What Has Changed in EM

  • Press reports that suggest that the US may lift its tariffs on China
  • Turkish President Erdogan was granted emergency powers by parliament
  • South African Reserve Bank delivered a dovish hold
  • Violence has returned to Colombia

In the EM equity space as measured by MSCI, Turkey (+8.5%), Egypt (+4.7%), and Chile (+3.0%) have outperformed this week, while Thailand (-0.6%), UAE (-0.4%), and Peru (+0.2%) have underperformed. To put this in better context, MSCI EM rose 1.6% this week while MSCI DM rose 1.7%.

In the EM local currency bond space, Turkey (10-year yield -57 bp), Argentina (-36 bp), and India (-28 bp) have outperformed this week, while Indonesia (10-year yield +11 bp), Colombia (+10 bp), and Mexico (+10 bp) have underperformed. To put this in better context, the 10-year UST yield rose 2 bp to 2.76%.

In the EM FX space, TRY (+2.2% vs. USD), HUF (+1.0% vs. EUR), and PEN (+0.8% vs. USD) have outperformed this week, while ARS (-2.0% vs. USD), PHP (-1.0% vs. USD), and INR (-1.0% vs. USD) have underperformed. To put this in better context, MSCI EM FX fell -0.2% this week.

Press reports that suggest that the US may lift its tariffs on China. According to the report, such a move would be meant to calm markets and give China an incentive to make deeper concessions. The report was quickly denied by all parties and so we suggest taking this with a huge grain of salt, at least for now.

Turkish President Erdogan was granted emergency powers by parliament. The powers give him broad authority to act when the nation’s financial stability is seen as under threat. Parliament also approved the formation of the Financial Stability and Development Committee, which will work to coordinate efforts to limit risks to financial stability and security.

South African Reserve Bank delivered a dovish hold. The bank cut this year’s inflation forecast. As a result, its model now shows only one 25 bp hike by end-2021 compared with three hikes by end-2020 that the model showed back in November.

Violence has returned to Colombia. A car bomb exploded in front of a Bogotá police academy, killing 21 and wounding 68. Defense Minister Guillermo Botero said that the Marxist ELN guerrilla group was responsible for the attack. Talks between the Duque government and ELN has stalled, and this bombing may derail them altogether.