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Win Thin

Win Thin

Win Thin is a senior currency strategist with over fifteen years of investment experience. He has a broad international background with a special interest in developing markets. Prior to joining BBH in June 2007, he founded Mandalay Advisors, an independent research firm that provided sovereign emerging market analysis to institutional investors. He received an MA from Georgetown University in 1985 and a B.A. from Brandeis University 1983. Feel free to contact the Zurich office of BBH

Articles by Win Thin

Emerging Markets: Preview of the Week Ahead

6 days ago

Stock Markets
EM FX ended last week on a firm note, shrugging off political risk that consumed markets earlier in the week. With US rates remaining low, the dollar remains under pressure against the majors, and so EM FX is likely to benefit also. Yet we warn investors not to jump back into EM countries that are inherently riskier, such as Brazil, South Africa, and Turkey. We continue to favor Asia in the current environment.  

Stock Markets Emerging Markets, May 17 Source: economist.com – Click to enlarge

Taiwan
Taiwan reports April export orders Monday, which rose 12.3% y/y in March. It reports April IP Tuesday, which is rose 3.2% y/y in March. The central bank does not have an explicit inflation target, but low price pressures should allow it to keep rates steady at its quarterly policy meeting in June.
Singapore
Singapore reports April CPI Tuesday, which is expected to rise 0.5% y/y vs. 0.7% in March. The MAS does not have an explicit inflation target, but low price pressures led it to keep policy accommodative at its April meeting. Many look for a change in MAS forward guidance at its October meeting that sets the table for tightening in 2018. Singapore then reports April IP Friday, which is expected to rise 5.5% y/y vs. 10.2% in March.

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Emerging Markets: What Has Changed

8 days ago

Summary
China’s government approved the creation of a bond link between Hong Kong and the mainland.
S&P upgraded Indonesia one notch to investment grade BBB- with stable.
Fitch revised the outlook on Vietnam’s BB- rating from stable to positive.
Egypt will announce a package of social spending soon.
Moody’s changed the outlook on Poland’s A2 rating from negative to stable.
Brazil press reported that meat-packing company JBS has submitted compromising tape recordings to the Supreme Court.
Chile central bank surprised markets with a 25 bp cut but signaled a move to a neutral bias.
Stock Markets
In the EM equity space as measured by MSCI, Hungary (+2.6%), Indonesia (+2.0%), and Peru (+1.4%) have outperformed this week, while Brazil (-11.1%), Poland (-1.8%), and Egypt (-1.7%) have underperformed.  To put this in better context, MSCI EM fell -0.3% this week while MSCI DM was flat.

In the EM local currency bond space, India (10-year yield -11 bp), Korea (-7 bp), and Peru (-4 bp) have outperformed this week, while Brazil (10-year yield +155 bp), Argentina (+28 bp), and Turkey (+22 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 8 bp to 2.25%.
In the EM FX space, SGD (+1.3% vs. USD), ZAR (+1.0% vs. USD), and THB (+0.9% vs. USD) have outperformed this week, while BRL (-4.

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Emerging Market Preview: Week Ahead

13 days ago

Stock Markets
EM FX ended last week on a firmer note, helped by lower US rates and softer than expected CPI and retail sales data. Stabilizing commodity prices also helped EM. Yet these supportive conditions seem unlikely to persist, and we remain defensive on EM.  

Stock Markets Emerging Markets, May 10 Source: economist.com – Click to enlarge

Brazil
Brazil will report April tax collections this week, but no date has been scheduled. Collections are expected to rise 8% vs. 3% in March. If so, that would set the table for better budget data that month. The fiscal numbers worsened in March, reflecting a weak economy and rising borrowing costs.
China
China reports April retail sales and IP Monday. The former is expected to rise 10.8% y/y and the latter by 7.0% y/y. With the exception of new loans, April data have come in a bit on the soft side but markets appear comfortable with this.
Poland
Poland reports March trade and current account data Monday. It reports Q1 GDP Tuesday, which is expected to grow 3.9% y/y vs. 2.7% in Q4. National Bank of Poland meets Wednesday and is expected to keep rates steady at 1.5%. Poland then reports April industrial and construction output, PPI, and retail sales Friday, with the data expected to show some moderation from the strong March readings.

