying portfolios. Many of them additionaly insured by insurance companies (in favor of investor).
You should understand that the local business and financial system may cause such stakes, cause ordinary middle-level businessman (in trade, services, even production) there won't make business here if it won't give him 100-200% a year. And credits in banks or in credit unionsmay reach 30, 50%, sometimes even more than 100%.
Adout USD and Euro deposits - I'm gonna do some search work and prepare info to you. As about bonds, funds, if someone would be interested in.

Aegis wrote: »

Exactly why I'm saying that it's unwise to be attracted by these fixed rates from abroad. If you lock into them, you're effectively locking yourself into the forex market for the term of your deposit. You stand a very high probability of making or losing MORE based on the currency fluctuations than you would receive on the savings balance.

Agree.
Maybe the problem is I'm not from UK and GBP is not my native currency :rolleyes:

Euxinis

Ok. Here are some present numbers of fixed-rate deposits in Ukrainian commercial banks (secured by Fund of guaranteeing deposits of individuals a sum of – 50.000UAH that's about 10.000 USD of each client of a bank now,(planned to be changed up to 100.000, 150.000 or 200.000 UAH till the end of this year) ).
The table of so called "UNIVERSAL" DEPOSITS (possible addition, partial withdrawal without penalties and complete – with small reduction of main %) – in US Dollars.
So called "PROFITABLE" Deposits (aren't in table) have about 3% higher rates, but they are more like "term", and usually they are without a possibility of addition, with good enough penalties (main % reduction) in case of pre-term withdrawal. Euro deposits' rates are generally about 0,5-1% lower.
Bank Deposit AER % paid minimum (USD)
1. 1-st Ukrainian International Super deposit 12,50 every month 100,00
3. VAВ "Accumulative " 12,00 in the end 200,00
4. VAВ " Accumulative " 11,90 every month 200,00
5. VAВ " Accumulative " 11,90 capitalization 200,00
6. Nadra My future 11,70 in the end 100,00
7. Nadra My future 11,40 every month 100,00
8. Clearing House Standard 10,50 in the end 1 000,00
9. Clearing House For children 10,25 capitalization 1 000,00
10. Clearing House Standard 10,25 capitalization 1 000,00
11. Finance & Credit Deposit Line 10,00 every month 400,00
12. Rodovid Bank Wallet 10,00 every month 500,00
13. Clearing House Standard 10,00 every month 1 000,00
14. EnergoBank Comfort 10,00 every month 1 000,00
15. Clearing House Standard 9,75 in the end 100,00
16. Kreshchatik Door 9,50 every month 100,00
There are showed some deposit programs of only one type. The table is generalized, deposits' conditions differ in each bank. The situation also changes every week. But there are some links…
http://www.ukrprombank.com.ua/contentViewer.jsp?cataloguerId=10260&catalogueId=3000
http://www.fc.kiev.ua/en/private/deposit/types/
cataloguerId=10149&catalogueId=3000[/url]
Tell me what do you think about it.
You may also contact me by ICQ.