What Has Changed in EM

  • US-China relations appear to be thawing
  • Vietnam cut rates 25 bp to 6.0%
  • Moody’s said that South Africa’s investment grade rating is probably safe for 12-18 months
  • The IMF may delay the next tranche of aid to Argentina until after the October election
  • China doubled the number of Brazilian beef plants that are approved for imports

US-China relations appear to be thawing.  China encouraged purchases of US agricultural goods and added soybeans and pork to the list of items to be exempted from US tariffs.  The news came after the US announced a delay to the latest round of tariffs from October 1 to October 15, which President Trump called a gesture of goodwill.  These are good signs, but a trade deal remains far away.

Vietnam cut rates 25 bp to 6.0%.  This was the first cut in over two years, and the central bank cited “unfavorable” global economic developments as the major reason.  The cut is noteworthy, as Vietnam has been one of the beneficiaries of the US-China trade war as some production was shifted there.  Today’s move suggests that no one is immune from the global chill.

Moody’s said that South Africa’s investment grade rating is probably safe for 12-18 months. The agency noted that President Ramaphosa’s government needs time to implement economic reforms and is clearly giving the nation the benefit of the doubt. Our own model shows South Africa’s implied rating steady at BB-/Ba3/BB- after falling a notch last quarter. Loss of investment grade from Moody’s would lead to ejection from WGBI.

The IMF may delay the next tranche of aid to Argentina until after the October election. This is hardly a vote of confidence. $5.4b is due to be disbursed this month, even as foreign reserves continue to bleed away. Economy Minister Lacunza will reportedly fly to Washington in late September to meet with the IMF.

China doubled the number of Brazilian beef plants that are approved for imports. China also added more chicken and hog plans to its approved list. China is being forced to import more meat as the spread of a deadly swine virus hurts its domestic supplies. Brazil is also benefitting from Chinese purchases of soy and other grains as the trade war stretches on.