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Emerging Markets: What Has Changed

15 days ago

Summary
Moon Jae-in was elected president of South Korea
Philippine President Duterte named Nestor Espenilla as central bank governor
Nigerian President Buhari traveled to London for a follow-up to the initial medical visit earlier this year
Market expectations for 2018 inflation in Brazil rose for the first time in more than a year
Peru’s central bank unexpectedly started the easing cycle with a 25 bp cut to 4.0%
Stock Markets
In the EM equity space as measured by MSCI, Brazil (+5.5%), Hungary (+4.3%), and Colombia (+4.3%) have outperformed this week, while Thailand (-0.9%), Poland (-0.7%), and the Philippines (-0.6%) have underperformed.  To put this in better context, MSCI EM rose 2.5% this week while MSCI DM fell -0.2%.
In the EM local currency bond space, Poland (10-year yield -14 bp), Brazil (-12 bp), and Hungary (-10 bp) have outperformed this week, while Czech Republic (10-year yield +25 bp), Argentina (+21 bp), and Turkey (+17 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 1 bp to 2.34%.
In the EM FX space, RUB (+1.5% vs. USD), BRL (+1.4% vs. USD), and MXN (+1.2% vs. USD) have outperformed this week, while TRY (-0.7% vs. USD), PEN (-0.5% vs. USD), and ARS (-0.3% vs. USD) have underperformed.

Stock Markets Emerging Markets, May 13 Source: economist.

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Emerging Markets Preview

20 days ago

Stock Markets
EM FX got some limited traction as the week closed, helped by stabilizing commodity prices.  However, oil, copper, and iron ore have all broken important technical levels that suggest further weakness ahead.  We also think the FOMC and jobs data support our view that the next Fed hike will be in June. This backdrop should keep EM on the defensive this week.  

Stock Markets Emerging Markets, May 06 Source: economist.com – Click to enlarge

China
China reports April trade figures on Monday. Exports are expected to rise 11.3% y/y and imports by 18.0% y/y. China reports April CPI and PPI Wednesday. The former is expected to rise 1.1% y/y while the latter is expected to rise 6.7% y/y. For now, markets are digesting signs of slowing in China’s economy.
Turkey
Turkey reports March IP Monday, which is expected to rise 2.5% y/y vs. 1.0% in February. It then reports March current account data Thursday, which is expected at -$3.20 bln vs, -$2.53 bln in February. If so, the 12-month total would fall slightly to -$33.2 bln. External accounts are in good shape, but mostly due to sluggish growth.
Taiwan
Taiwan reports April trade Monday. Exports are expected to rise 10.9% y/y and imports by 18.0% y/y. EM trade data has come in largely stronger than expected in April, and Taiwan should be no exception.

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Emerging Markets: What has Changed

22 days ago

Summary
Relations between China and North Korea appear to be worsening.
The THAAD missile shield has been deployed earlier than expected in South Korea.
An amendment to India’s Banking Regulation Act gives the RBI more power to address bad loans.
Tensions are rising between Czech Prime Minister Sobotka and Finance Minister Babis.
Brazil pension reform bill was passed 23-14 in the lower house special committee.
Stock Markets
In the EM equity space as measured by MSCI, the Philippines (+2.4%), UAE (+2.3%), and Singapore (+2.1%) have outperformed this week, while Russia (-4.3%), Turkey (-1.8%), and Qatar (-1.6%) have underperformed.  To put this in better context, MSCI EM fell -0.4% this week while MSCI DM rose 0.7%.

In the EM local currency bond space, Czech Republic (10-year yield -10 bp), Hungary (-5 bp), and India (-5 bp) have outperformed this week, while Russia (10-year yield +18 bp), Argentina (+16 bp), and Colombia (+8 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 8 bp to 2.36%. 

In the EM FX space, ILS (+0.7% vs. USD), ARS (+0.5% vs. USD), and HUF (+0.4% vs. EUR) have outperformed this week, while RUB (-2.7% vs. USD), ZAR (-1.7% vs. USD), and PEN (-1.3% vs. USD) have underperformed. 

Stock Markets Emerging Markets, May 06 Source: economist.

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Emerging Markets: Week Ahead Preview

27 days ago

Stock Markets
EM FX ended last week on a mixed note.  Indeed, the week and the month were also very much mixed for EM, reflecting a variety of global and country-specific drivers impacting these countries.  This week’s US jobs data could bring Fed tightening back as a major driver for EM.  
We will also get the first snapshots of trade in April from Korea and Brazil, as well as Caixin PMI readings for China.  Official April manufacturing PMI was reported over the weekend at 51.2 vs. 51.7 expected and 51.8 in March, and so there are downside risks to this week’s Caixin PMI readings.

Stock Markets Emerging Markets, April 26 Source: www.economist.com – Click to enlarge

Korea
Korea reports April trade data Monday.  Exports are expected to rise 17% y/y and imports by 18.7% y/y.  It then reports April CPI Tuesday, which is expected to rise 2.1% y/y vs. 2.2% in March.  Given downside risks from political uncertainty (both domestic and regional), we think the BOK will remain on hold for now.  Next policy meeting is May 25, no change expected then.
Thailand
Thailand reports April CPI Monday, which is expected to rise 0.72% y/y vs. 0.76% in March.  This would be below the BOT’s target range of 1.0-4.0%.

