Category: Emerging Markets

A Preview of the Emerging Markets


Emerging markets currencies are somewhat directionless at the moment, caught between an unclear trend for the dollar and oil prices in a broad yet volatile range since the start of the month. Moreover, the uncertainty about the timing of the first Fed hike and festering risks in Europe (Greece and rise of the anti-establishment parties in Spain) will continue to detract from risk appetite. We see EM trading with a mildly negative tone in the week ahead, though we don’t seen many idiosyncratic risk events in the near them.

An Emerging Markets Status Update


1) Petrobras reported stronger than expected Q1 earnings, 2) A Colombian court ordered a delay to the sale of the government’s 57.6% stake in hydropower company Isagen, 3) The Mexican government cut its growth forecast for the year by a full percentage point, 4) Bank Indonesia kept rates steady at 7.5%, as expected, but eased via macroprudential policies, 5) S&P moved the outlook on Indonesia’s BB+ rating from stable to positive, 6) Press reports that China is readying plans to boost local government borrowing, 7) Russian Finance Ministry started buying USD

A Preview of Emerging Market News and Events


EM assets start the week under some mild pressure. This comes after last week’s rally, which was fed by the positive combination of stabilizing commodity prices, continued dollar softness, and falling US yields. Those impulses are likely to continue this week. With little on this week’s calendar in terms of US data that could help turn around market expectations on Fed lift-off, EM currencies could extend their rally.

An Emerging Markets Status Update


1) China stimulus continues, 2) Stymied India reform efforts, 3) Brazil’s fiscal outlook has worsened after the lower house passed an amendment to boost pension payments, 4) Polish political risk is rising, 5) The Russian central bank bought USD for the first time since last June , 6) Ukraine default risk appears to be rising.

A Preview of Emerging Market News and Events


EM assets are again being pulled in two directions.  EM equities are getting a boost from the PBOC rate cut over the weekend, while EM currencies are starting soft this week as the strong US jobs report puts Fed lift-off back on the radar screen.  US retail sales for April come out on Wednesday, and another strong report would likely lead to another leg higher for the greenback.

An Emerging Markets Status Update


1) The Brazilian central bank indicated less FX swaps and additional monetary tightening, 2) After a delay, Israel has a new government, 3) Saudi Arabia will open up its stock market to foreign investment, 4) The Argentine political outlook has gotten more interesting, 5) Vietnam devalued the dong for a second time in 2015

A Preview of Emerging Market News and Events


EM assets remain on the defensive now that the dollar has regained some traction on the back of some firmer US data last week.  This Friday’s US jobs report will be key to determine whether the dollar’s current bounce is sustainable.  The 10-year UST yield has climbed above 2.10% for the first time since mid-March, but a sharp rise in German 10-year yields as well, to 0.41%, the highest level since early March, offsets the positive impact on the dollar.  EM local currency bonds are suffering as a result.

An Emerging Markets Status Update


1) Unconventional policy measure in China could be on the table; 2) Poland sold sells its first international bond with a negative yield; 3) Indonesia executed eight people over drug charges, seven of which were foreigners; 4) Russia’s central Bank stepped up its pace of easing, cutting rates 150 bp to 12.50% vs. the expected 100 bp; 5) The Ukraine government implemented one of the most painful measures, hiking gas and heating tariffs for households; 6) The Thai central bank cut rates unexpectedly.

A Preview of Emerging Market News and Events


It is a mixed start of the week for EM, though the short-term outlook is constructive.  The rebound in commodity prices has changed relative risk perception across the producer-importer spectrum.  Iron ore, for example, is up some 25% since the start of the month while oil is up nearly 18% over the same time-period.  This has added confidence to the recovery of currencies such as BRL and RUB, to the point where measures to counter further appreciation are now being discussed or (in the case of Russia and Taiwan) implemented.

An Emerging Markets Status Update


Over the last week, Hungary (+4.8%), Brazil (+4.6%), and Russia (+4.4%) have outperformed in the EM equity space as measured by MSCI, while India (-4.5%), Thailand (-2.3%), and Egypt (-2.0%) have underperformed.  To put this in better context, MSCI EM rose 1.6% over the past week (for the fourth consecutive weekly advance) while MSCI DM rose 1.6%.