Emerging Markets

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.

Nigeria's Buhari Looks East and West

To restore domestic economic stability, President Buhari seeks to navigate between both the US and China. His first steps encourage hope.

Recently, President Muhammadu Buhari concluded a successful visit in Beijing. From China’s standpoint, South Africa has served as Africa’s prime representative in the BRICS alliance. However, Nigeria is the region’s most populous and largest economy.

Is China 'Squeezing Out' US Aid to Africa?

The economic and political reach of the US, arguably the most visible and vocal Western country on the African continent is gradually being diminished. This follows a pattern in which the economic and political stronghold of Western countries has ebbed as the role of non-traditional donors such as China has grown in importance.

'Africapitalism' as the New Way of Doing Business

The recent sustained attention given to the economic performance of Africa is a sharp departure from the usual negative and patronising representation of the continent in the global media. The old narrative represented a continent riddled by wars, famines, disease and the burdens of poor infrastructure and reckless governments.

While many think that the description of Africa as a hopeless continent was harsh, the Africa rising narrative was considered rather hyped.

The Tide Lifting Emerging Markets' Boats Goes Out

EM ended last week on a soft note.  Perhaps the main driver was rising US yields, as markets become wary of a more hawkish Fed this Wednesday.  Perhaps it was technical, as the EM rally became over-extended.  Whatever the reasoning, the correction continued into the weekend and is likely to carry over to this week as well.

While we remain cautious on EM at such rich valuations, a significant correction (which we have not seen in quite some time) could make some assets more attractive.  The global liquidity backdrop remains supportive of EM for now.

An Emerging Markets Status Update

China’s central bank may be leaning less dovish, Turkey has a new central bank governor, Argentina issued external debt for the first time since it defaulted 15 years ago, Brazil's lower house voted to impeach President Rousseff by a 367-137 vote

In the EM equity space, Russia (+2.7%), Indonesia (+1.9%), and UAE (+1.8%) have outperformed this week, while China (-3.0%), Taiwan (-1.9%), and Hungary (-1.2%) have underperformed. To put this in better context, MSCI EM fell -0.1% this week while MSCI DM rose 1.0%.

Emerging Market Setup: Relative Strength Persists

EM ended last week on a firm note.  Given the absence of any Fed-specific risks or any major US data releases, that firmness could carry over into this week.  The failure to reach an agreement in Doha by oil producers is weighing on some countries through lower oil prices, but the global liquidity story ultimately remains risk-supportive for the time being.  China data last week was also helpful for market sentiment.

Mostly Central Bank and Government Headlines in the EM Space

Bank Indonesia will use the 7-day reverse repo rate as its new benchmark policy rate, the ruling party in South Korea unexpectedly lost parliamentary elections, the Monetary Authority of Singapore eased monetary policy to recession settings, Turkey has nominated its next central bank chief, the Brazilian special lower house committee voted 38-27 in favor of impeachment, the first round of Peru’s presidential election was inconclusive

South African Unemployment Remains Stubbornly High

Employment has increased in South Africa over the past 20 years, but it has not been rapid enough to absorb all new job seekers into the labour market. Unemployment has therefore also increased and remains very high.

The most recent figures show a jobless rate of 25.4%, up from 17.6% in 1995. This means that one out of four South Africans in the labour force failed to find work in 2015. This is a far cry from the government’s goal of reducing unemployment to below 15% by 2014.