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Emerging Markets: What has Changed

29 days ago

Summary
Moody’s moved the outlook on Vietnam’s B1 rating from stable to positive.
Nigeria’s central bank introduced a new FX window for portfolio investors.
Moody’s moved the outlook on Romania’s Baa3 rating from positive to stable.
Central Bank of Russia accelerated its easing cycle.
Central Bank of Turkey delivered a hawkish surprise.
Brazil’s lower house easily approved the labor reforms, but popular resistance is rising.
Stock Markets
In the EM equity space as measured by MSCI, Poland (+5.0%), Korea (+3.0%), and South Africa (+2.9%) have outperformed this week, while Colombia (-3.3%), Chile (-3.3%), and Egypt (-2.4%) have underperformed.  To put this in better context, MSCI EM rose 1.6% this week while MSCI DM rose 2.1%.
In the EM local currency bond space, Czech Republic (10-year yield -16 bp), Colombia (-13 bp), and Russia (-10 bp) have outperformed this week, while Brazil (10-year yield +26 bp), Argentina (+16 bp), and South Africa (+6 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 5 bp to 2.30%.
In the EM FX space, TRY (+2.6% vs. USD), MYR (+1.3% vs. USD), and ILS (+1.3% vs. USD) have outperformed this week, while COP (-2.7% vs. USD), CLP (-2.0% vs. USD), and BRL (-1.8% vs. EUR) have underperformed.

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Emerging Markets: Preview of the Week Ahead

April 17, 2017

Stock Markets
EM FX was mostly firmer last week, helped by Trump comments and softer US data.  Whilst this seems positive for EM, the global backdrop remains uncertain.  Some in EM (Russia, Turkey, and Korea) remain vulnerable to geopolitical concerns. In addition, idiosyncratic domestic political risks remain in play for other EM countries, such as Brazil, South Africa, and Turkey.  We expect the investment climate for EM to remain challenging this week.

Stock Markets Emerging Markets, April 11 Source: Economist.com – Click to enlarge

Singapore
Singapore reports March trade Monday, with NODX expected to rise 8.1% y/y vs. 21.5% in February.  Despite firmer data, the MAS left policy unchanged last week and maintained its commitment to keep policy loose for an “extended” period.  If data continue to firm, we expect a change in the forward guidance at the October meeting that sets the table for a 2018 tightening move.
China
China reports March retail sales and IP Monday.  The former is expected to rise 9.7% y/y, while the latter is expected to rise 6.3% y/y.  Q1 GDP will also be reported then, with growth expected to remain steady at 6.8% y/y.
India
India reports March WPI Monday, which is expected to rise 6.0% y/y vs. 6.55% in February.  Last week, March CPI came in at 3.

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Emerging Markets: What has Changed

April 17, 2017

Summary
Malaysia’s central bank said it will allow investors to fully hedge their currency exposure.
Egypt declared a 3-month state of emergency after two deadly church attacks.
South Africa’s parliamentary no confidence vote has been delayed
Argentina central bank surprised markets with a 150 bp hike to 26.25%.
Brazil central bank accelerated the easing cycle with a 100 bp cut in the Selic rate.
Stock Markets
In the EM equity space as measured by MSCI, South Africa (+3.1%), Turkey (+2.5%), and the Philippines (+0.9%) have outperformed this week, while Russia (-3.9%), Peru (-3.4%), and Brazil (-2.6%) have underperformed.  To put this in better context, MSCI EM fell -0.3% this week while MSCI DM fell -0.7%.
In the EM local currency bond space, South Africa (10-year yield -18 bp), Poland (-8 bp), and Indonesia (-8 bp) have outperformed this week, while Brazil (10-year yield +11 bp), Peru (+9 bp), and Colombia (+9 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 15 bp to 2.24%.
In the EM FX space, ZAR (+2.5% vs. USD), RUB (+1.9% vs. USD), and ARS (+1.2% vs. USD) have outperformed this week, while HUF (-0.9% vs. EUR), KRW (-0.5% vs. USD), and PLN (-0.5% vs. EUR) have underperformed.

Stock Markets Emerging Markets, April 11 Source: Economist.

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Emerging Markets Preview for the Week Ahead

April 10, 2017

Stock Markets

EM FX ended the week on a soft note, as the weaker than expected US jobs data was unable to derail the dollar’s rally. For the week, the worst performers were ZAR (-3%), TRY (-2.5%), and RUB (-2%). CZK bucked the trend, rising after the CNB exited the cap. This week, higher inflation readings in the US could draw market focus back to Fed tightening, which would be negative for EM. Risks of further flare ups in Syria could also lead to risk-off trading.

Stock Markets Emerging Markets, April 05 Source: economist.com – Click to enlarge

China
China reports March money and new loan data this week, but no date has been set. March CPI and PPI will be reported Wednesday. The former is expected to rise 1.0% y/y and the latter by 7.5% y/y. March trade will be reported at the end of the week. In USD terms, exports are expected to rise 3.4% y/y, while imports are expected to rise 15.5% y/y.
Venezuela
Venezuela has $2.1 bln in PDVSA debt payments due this week. Press reports suggest senior officials met last week and agree to continue servicing its external debt (for now). Despite the rebound in oil prices, foreign reserves have fallen to $10.4 bln in March, the lowest since May 2002. We believe default risk will remain elevated this year.

