Emerging Markets: What has Changed

byMarc Chandler

October 28, 2016

2 minute read

Emerging Markets: What has Changed

by Marc Chandler

(from my colleague Dr. Win Thin)

Chinese President Xi has strengthened his grip on power.
Mozambique said it is in “debt distress” and hired advisors for a debt restructuring.
South Africa revised its macro forecasts in the Finance Ministry’s Medium-Term Budget Program.
Chile’s ruling center-left coalition lost municipal elections.

In the EM equity space as measured by MSCI, Poland (+3.2%), Chile (+3.1%), and Hungary (+0.9%) have outperformed this week, while the Philippines (-3.2%), Peru (-2.2%), and China (-1.9%) have underperformed. To put this in better context, MSCI EM fell -0.8% this week while MSCI DM fell -0.4%.

In the EM local currency bond space, Peru (10-year yield -2 bp), Malaysia (flat), and Chile (flat) have outperformed this week, while the Philippines (10-year yield +67 bp), Turkey (+23 bp), and Indonesia (+21 bp) have underperformed. To put this in better context, the 10-year UST yield rose 11 bp this week to 1.85%.

In the EM FX space, CLP (+2.4% vs. USD), ZAR (+0.7% vs. USD), and THB (+0.3% vs. USD) have outperformed this week, while COP (-1.1% vs. USD), TRY (-1.0% vs. USD), and RUB (-0.9% vs. USD) have underperformed.

Chinese President Xi has strengthened his grip on power. The Chinese Communist Party (CPC) issued a communique calling on its members to “closely unite around the CPC Central Committee with Xi Jinping as the core.” While perhaps subtle, the wording is significant as it comes ahead of a government shuffle next year when 5 of the 7 Standing Committee members are due to retire. Xi will clearly consolidate his grip even further then.

Mozambique said it is in “debt distress” and hired advisors for a debt restructuring. Debt restructuring is a precursor for the IMF to resume aid to the country. Mozambique has already restructured so-called “tuna bonds” earlier this year. The government reportedly plans to reach an agreement with its creditors on a “debt-resolution proposal” in December, to be implemented in January.

South Africa revised its macro forecasts in the Finance Ministry’s Medium-Term Budget Program. The budget gap is now seen narrowing from -3.7% of GDP in FY15/16 to -3.4% in FY16/17 (was -3.2% in February budget), -3.1% in FY17/18 (was -2.8%), and -2.7% in FY18/19 (was -2.4%). Gross and net debt to GDP ratios are also forecast to stabilize later and at higher levels.

Chile’s ruling center-left coalition lost municipal elections. Those candidates won 141 mayoral seats, down from 167 in 2012. On the other hand, opposition candidates won 144 mayoral seats, up from 121, while independent candidates won 52 seats, up from 41. Voter participation was very low at around 33% and was the lowest since the military dictatorship ended in 1990. Vote comes ahead of the national elections next year.

Disclaimer

This post was originally published by Marc Chandler at his blog, marctomarket.com

Author

Marc Chandler

Marc Chandler has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks.

After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.

Disclaimer
Opinions expressed are solely of the author’s, based on current market conditions, and are subject to change without notice. These opinions are not intended to predict or guarantee the future performance of any currencies or markets. This material is for informational purposes only and should not be construed as research or as investment, legal or tax advice, nor should it be considered information sufficient upon which to base an investment decision. Further, this communication should not be deemed as a recommendation to invest or not to invest in any country or to undertake any specific position or transaction in any currency. There are risks associated with foreign currency investing, including but not limited to the use of leverage, which may accelerate the velocity of potential losses. Foreign currencies are subject to rapid price fluctuations due to adverse political, social and economic developments. These risks are greater for currencies in emerging markets than for those in more developed countries. Foreign currency transactions may not be suitable for all investors, depending on their financial sophistication and investment objectives. You should seek the services of an appropriate professional in connection with such matters. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete in its accuracy and cannot be guaranteed.