Category: Emerging Markets

Under Pressure, Emerging Markets Likely Facing a Mushy Week


EM ended last week under pressure.  With two potentially disruptive events (FOMC meeting and Brexit vote) still in play, we think that EM softness should carry over into this week. 

Markets remain jittery about the June 23 Brexit vote, as a vote to leave would be very negative for risk assets such as EM.  No action is expected at the FOMC meeting Wednesday.  However, we think July remains very much in play and the FOMC statement should help keep that notion alive. 

Emerging Markets Pop off US Jobs Data, May not Last


EM ended the week on a firm note after the US jobs shocker.  While we view the weak reading as a fluke, shifting market perceptions of Fed tightening risk should keep EM bid near-term.  However, we think the July FOMC meeting is still very much alive.  That and the upcoming Brexit vote are potential pitfalls for EM in the coming weeks.

Do Emerging Markets Have You Sea-Sick?


In the past year, investors have seen emerging markets thrive, plunge, re-emerge and re-decline. Despite the volatile short-term story, the fundamentals of the emerging market assets remain strong.

Last fall, the Wall Street Journal reported that rich nations were “losing emerging markets motor.” Reportedly, the woes of developing economies were ricocheting back to advanced ones and hurting their fragile recovery.

India’s Rajan Wants to Step Down; Brazilian Politicians are Forced Out


In the EM equity space, China (+4.1%), Brazil (+3.0%), and Hong Kong (+1.8%) have outperformed this week, while Poland (-2.6%), Russia (-2.1%), and Qatar (-1.9%) have underperformed.  To put this in better context, MSCI EM rose 1.4% this week while MSCI DM fell -0.1%.

BRICS Need to Act Their Age


The rise of non-Western emerging powers like Brazil, Russia, India and China is a reality that has shaped South Africa’s foreign policy under President Jacob Zuma.

Foreign policy under Zuma has been characterised by his country’s growing closeness with these four countries. The leaders of these countries meet more often than they did in the past. This is the case in the context of their bilateral relationships as well as part of the Brazil, Russia, India, China, South Africa (BRICS) grouping.

Emerging Markets Vulnerable to FOMC, UK Referendum Outcomes


EM ended last week on a soft note.  The icing on the cake was Yellen’s speech Friday afternoon, which confirmed the more hawkish stance seen in the FOMC minutes and other recent official comments.  We warn that with the FOMC meeting and Brexit vote next month, markets are likely to remain volatile and that risk assets (such as EM) are the most vulnerable.

An Emerging Markets Status Update


In the EM equity space, India (+5.3%), Taiwan (+4.1%), and Hong Kong (+3.6%) have outperformed this week, while Colombia (-1.5%), Qatar (-0.9%), and China (-0.5%) have underperformed. To put this in better context, MSCI EM rose 2.9% this week while MSCI DM rose 1.9%.

Emerging Markets’ Rocky Road


EM had another rocky week, but managed to end on a slightly firmer note Friday.  Market repricing of Fed tightening risk was the big driver last week, and that could carry over into this week.  There are several Fed speakers in the days ahead, capped off with Fed chief Yellen on Friday.

Several EM central banks meet this week, including Israel, Turkey, Hungary, and Colombia.  There is some risk of a dovish surprise from Turkey, while Hungary is expected to continue easing.  Colombia is an outlier, with high inflation seen leading to another 25 bp hike.

Positive Dollar Sentiment, Idiosyncratic Risks Weigh on Emerging Markets


EM ended last week on a soft note, and that weakness seems likely to carry over into this week.  Dollar sentiment turned more positive after firm retail sales data on Friday, though US rates markets have yet to reflect any increase in Fed tightening expectations.

Over the weekend, China reported weaker than expected April IP, retail sales, and fixed asset investment.  This continues a string of weak data for the month, and will undercut notions that the world’s second largest economy is stabilizing. 

Could a Dovish Fed Limit the EM Currency Sell-Off?


In light of the Fed’s dovish tilt in March, the global liquidity outlook turned further in favor of EM.  As a result, EM extended the bounce off the January/February lows.  There is no clear narrative as to why EM is softer this week, but it just seems to be a much-needed correction and positioning flush-out.