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End of EUR/CZK peg: Czech National Bank

April 9, 2017

The Czech National Bank (CNB) ended the EUR/CZK floor today. Timing was a little earlier than expected, but rising inflation and a robust economy warranted it.  We think it’s too soon to talk about a rate hike, as we expect the koruna to overshoot to the strong side.
Policy Outlook
Price pressures are rising, with CPI accelerating to 2.5% y/y in February.  March data will be reported April 10, with consensus at 2.6% y/y.  If so, this would be the highest rate since November 2012 and is creeping closer to the top of the 1-3% target range. Given low base effects from 2016, we see risks that inflation moves above the target range this year.  Core CPI and PPI measures are also accelerating.
The worsening inflation outlook supported the case for an exit from the koruna cap.  While officials warned that rate hikes are now on the table, we see no move near-term.  Upcoming central bank policy meetings are May 4 and June 29.  We see very little risk of a rate hike at either one, despite Governor Rusnok’s warning today that a May hike can’t be rule out.
Looking ahead, a rate hike is possible in H2, but a lot will depend on how strong the koruna gets.  For a small open economy, a stronger currency can dramatically tighten monetary conditions.

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Emerging Markets: What has Changed

April 8, 2017

Summary
Reserve Bank of India surprised markets with the start of the tightening cycle.
The Czech National Bank (CNB) ended the EUR/CZK floor.
Israeli central bank said it won’t hike rates until Q2 2018.
Both S&P and Fitch cut South Africa’s rating one notch to sub-investment grade BB+.
Moody’s put South Africa’s Baa2 rating on review for a downgrade
S&P upgraded Argentina one notch to B with stable outlook.
Brazil’s government will water down its pension reform plan
Brazil’s central bank corrected some errors in its inflation report.
Stock Markets
In the EM equity space as measured by MSCI, the Philippines (+3.8%), Chile (+3.5%), and Poland (+3.4%) have outperformed this week, while Korea (-0.7%), Turkey (-0.6%), and Peru (-0.5%) have underperformed.  To put this in better context, MSCI EM rose 0.3% this week while MSCI DM fell -0.5%.
In the EM local currency bond space, Bulgaria (10-year yield -11 bp), Chile (-6 bp), and South Africa (-6 bp) have outperformed this week, while India (10-year yield +17 bp), Turkey (+12 bp), and Indonesia (+10 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 6 bp to 2.33%.
In the EM FX space, CZK (+1.7% vs. EUR), INR (+0.9% vs. USD), and EGP (+0.7% vs. USD) have outperformed this week, while ZAR (-3.0% vs. USD), TRY (-2.7% vs.

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Emerging Market: Preview for the Week Ahead

April 3, 2017

Stock Markets
EM FX was mixed last week.  The rebound in oil helped some, such as COP, RUB, and MXN.  On the other hand, idiosyncratic political risks weighed on South Africa.   This week could pose a challenge to EM, with lots of Fed speakers, FOMC minutes, and US jobs data.

Stock Markets Emerging Markets, March 29 Source: economist.com – Click to enlarge

Thailand
Thailand reports March CPI Monday, which is expected to rise 1.30% y/y vs. 1.44% in February.  If so, this would be moving closer to the bottom of the 1-4% target range.  BOT just left rates steady at 1.5% last week.  We expect inflation to pick up again, and so BOT should tilt more hawkish as the year progresses.  Next policy meeting is May 24, and we expect steady rates again.
Indonesia
Indonesia reports March CPI Monday, which is expected to rise 3.80% y/y vs. 3.83% in February.   The target range is 3-5%, but Bank Indonesia has signaled that the easing cycle is over, and should lean more hawkish this year if inflation continues to rise.  Next policy meeting is April 20, we expect rates to be kept steady at 4.75%.
Turkey
Turkey reports March CPI Monday, which is expected to rise 10.70% y/y vs. 10.13% in February.

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Emerging Market: Preview for the Week Ahead

April 3, 2017

Stock Markets
EM FX was mixed last week.  The rebound in oil helped some, such as COP, RUB, and MXN.  On the other hand, idiosyncratic political risks weighed on South Africa.   This week could pose a challenge to EM, with lots of Fed speakers, FOMC minutes, and US jobs data.

