Category: Emerging Markets

An Emerging Markets Status Update

1) S&P revised Brazil’s BBB- rating from stable to negative, 2) Banco de Mexico announced changes to its FX intervention program, which had been rumored since last week, 3) The Russian central bank has halted its daily USD purchases and slowed its pace of easing, 4) Turkey finally engaged the international community concerning ISIS/ISIL, asking NATO to hold a rare emergency meeting, 5) Turkey’s central bank is considering a move to a simplified monetary policy framework with one policy rate, 6) Bank of America decided to keep EM companies in its Global High Yield Index, 7) T

A Preview of the Emerging Markets

EM assets start the week on a softer footing.  The China situation remains unsettled, with stocks on Monday posting their biggest one-day loss in eight years.  More support measures seem likely if the rout continues.  The calm in China equity markets from last week has been shattered, and is having reverberations across EM as MSCI EM breaks down to multi-year lows.  Indeed, the June 2013 low is approaching, and a break below would target the 2011 low.

An Emerging Markets Status Update

1) Brazil’s government cut the primary surplus target for 2015 to 0.15% of GDP, 2) The situation in Turkey is becoming even more complicated, reinforcing our view that the tail risks are increasing, 3) It appears as if Ukraine has made its debt payment today, avoiding default, 4) Press is reporting that the Mexican FX commission is mulling additional measures to help support the peso, 5) The United Arab Emirates will link domestic gasoline and diesel fuel prices to global oil prices starting next month, 6) The SARB hiked rates 25 bp to 6%, as many expected, 7) The Czech central bank i

A Preview of Emerging Market News and Events

EM assets are starting the week under pressure.  Idiosyncratic factors in Brazil (more political noise) and Turkey (election risks and a terrorist attack) meant that these countries are the hardest hit.

An Emerging Markets Status Update

1) The Mexican oil auctions, while historic, proved to be a bit of a dud, 2) China revealed more support measures, 3) Brazil is considering an amnesty to undeclared funds held abroad, 4) Political tensions are heating up even more in Brazil, 5) We are a few steps closer to elections in Turkey, and it’s unclear whether markets are prepared for it, 6) Kazakhstan’s central bank widened upper end of its exchange rate corridor, 7) Ukraine’s Finance Minister Natalie Jaresko joined restructuring negotiations with creditors for the first time since the two-month standoff began

A Preview of the Emerging Markets

EM remains caught in global crosscurrents that are mostly negative. If risk off sentiment ebbs as Greek and Chinese tail risks fall, then that simply brings the focus back on the looming Fed lift-off. We expect EM to remain under pressure in Q3. We also see continued pressure on industrial metals and oil, which spells out differentiation in the EM asset class.

An Emerging Markets Status Update

1. The BRICS central banks sign an accord on $100 bln foreign currency pool.  2. South African union AMCU declared a dispute with gold producers over wages.  3. China’s recent actions to stabilize equity markets became increasingly desperate.  4. Argentina local elections gave the opposition a solid victory.  5. Brazil’s central bank pared the amount of FX swaps rollover late last week.  6. The approval of Chile’s President Michelle Bachelet’s continues to fall.

Commodity Price Drops are Affecting the Exporting EM Countries

Commodities are back under pressure, sending ripples through various assets classes. Let us start with a recap of recent moves and drivers.  In short, it looks like the risks are still bearish for energy and industrial metals, but not so much for agricultural commodities.  We believe that the currencies and equity markets of the major exporters of industrial metals and energy are likely to continue underperforming.

Oil

A Preview of the Emerging Markets

Between the “no” in the Greek referendum and a sharp drop in oil and commodity prices, EM is starting the week on a bad note.  Therefore, we think this is a week to be defensive.  There has been limited contagion so far from Europe, in either FX or fixed income markets, but this can change quickly.  MSCI EM is testing the March low, and it is on track to eventually test the December low.

A Preview of Emerging Market News and Events

EM assets start the weak on a soft note, driven by risk off sentiment stemming from Greek developments.  The weekend PBOC easing measures had little impact, with China stocks adding to their recent losses.  With another strong US jobs report expected on Thursday, we suspect EM will continue to trade with a weak bias.  Asia should still outperform, while Latin America and EMEA should underperform.