EM Preview for the Week Ahead

Over the weekend, China reported stronger than expected November PMI readings while Korea reported weaker than expected November trade data.  While the China data is welcome, we put more weight on Korea trade numbers, which typically serve as a good bellwether for the entire region.  Press reports suggest the Phase One trade deal has stalled due to Hong Kong legislation passed by the US Congress.  Until a deal is wrapped up, we remain cautious on EM.  Continue reading “EM Preview for the Week Ahead”

Review of Views

Our big-picture calls about the Trade War, the dollar, and global yields have largely gone our way, while in EM our relative value trades are performing better than our directional calls. The path to a completed Phase One deal between the US and China has been bumpy, as we had predicted, but it’s moving in the right direction. Continue reading “Review of Views”

EM Preview for the Week Ahead

EM came under pressure last week as doubts rose whether the Phase One deal can be completed.  Also, the dollar was able to get some traction against the majors as the eurozone, UK, and Japan all reported weaker than expected November PMI readings.  Divergences in the growth outlook and interest rate differentials should remain in the dollar’s favor.  Furthermore, the weaker global growth outlook won’t be good for EM. Continue reading “EM Preview for the Week Ahead”

EM Sovereign Rating Model For Q4 2019

We have produced the following Emerging Markets (EM) ratings model to assess relative sovereign risk. An EM country’s score directly reflects its creditworthiness and underlying ability to service its external debt obligations. Each score is determined by a weighted compilation of fifteen economic and political indicators, which include external debt/GDP, short-term debt/reserves, import cover, current account/GDP, GDP growth, and budget balance. Continue reading “EM Sovereign Rating Model For Q4 2019”

South Africa’s Risk Events

There are two risk events for South Africa this week: S&P’s rating review Friday and Thursday’s central bank meeting, for which we have an out-of-consensus call for a cut. While none of these events represent major risks for asset prices, they will give us important incremental information about what is still to come. Continue reading “South Africa’s Risk Events”

EM FX Model for Q4 2019

  • EM FX has rallied sharply in recent weeks, helped by growing optimism that we’ve seen the worst of the US-China trade war
  • Given our more constructive outlook on EM, we believe MSCI EM FX should eventually test the 1657.50 high from July
  • We see continued divergences within the asset class
  • Our 1-rated (strongest fundamentals) grouping for Q4 2019 consists of TWD, THB, PHP, CNY, and KRW
  • Our 5-rated (weakest fundamentals) grouping for Q4 2019 consists of ZAR, TRY, LKR, RON, and COP
  • Our next EM FX model update for Q1 2020 will come out in January Continue reading “EM FX Model for Q4 2019”

Drivers for the Week Ahead

  • The dollar has come under some pressure as recent US data has disappointed
  • US-China trade talks are continuing; geopolitical risks are concentrated in Asia right now
  • The US economy has slowed more sharply than expected in Q4; FOMC minutes will be released Wednesday
  • Eurozone and UK flash PMIs for November will be reported Friday; Japan reports October trade Wednesday Continue reading “Drivers for the Week Ahead”

EM Preview for the Week Ahead

EM FX was mostly weaker last week due to doubts about a Phase One trade deal between the US and China. Those talks continue this week and while we expect a deal to be struck, there is likely to be a lot of last minute posturing that will likely keep markets volatile over the short-run. In the meantime, investors need to beware of idiosyncratic country risk within EM.   Continue reading “EM Preview for the Week Ahead”

Emerging Market Risk Map

With year-end upon us, we review some of the key risks to EM assets and how we think they progress from here. In short, the two most significant downside risks would be a decisive improvement in Elizabeth Warren’s polling figures and an upset in the US-China trade negotiations. Continue reading “Emerging Market Risk Map”