Stock Markets Emerging Markets, March 29 Source: economist.com – Click to enlarge

Thailand
Thailand reports March CPI Monday, which is expected to rise 1.30% y/y vs. 1.44% in February.  If so, this would be moving closer to the bottom of the 1-4% target range.  BOT just left rates steady at 1.5% last week.  We expect inflation to pick up again, and so BOT should tilt more hawkish as the year progresses.  Next policy meeting is May 24, and we expect steady rates again.
Indonesia
Indonesia reports March CPI Monday, which is expected to rise 3.80% y/y vs. 3.83% in February.   The target range is 3-5%, but Bank Indonesia has signaled that the easing cycle is over, and should lean more hawkish this year if inflation continues to rise.  Next policy meeting is April 20, we expect rates to be kept steady at 4.75%.
Turkey
Turkey reports March CPI Monday, which is expected to rise 10.70% y/y vs. 10.13% in February.

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Emerging Markets: What has Changed

March 31, 2017

Summary
Former Korean President Park was arrested.
Hungary’s central bank was more dovish than expected.
South African President Zuma finally fired Finance Minister Gordhan.
Brazil’s meat industry may have seen the worst of the scandal.
Banco de Mexico slowed the pace of tightening.
Stock Markets
In the EM equity space as measured by MSCI, Colombia (+2.0%), Brazil (+2.0%), and Singapore (+1.2%) have outperformed this week, while Egypt (-1.5%), Turkey (-1.3%), and Poland (-1.2%) have underperformed.  To put this in better context, MSCI EM fell -0.6% this week while MSCI DM rose 0.6%.
In the EM local currency bond space, the Philippines (10-year yield -23 bp), India (-16 bp), and Hungary (-11 bp) have outperformed this week, while Turkey (10-year yield +21 bp), the South Africa (+14 bp), and Malaysia (+7 bp) have underperformed.  To put this in better context, the 10-year UST yield was flat at 2.41%.
In the EM FX space, RUB (+1.5% vs. USD), PLN (+1.2% vs. EUR), and INR (+0.9% vs. USD) have outperformed this week, while ZAR (-7.9% vs. USD), BRL (-1.4% vs. USD), and TRY (-1.1% vs. USD) have underperformed.

Stock Markets Emerging Markets, March 29 Source: economist.com – Click to enlarge

Korea
Former Korean President Park was arrested.

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Emerging Markets: Week Ahead Preview

March 27, 2017

Stock Markets
EM FX ended the week on a firm note. Indeed, virtually all of EM was up against the dollar last week, led by ZAR and MXN. BRL and PHP were the laggards. It remains to be seen how markets react to the failure to pass the health care reform in the US. Will Trump move on the tax reform? Can the Republicans proceed with its agenda in light of the fissures within the party?

Stock Markets Emerging Markets, March 25 Source: economist.com – Click to enlarge

Mexico
Mexico reports February trade and January GDP proxy Monday. Banco de Mexico meets Thursday and is expected to hike rates 25 bp to 6.5%. Mid-March CPI rose 5.29% y/y, a cycle high and further above the 3% target. We think Banxico will have to hike several more times this year to head off inflationary pressures.
Hungary
Hungary central bank meets Tuesday and is expected to keep policy unchanged. However, there is a chance that it makes a small symbolic cut to the deposit cap. CPI rose 2.9% y/y in February, the highest since January 2013 but just below the 3% target. While easing is nearing an end, we do not see tightening until next year.
Thailand
Bank of Thailand meets Wednesday and is expected to keep rates steady at 1.5%. CPI rose 1.4% y/y, down from the cycle high of 1.6% y/y in January and still well within the 1-4% target range.

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Emerging Markets: What has Changed

March 25, 2017

[unable to retrieve full-text content]Reserve Bank of India will introduce a new monetary policy tool. Moody’s raised the outlook on Russia’s Ba1 rating from stable to positive. Fitch cut Saudi Arabia’s rating a notch to A+. Moody’s cut the outlook on Turkey’s Ba1 rating from stable to negative. China has temporarily suspended beef imports from Brazil.

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Emerging Markets: Week Ahead Preview

March 20, 2017

Stock Markets
EM FX had a stellar week, ending on a strong note in the aftermath of what the market perceived as a dovish Fed hike Wednesday.  Every EM currency except ARS was up on the week vs. USD, with the best performers ZAR, TRY, COP, and MXN. There are some risks ahead for EM this week, with many Fed speakers lined up and perhaps willing to push back against the market’s dovish take on the FOMC.

Stock Markets Emerging Markets, March 18 Source: Economist.com – Click to enlarge

Taiwan
Taiwan reports February export orders Monday, which are expected to rise 17.8% y/y vs. 5.2% in January.  The central bank holds its quarterly policy meeting Thursday and is expected to keep rates steady at 1.375%.  While the central bank does not have an explicit inflation target, rising price pressures are likely to push it into a more hawkish stance this year.  While steady rates are likely in 2017, the start of a tightening cycle is possible in 2018.  Taiwan also reports February IP Thursday, which is expected to rise 10% y/y vs. 2.8% in January.
Chile
Chile reports Q4 GDP Monday, which is expected to grow 0.5% y/y vs. 1.6% in Q3.  If so, this would be the slowest rate since Q3 09.  No wonder the central bank is easing, as it just cut rates for a second time since the easing cycle started in January.

