Readings: FII selling, East-West symbiosis, Hedge fund wizards
- Business Standard: Sub-prime hit FIIs on selling spree
A clutch of foreign institutional investors (FIIs) – led by sub-prime-hit Citigroup, Morgan Stanley and Bear Stearns – sold a record Rs 1,881 crore worth of stocks through block deals during the first two weeks of March. This was the highest net sales in the last four months.
The mid-cap and small-cap companies that have been battered by the big FIIs sales include Bajaj Hindustan, Bank of India, Ceat, Clutch Auto, Dabur Pharma, EID Parry, HEG, Hindustan Oil Explorations, Ipca Lab, Jai Corp, Saregama and Rain Commodities.
No end in sight?
- Business Standard: Satyajit Das: The East-West Symbiosis
The East is now an important centre for currency trading reflecting the volume of dollar reserves held by investors. Asia is also the centre for structured products especially in interest rates, currencies and equities reflecting the amount of investment capital, wealth concentrations and also the search for higher returns.
Products originated in Asia increasingly flow back into Europe — a change in the historical pattern of product innovation. In mergers and acquisitions, the focus is on servicing eastern investors and corporations expanding into developed markets. Hedge funds and private equity funds are spreading into the East. Bankers are headed East for reasons other than spiritual enlightenment.
- Brookings Institution: Hedge Fund Wizards
Hedge funds are risky for another reason. It is extremely difficult to tell, based on past performance, whether a fund is being run by true financial wizards, by no-talent managers who happen to get lucky or by outright scam artists.
. . . take a position that yields high returns with high probability and extremely poor returns with low probability, and keep your fingers crossed. Credit default swaps are one example, so are bets on interest rate spreads. Such strategies are risky but not fraudulent; the manager can always argue that his opinion about the odds differed from the market odds (he was simply engaging in arbitrage).
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