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Emerging Markets: What has Changed

Summary

  • Prime Minister Phuc said Vietnam will ease the limits on foreign ownership of banks this year.
  • Russia’s government is working on measures to limit ruble volatility, including possible FX purchases.
  • Turkey’s central bank start auctioning FX swaps to help support the lira.
  • Brazil’s central bank resumed rolling over FX swaps.
  • Brazilian Supreme Court Judge Zavascki was tragically killed in a plane accident.
  • Chile’s central bank started the easing cycle.
  • Mexico significantly lowered its FDI forecast for 2017.

Stock Markets

In the EM equity space as measured by MSCI, Turkey (+2.1%), Qatar (+2.1%), and Brazil (+2.0%) have outperformed this week, while Russia (-1.8%), Thailand (-1.5%), and South Africa (-1.0%) have under performed. To put this in better context, MSCI EM fell -0.4% this week while MSCI DM fell -0.2%.
In the EM local currency bond space, Turkey (10-year yield -10 bp), Brazil (-10 bp), and Malaysia (-4 bp) have outperformed this week, while Poland (10-year yield +11 bp), Colombia (+8 bp), and Czech Republic (+7 bp) have under performed. To put this in better context, the 10-year UST yield rose 9 bp this week to 2.49%. 
In the EM FX space, PEN (+1.6% vs. USD), BRL (+0.9% vs. USD), and COP (+0.5% vs. USD) have outperformed this week, while TRY (-2.5% vs. USD), MXN (-1.5% vs. USD), and PHP (-0.6% vs. USD) have under performed. 

Stock Markets Emerging Markets January 30

Source: economist.com - Click to enlarge

Vietnam

Prime Minister Phuc said Vietnam will ease the limits on foreign ownership of banks this year. The current limit is 30%, but the new ceiling was not specified. Phuc added that the government is willing to sell under performing banks “entirely.”

Russia

Russia Deputy Prime Minister Shuvalov said the government is working on measures to limit ruble volatility, including possible FX purchases. The central bank later issued a statement saying that it “will not deviate in any way from the floating exchange rate regime.” It added that any purchases of FX would be limited to the amounts of excess revenue coming from higher-than-forecast oil prices.

Turkey

Turkey’s central bank start auctioning FX swaps to help support the lira. This comes after a series of extraordinary measures were announced last week. With foreign reserves at a multi-year low of $92 bln in December, policymakers are being forced to come up with other ways besides intervention to support the lira. An aggressive rate hike next week would be a good start.

Brazil

Brazil’s central bank resumed rolling over FX swaps. The central bank revived the program in November as the real came under pressure after the US election surprise, but then halted the auctions in mid-December as EM currencies stabilized.
Brazilian Supreme Court Judge Zavascki was tragically killed in a plane accident. He was the senior judge presiding over the Carwash probe. President Temer will name a replacement, but most expect the proceedings will be delayed.

Chile

Chile’s central bank started the easing cycle. It had been on hold since its last 25 bp hike back in December 2015. The 25 bp cut to 3.25% is just the first of several to be seen this year. The bank maintained its easing bias, and so another cut at the next meeting February 14 seems likely. Full minutes of this month’s meeting will be published February 3.

Mexico

Mexico significantly lowered its FDI forecast for 2017. It now sees $21 bln, down from $25 bln previously and $30 bln originally forecast. Official noted that many investors are waiting for clarity on the policies of the incoming Trump administration before committing to projects.

GDP, Consumer Inflation and Current Accounts

GDP, Consumer Inflation and Current Accounts

The Economist poll of forecasters, January 2017 Source: Economist.com - Click to enlarge

 

Full story here
About 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
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