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Emerging Markets: What has Changed

March 18, 2017

Summay
The PBOC increased the rates it charges for OMO and MLF by 10 bp.
Indian Prime Minister Modi’s BJP won elections in the state of Uttar Pradesh.
Czech central bank broached the possibility of a koruna cap exit later than mid-2017.
Kuwait became the first OPEC member to call for extended output cuts.
Moody’s raised the outlook on Brazil’s Ba2 rating from negative to stable.
Brazilian prosecutor Janot has given the Supreme Court a list of dozens of politicians that are suspected of receiving bribes.
Fitch revised its outlook on Colombia’s BBB rating from negative to stable.
Stock Markets
In the EM equity space as measured by MSCI, Russia (+4.8%), Mexico (+4.7%), and Poland (+4.1%) have outperformed this week, while Qatar (-0.8%), UAE (-0.4%), and Hungary (+0.4%) have underperformed. To put this in better context, MSCI EM rose 4.3% this week while MSCI DM rose 1.0%.
In the EM local currency bond space, Turkey (10-year yield -37 bp), Indonesia (-26 bp), and South Africa (-16 bp) have outperformed this week, while Argentina (10-year yield +43 bp), Romania (+22 bp), and Czech Republic (+18 bp) have underperformed. To put this in better context, the 10-year UST yield fell 7 bp to 2.50%.
In the EM FX space, ZAR (+3.2% vs. USD), TRY (+3.1% vs. USD), and COP (+2.4% vs.

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Emerging Markets: Preview of the Week Ahead

March 13, 2017

Stock Markets
EM FX ended last week on a firm note despite the strong US jobs data, with the dollar succumbing to some “buy the rumor, sell the fact” price action. We think the dollar should recover as the week begins, as it seems risky to be short/underweight dollars going into the FOMC meeting. With the Fed poised to hike 3 or perhaps 4 times this year, we don’t think EM FX can continue to rally the way it has so far this year. Friday’s price action may be more about positioning than the fundamentals.

Stock Markets Emerging Markets, March 10 Source: Economist.com – Click to enlarge

Turkey
Turkey reports January current account Monday, which is expected at -$2.8 bln vs. -$4.3 bln in December. The Central Bank meets Thursday and is expected to tighten policy with a 50 bp hike in the late liquidity window rate to 11.50%. Lately, the central bank has tightened by forcing banks to borrow at this window rather than at the overnight rate of 9.25%. We still think reliance on back door tightening reflects Erdogan’s heavy-handed tactics to prevent outright rate hikes.
China
China reports January-February retail sales and IP Tuesday. Because of Lunar New Year distortions, China bundles January and February together for these series. Retail sales are expected to rise 10.

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Emerging Markets: What has Changed

March 11, 2017

Summary
North Korean banks subject to international sanctions have been banned from using Swift.
Korea’s Constitutional Court upheld Parliament’s motion to impeach President Park.
Singapore eased some property market curbs after a three-year decline in home prices.
Egypt partially reversed a cut in bread subsidies.
Nigeria’s President Buhari returned to the nation after spending nearly two months in the UK.
Moody’s moved its outlook on Argentina’s B3 rating from stable to positive.
Press reports that Brazil is considering a tax on FX transactions.
Stock Markets
In the EM equity space as measured by MSCI, Egypt (+3.5%), Korea (+0.9%), and Hong Kong (+0.5%) have outperformed this week, while Peru (-5.1%), Russia (-4.6%), and Brazil (-3.0%) have underperformed.  To put this in better context, MSCI EM fell -0.4% this week while MSCI DM fell -0.1%.
In the EM local currency bond space, Peru (10-year yield -5 bp), South Africa (-4 bp), and Israel (-4 bp) have outperformed this week, while the Philippines (10-year yield +24 bp), Hungary (+18 bp), and Russia (+15 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 10 bp to 2.58%.
In the EM FX space, ILS (+0.6% vs. USD), INR (+0.3% vs. USD), and COP (+0.2% vs. USD) have outperformed this week, while EGP (-8.3% vs. USD), BRL (-1.

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Emerging Market Preview for the Week Ahead

March 6, 2017

Stock Markets
EM FX was mostly softer last week, though it ended the week firmer, buoyed by outsized MXN gains Friday.  The Fed is sending very strong signals for a March hike, which should keep EM FX on its back foot.  However, with the March 15 FOMC embargo coming into effect, there will be no Fed speakers after Kashkari on Monday.  Jobs data on Friday will be the highlight, but given the Fed’s signals, we do not think a soft report will derail a hike next week.
EM CPI and real sector data this week should support our view that Asian and EMEA central banks will have to tilt more hawkish this week.  Latam data should show further disinflation that supports a more dovish tilt in that region.

