Category: Emerging Markets

The Latest from the Emerging Markets

1) Korea’s Financial Services Commission will introduce a so-called “omnibus account” for foreigners investing in local stocks, 2) Malaysian Attorney General Apandi Ali closed the investigation into transfers of foreign money into Prime Minister Najib Razak’s personal bank accounts, 3) The South African Reserve Bank increased the pace of its tightening, 4) The Egyptian central bank eased restrictions on dollar cash deposits, 5) The Turkish central bank raised its 2016 and 2107 inflation forecasts after the minimum wage was hiked 30%, 6) Brazil’s COPOM minutes c

Emerging Markets Bounce, but Risks Remain

EM enjoyed a nice bounce to end last week. The global liquidity outlook has clearly moved in favor of EM, at least for now.  However, the overall global backdrop has not shifted in favor of EM just yet.  Bottom line:  enjoy this EM rally with a short-term timeframe in mind, with the idea that EM turbulence will likely return later this year.

Brazil’s Monetary Policy Course Reversal Highlights EM News

1) Malaysia’s central bank kept rates steady at 3.25%, as expected, but cut bank reserve ratios from 4% to 3.5%, 2) S&P downgraded Poland one notch to BBB+ with negative outlook, 3) Brazil’s central bank did a complete about-face and left rates steady at 14.25%, 4) Mexico may tweak its FX auction program again when it is extended this month, 5) Argentine officials met with IMF chief Lagarde at the World Economic Forum in Davos

The Chinese Equity Market is in the Emerging Markets’ Spotlight

EM ended last week on a sour note. The most important factor for global risk appetite has become China, with the Fed tightening cycle now on the back burner.  Our base case remains that China muddles through, but policymakers there need to communicate better with the markets.  The PBOC fix and Chinese equity market performance will likely be the biggest drivers for global markets this week.

Commodity prices continue to slide, with oil and copper making new cycle lows last week and adding to the gloom.

Emerging Market Highlights from Indonesia, Poland and Russia

1) The Hong Kong dollar posted its biggest two-day decline since 1992, 2) Bank Indonesia restarted its easing cycle, cutting rates for the first time since February 2015, 3) Poland’s current Monetary Policy Council (RPP) held its last policy meeting, 4) Poland’s president proposed a draft bill on FX loan conversion

Emerging Markets: Broad-based Weakness and Currency Overshoots

EM starts the week under broad-based pressure.  We downplay reports of competitive devaluations under way because of China’s FX moves, however.  Many in EM in experiencing negative terms of trade shocks, and so their currencies are expected to depreciate.  We do not think any policymakers in EM want a weaker currency, as most are fighting to lend support via intervention and other means. 

An Emerging Markets Status Update

1) Chinese policymakers introduced circuit-breakers for its equity markets on Monday, but then suspended them on Thursday, 2) PBOC finally fixed USD/CNY lower (albeit marginally) Friday after eight straight days of higher fixings, 3) Tensions have risen on the Korea peninsula after the North detonated some sort of nuclear weapon, 4) The State Bank of Vietnam has moved to a more market-based exchange rate, 5) Brazil’s former President Lula has been ordered to testify as a witness for a case regarding jailed lobbyist Paes dos Santos, 6) Venezuelan President Maduro instituted a major cab

Negative Sentiment Carryover in Emerging Markets

Meet the New Year – same as the old year.  EM starts 2016 on a weak footing, with negative sentiment carrying over from 2015.  The global backdrop remains poor, with the Fed likely to continue its tightening cycle with another hike in March.  Commodity prices remain near the lows, while China data suggests that the slowdown (albeit modest) continues.

South and Central America Lead Emerging Markets Headlines

1) Argentina eliminated capital controls and allowed the peso to float, 2) Argentina also eliminated export taxes on agricultural goods that include beef, wheat, and corn, 3) Fitch joined S&P in cutting Brazil to sub-investment grade BB+ with a negative outlook, 4) Brazil’s Supreme Court ruled that impeachment proceedings could move forward