What Has Changed in EM

  • Press reports that Trump and Xi will meet on the sidelines of the G20 meeting next month
  • Pakistan has formally requested an IMF program
  • The Monetary Authority of Singapore tightened policy at its semiannual meeting
  • South Africa has a new Finance Minister
  • Turkish courts convicted US pastor Andrew Brunson, but he was then freed
  • Brazil polls are showing Jair Bolsonaro opening up a big lead over Fernando Haddad

In the EM equity space as measured by MSCI, Brazil (+3.9%), Turkey (+1.9%), and India (+1.1%) have outperformed this week, while Taiwan (-4.3%), Singapore (-4.3%), and Egypt (-4.2%) have underperformed. To put this in better context, MSCI EM fell -2.1% this week while MSCI DM fell -4.2%.

In the EM local currency bond space, Argentina (10-year yield -232 bp), Turkey (-141 bp), and Brazil (-51 bp) have outperformed this week, while Pakistan (10-year yield +86 bp), Indonesia (+38 bp), and Philippines (+26 bp) have underperformed. To put this in better context, the 10-year UST yield fell 3 bp to 3.16%.

In the EM FX space, ARS (+5.0% vs. USD), TRY (+3.6% vs. USD), and ZAR (+2.3% vs. USD) have outperformed this week, while PKR (-6.0% vs. USD), COP (-1.6% vs. USD), and MXN (-0.5% vs. USD) have underperformed. To put this in better context, MSCI EM FX rose 0.2% this week.

Press reports that Trump and Xi will meet on the sidelines of the G20 meeting next month in Buenos Aires. Right now, relations are pretty much frozen and there is ill will building on both sides as tariffs have taken effect on both sides. However, these talks might help break the ice for trade negotiations to eventually take place.

Pakistan has formally requested an IMF program. Reports suggest it is seeking something between $6-12 bln. However, it will face much tougher conditions as its bilateral debt to China has become a big issue. US Secretary of State Mike Pompeo said he will oppose any use of IMF funds to repay loans to Beijing. Another State Department official noted that “Part of the reason that Pakistan found itself in this situation is Chinese debt.”

The Monetary Authority of Singapore tightened policy at its semiannual meeting. It announced a slight increase in the slope of its S$NEER trading band. Market was evenly split between this move and no move. This comes after the MAS tightened modestly in April by also increasing the slope slightly. The MAS was upbeat about global growth, calling it “resilient” in the face of headwinds.

South Africa has a new Finance Minister. After Nene resigned due to undisclosed contact with the Gupta family, President Ramaphosa appointed former SARB Governor Tito Mboweni to take his place. Mboweni is very well-respected but takes over just two weeks before the important mid-term budget review.

Turkish courts convicted US pastor Andrew Brunson, but he was then freed. Brunson was sentenced to 3 years, 1 month, and 15 days in jail but the court then released him after accounting for penalty reductions and time served. While an end to sanctions would be marginally positive, Turkey’s issues go way deeper.

Brazil polls are showing Jair Bolsonaro opening up a big lead over Fernando Haddad. Latest Datafolha poll shows a 58% to 42% lead. Likewise, the latest XP/Ipespe Poll shows Bolsonaro leading 51% to 36%. Both polls suggested a statistical tie before the first round.