Stock Markets Emerging Markets, March 01 Source: economist.com – Click to enlarge

Chile
Chile reports January GDP proxy Monday, which is expected to rise 1.1% y/y vs. 1.2% in December. Chile reports February trade Tuesday.  It then reports February CPI Wednesday, which is expected to remain steady at 2.8% y/y.  Whilst still within the 2-4% target range, the stalled disinflation warrants some caution on the part of the central bank.  Next central bank meeting is March 16, and no change is likely then.
Taiwan
Taiwan reports February CPI and trade Tuesday.  CPI is expected to rise 0.75% y/y vs. 2.

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Emerging Markets: What has Changed?

March 4, 2017

Summary
A Korean special prosecutor indicted Samsung chief Jay Y. Lee on bribery charges.
Korean press is reporting that China has told its travel agents to halt sales of holiday packages to South Korea.
Bulgaria’s interim government said it may apply to join the eurozone within a month.
South Africa’s main labor union Cosatu accepted a government-proposed minimum wage.
New Commerce Secretary Ross appears to be taking a less confrontational stance with regards to Nafta.
Press reports suggest Mexico may request a swap line from the Fed.
Peru’s central bank cut reserve requirements again.
Stock Markets
In the EM equity space as measured by MSCI, Turkey (+1.5%), Czech Republic (+1.4%), and Mexico (+1.2%) have outperformed this week, while Colombia (-3.4%), Brazil (-2.1%), and UAE (-2.1%) have underperformed.  To put this in better context, MSCI EM fell -1.4% this week while MSCI DM rose 0.3%.
In the EM local currency bond space, India (10-year yield -11 bp), Poland (-9 bp), and Indonesia (-3 bp) have outperformed this week, while Turkey (10-year yield +44 bp), Colombia (+18 bp), and Malaysia (+14 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 18bp to 2.50%.
In the EM FX space, MXN (+1.6% vs. USD), PLN (+0.4% vs. EUR), and ARS (+0.2% vs.

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Emerging Markets: Preview of the Week Ahead

February 27, 2017

Stock Markets

EM FX ended last week on a soft note despite lower US rates. The dollar regained some traction that it lost over the course of the week, when markets pushed out Fed tightening beyond March. Treasury Secretary Mnuchin also seemed to push out fiscal stimulus. There is a full slate of Fed speakers this week, and Wednesday sees the release of the Fed’s Beige book that was prepared for the March 15 FOMC meeting.

Idiosyncratic events helped EM last week too, as MXN was boosted by the FX hedging plan and signs of thawing US-Mexico relations. Looking ahead, China gives us its first glimpse of the mainland economy in February. EM trade and inflation data for February will also start to be reported, with stronger growth and rising price pressures making a case for monetary tightening this year in Asia and EMEA.

Stock Markets Emerging Markets February 22 Source: economist.com – Click to enlarge

Mexico

Mexico reports January trade Monday, with a deficit of -$2.92 expected.  Exports have risen y/y for two straight months now, driven by both petroleum and manufacturing. Imports have also risen y/y for two straight months now, driven mostly by intermediate goods. Consumer and capital goods imports are contracting still. Banco de Mexico releases its quarterly inflation report Wednesday.

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Emerging Markets: What has Changed

February 25, 2017

Summary
PBOC tweaked its process for determining the yuan reference rate.
Singapore is reportedly studying measures to boost revenue, including higher taxes.
Moody’s upgraded the outlook on Russia’s Ba1 rating from negative to stable.
Nigerian President Buhari extended his stay abroad.
Nigerian central bank tweaked its FX restrictions, but was aimed at retail demand.
Brazil political risk is back on the table.
Brazil’s central bank hinted at a faster pace of easing.
Banco de Mexico announced a new $20 bln FX hedging facility.
Stock Markets
In the EM equity space as measured by MSCI, Mexico (+2.7%), India (+1.4%), and Indonesia (+1.3%) have outperformed this week, while Egypt (-5.2%), Hungary (-3.4%), and Russia (-2.0%) have underperformed.  To put this in better context, MSCI EM rose 0.5% this week while MSCI DM fell -0.1%.
In the EM local currency bond space, Brazil (10-year yield -18 bp), Mexico (-14 bp), and Hungary (-12 bp) have outperformed this week, while the Philippines (10-year yield +6 bp), Romania (+4 bp), and Russia (+1 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 7 bp to 2.35%.
In the EM FX space, MXN (+3.1% vs. USD), EGP (+1.8% vs. USD), and ARS (+1.6% vs. USD) have outperformed this week, while CLP (-0.4% vs. USD), PHP (-0.3% vs. USD), and BRL (-0.

