Emerging Markets

Emerging Markets React to Dudley and FOMC Minutes

EM ended last week on a soft note.  Fed tightening expectations were buffeted first by hawkish Dudley comments and then by the more balanced FOMC minutes. 

On net, the markets adjusted the odds for tightening by year-end a little higher from the previous week, and stand at the highest odds since the Brexit vote.  Yet despite the strong jobs data in June and July, odds of a move on September 21 or November 2 are still low, with the December 14 meeting seen as the most likely for the next hike. 

African Policy Decisions could Improve with Better Data

African policy makers are increasingly called on to use evidence-based research to inform development decisions. However, this requires the rigorous collection of data as well as a coordinated system to disseminate it. This is why Kenya-based African Population Health Research Center is advocating for national policies to enable strong data systems. Donatien Beguy explains Africa’s challenges and opportunities.

What is data driven decision making in the world of policymaking?

Regional Cooperation not on Zimbabwe's To Do List

Zimbabwe’s recent ban on imports from South Africa suggests that the country has taken action that undermines the Southern African Development Community (SADC) regional integration project. This is because trade is an important element of regional integration. It promotes cross-border and local economic development, and provides the foundation for cross-border cooperation and integration, and the development of good neighbourly relations.

Emerging Markets Officials Express Exchange Rates Concerns

EM FX ended the week on a soft note, despite the weaker than expected US retail sales report. Official concern about strong exchange rates is beginning to emerge. First, it was Korea, and then on Friday it was Brazil as acting President Temer said his country needs to maintain a balanced exchange rate, neither too weak nor too strong.

We expect more pushback to emerge if the current rally is extended. Still, the global liquidity outlook for now favors EM and "risk."

Korea Gets a Credit Upgrade and Thailand's Constitution Referendum Passes

S&P upgraded Korea a notch to AA with a stable outlook, Voters passed the constitutional referendum in Thailand by a wide margin, The IMF and Egypt have reached a staff-level agreement on a 3-year $12 bln loan program, Argentina’s central bank will begin using a new overnight rate to manage monetary policy, Political uncertainty has returned to Brazil

Emerging Markets Boosted by Lower Rates

Scratch an investor, and you will find two models.  One is a fair value model, perhaps based on free-cash-flow or earnings expectations, or breakup value.  The other is based on liquidity.  We suspect that the latter is overwhelming the former in the emerging market equity space. 

The ECB and BOJ are easing policy aggressively.  The BOJ has indicated it will conduct a comprehensive review next month.  The only pre-condition BOJ Governor Kuroda has indicated is that the BOJ will not do less. 

Many EM Central Banks Meet though Few, if any, Will Act

EM ended last week on a firm note, despite the stronger than expected July jobs report.  As we suspected, one strong US data point is not yet enough to derail the dovish Fed outlook.  With the RBA and BOE cutting last week and the RBNZ expected to cut this week, the global liquidity backdrop remains supportive for EM and risk.

An Emerging Markets Status Update

In the EM equity space as measured by MSCI, Indonesia (+4.2%), Poland (+3.9%), and Brazil (+1.9%) have outperformed this week, while Czech Republic (-5.4%), Singapore (-1.5%), and UAE (-1.3%) have underperformed.  To put this in better context, MSCI EM rose 1.2% this week while MSCI DM fell -0.4%.