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Emerging Markets: Preview of the Week Ahead

February 20, 2017

Stock Markets
EM FX ended last week on a soft note, as some risk off sentiment crept back into the markets. The dollar gained broadly on Friday despite lower US rates as bonds rallied, the yen gained and equities sold off. Markit PMI for February Tuesday and FOMC minutes Wednesday could give the markets some further clues regarding Fed policy. We believe markets are underestimating the Fed’s capacity to tighten this year, which will eventually lead to stresses for EM.

Stock Markets Emerging Markets February 15 Source: economist.com – Click to enlarge

Taiwan
Taiwan reports January export orders Monday, which are expected to rise 7.4% y/y vs. 6.3% in December. Q4 current account data will also be reported Monday. Taiwan reports January IP Thursday, which is expected to rise 2.7% y/y vs. 6.25% in December. The economic outlook is improving even as price pressures are rising. We believe the central bank will remain on hold at its next quarterly policy meeting in March.
Israel
Israel reports December manufacturing Monday. Data have been coming in strong, with GDP growing 6.2% annualized in Q4. Furthermore, inflation moved into positive territory in January for the first time since July 2014.

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Emerging Markets: What has Changed

February 18, 2017

Summary
Head of Samsung Group Jay Y. Lee was formally arrested on allegations of bribery, perjury, and embezzlement.
The assassination of Kim Jong Un’s half-brother suggests the political situation in North Korea may be heating up.
The Polish central bank is tilting more hawkish.
The Turkish central bank said it will allow domestic companies to use liras to repay export loans.
Nigerian President Buhari may re-emerge into the public eye soon.
South African regulators are investigating a dozen banks in New York and Johannesburg for possible collusion in off-shore ZAR trading.
Mexico’s President Pena Nieto has reportedly asked Banco de Mexico Governor Carstens to stay on until December.
New Venezuelan Vice President El Aissami was put on the US Treasury’s list of foreign nationals subject to economic sanctions.
Stock Markets
In the EM equity space as measured by MSCI, Brazil (+2.6%), Hungary (+2.5%), and Qatar (+2.0%) have outperformed this week, while Peru (-3.7%), Egypt (-2.8%), and Colombia (-2.7%) have underperformed. To put this in better context, MSCI EM rose 0.9% this week while MSCI DM rose 0.9%.

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Emerging Market Preview of the Week Ahead

February 13, 2017

Stock Markets
EM FX ended last week on a firm note. Falling US rates allowed many foreign currencies to gain some traction. This week, a heavy US data slate is likely to test the market’s convictions on the Fed, with January PPI, CPI, IP, and retail sales all being reported. Yellen also testifies before Congress on Tuesday and Wednesday.

Stock Markets Emerging Markets February 08 Source: economist.com – Click to enlarge

India
India reports January CPI Monday, which is expected to rise 3.24% y/y vs. 3.41% in December. It then reports January WPI Tuesday, which is expected to rise 4.35% y/y vs. 3.39% in December. The RBI left rates steady last week and moved to a neutral stance. Price pressures are likely to pick up this year, as the acceleration in WPI inflation suggests.
Poland
Poland reports January CPI Monday, which is expected to rise 1.7% y/y vs. 0.8% in December. If so, this would be the highest since January 2013 and back within the 1.5-3.5% target range. It then reports Q4 GDP Tuesday, with growth expected to remain steady at 2.5% y/y. January industrial and construction output, retail sales, and PPI will be reported Friday. The central bank will find it hard to wait until 2018 to start tightening.
Mexico
Mexico reports January ANTAD retail sales Monday.

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Emerging Markets: What Has Changed

February 11, 2017

Summary
Reserve Bank of India signaled an end to the easing cycle.
S&P moved the outlook on Indonesia’s BBB- rating from stable to positive.
The ruling Law and Justice party in Poland may be backing off of plans to force banks to convert $36 bln in foreign currency loans.
Romanian Justice Minister Lordache resigned.
Local press is reporting that Brazil’s central bank may cut the 2019 inflation target from 4.5% to 4.25%.
Stock Markets
In the EM equity space as measured by MSCI, Poland (+4.0%), UAE (+3.3%), and Peru (+3.1%) have outperformed this week, while Russia (-2.2%), Colombia (-1.8%), and Turkey (-1.4%) have underperformed.  To put this in better context, MSCI EM rose 1.1% this week while MSCI DM rose 0.4%.
In the EM local currency bond space, Brazil (10-year yield -17 bp), Indonesia (-6 bp), and Colombia (-5 bp) have outperformed this week, while India (10-year yield +39 bp), Turkey (+10 bp), and Poland (+8 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 6 bp this week to 2.41%.
In the EM FX space, EGP (+5.1% vs. USD), RUB (+0.8% vs. USD), and INR (+0.6% vs. USD) have outperformed this week, while ZAR (-0.9% vs. USD), CNH (-0.9% vs. USD), and SGD (-0.8% vs. USD) have underperformed.

Stock Markets Emerging Markets February 06 Source: economist.

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