(from my colleagues Dr. Win Thin and Ilan Solot)
1) The latest poll confirmed the significant decline of Dilma’s popularity, and many observers are now seriously considering the possibility of a new government in Brazil
2) It was a crucial week for Thai politics as Prime Minister Yingluck was found guilty of abusing power and forced to step down
3) Geopolitical tensions flare up between China and Vietnam
4) Czech central bank Governor Singer said that there is a rising likelihood that the end of the koruna cap may be delayed
5) It appears that Putin has backtracked from a weekend referendum in east Ukraine, but pro-Russian groups say that it will proceed
6) Romania set 2019 as a target date for euro adoption
7) The Philippines central bank raised the reserve ratio by 1 percentage point to 20% while keeping rates on hold at 3.5%; Moody’s raised its rating on the Philippines by a notch to Baa2 with a stable outlook
Over the last week, Russia (+5.1%), Brazil (+4.4%), and Hungary (+3.9) have outperformed in the EM equity space in local currency terms, while Thailand (-2.5%), Poland (-1.5%), and Hong Kong (-1.3%) have underperformed.
In the EM local currency bond space, Russia (10-year yield -43 bp), South Africa (-30 bp), and Brazil (-28 bp) have outperformed over the last week, while Indonesia (10-year yield +9 bp), Sri Lanka (+8 bp), and Chile (+6 bp) have underperformed. To put this in better context, the 10-year UST yield was down 5 bp over the past week.
In the EM FX space, TRY (+2.1% vs. USD), ZAR (+1.8), and RUB (+1.8%) and have outperformed over the last week, while THB (-0.4%), ARS (flat), and IDR (flat) have underperformed.
1) The latest poll confirmed the significant decline of Dilma’s popularity, and many observers are now seriously considering the possibility of a new government in Brazil next year. According to the Sensus institute, Dilma’s approval rating fell to 29.6%, lower than her lowest level during the street protests last June. This follows the recent CNT/MDA poll showing her popularity at 32.9%. The possibility of a change in government in Brazil is exciting markets. Especially since the ruling PT signaled that Lula (the presumed ace card down their sleeves) will not be running in Dilma’s place. Local assets continue to trade well, notably Petrobras, up over 50% from the March lows.
2) It was a crucial week for Thai politics as Prime Minister Yingluck was found guilty of abusing power and forced to step down. The resurgent conflict between red and yellow shirts has claimed 25 lives since October, and a further escalation is very possible now. The legal situation of the government is quite delicate after the February elections were invalidated because voting did not take place across the country on the same day (largely because protestors blocked voting). Now a new round of elections has been set for July 20, but the opposition had previously threatened to boycott it again. Now that Yingluck has been ousted, it’s not clear what will happen.
3) Geopolitical tensions flare up between China and Vietnam. The trigger for the recent escalation was the decision by China to drill for oil in waters that are also claimed by Vietnam. Chinese ships reportedly used high powered water cannons and rammed several Vietnamese vessels. In English, the area is known as the Parcel Islands. Some observers suggest that China sent as many as 80 ships, including 7 military vessels, along with aircrafts to protect the rig. In his recent trip to the region, Obama made it clear that the US will throw its support on the side of Japan and the Philippines (also involved in the dispute), so it would not be difficult to imagine that Vietnam will be joining that group of counter-weights to China’s influence.
4) Czech central bank Governor Singer said that there is a rising likelihood that the end of the koruna cap may be delayed. Current forward guidance is an exit from the cap in early 2015, but Singer is clearly preparing the markets for a potential shift to later in 2015. Data this week was mostly firmer, with IP, retail sales, construction, and trade pointing to an accelerating recovery. Yet deflation risks remain, with CPI up only 0.2% y/y in all three months of Q1.
5) It appears that Putin has backtracked from a weekend referendum in east Ukraine, but pro-Russian groups say that it will proceed. OSCE (European security organization) of course supports that call. It is not clear if this is quid pro quo for a delay of the planned May 25 presidential election. Putin said that Russian troops have been pulled back from the Ukrainian border, so it does seem like a step back from the brink is taking place. However, the situation remains very fluid and the troop withdrawals have not been confirmed yet.
6) Romania set 2019 as a target date for euro adoption. While Czech, Hungary, and Poland have for now shelved plans to enter the euro zone, Romania notified EM officials of its intention to adopt the euro on January 1, 2019. Central bank Governor Isarescu said that Romania will meet all convergence criteria this month, in light of falling inflation. Note Moody’s recently moved the outlook on its Baa3 rating to stable from negative. We agree, as our model sees Romania correctly rated at BBB-/Baa3.
7) As mostly expected, the Philippines central bank raised the reserve ratio by 1 percentage point to 20% while keeping rates on hold at 3.5%. The stealth tightening is in line with comments by governor Tetangco, who seems to be focused more on financial stability rather than inflation. Indeed, M3 showed another robust increase of 34%, the 9th consecutive month of +30% growth. Still, inflation at 4.1% y/y in April is by no means negligible, justifying a hawkish bias for the bank and keeping alive the risk of a rate hike further down the line. Elsewhere, Moody’s raised its rating on the Philippines by a notch to Baa2 with a stable outlook. Our model views it as a BBB+/Baa1/BBB+ credit and we see further upgrades ahead.
1) The latest poll confirmed the significant decline of Dilma’s popularity, and many observers are now seriously considering the possibility of a new government in Brazil
2) It was a crucial week for Thai politics as Prime Minister Yingluck was found guilty of abusing power and forced to step down
3) Geopolitical tensions flare up between China and Vietnam
4) Czech central bank Governor Singer said that there is a rising likelihood that the end of the koruna cap may be delayed
5) It appears that Putin has backtracked from a weekend referendum in east Ukraine, but pro-Russian groups say that it will proceed
6) Romania set 2019 as a target date for euro adoption
7) The Philippines central bank raised the reserve ratio by 1 percentage point to 20% while keeping rates on hold at 3.5%; Moody’s raised its rating on the Philippines by a notch to Baa2 with a stable outlook
Over the last week, Russia (+5.1%), Brazil (+4.4%), and Hungary (+3.9) have outperformed in the EM equity space in local currency terms, while Thailand (-2.5%), Poland (-1.5%), and Hong Kong (-1.3%) have underperformed.
In the EM local currency bond space, Russia (10-year yield -43 bp), South Africa (-30 bp), and Brazil (-28 bp) have outperformed over the last week, while Indonesia (10-year yield +9 bp), Sri Lanka (+8 bp), and Chile (+6 bp) have underperformed. To put this in better context, the 10-year UST yield was down 5 bp over the past week.
In the EM FX space, TRY (+2.1% vs. USD), ZAR (+1.8), and RUB (+1.8%) and have outperformed over the last week, while THB (-0.4%), ARS (flat), and IDR (flat) have underperformed.
1) The latest poll confirmed the significant decline of Dilma’s popularity, and many observers are now seriously considering the possibility of a new government in Brazil next year. According to the Sensus institute, Dilma’s approval rating fell to 29.6%, lower than her lowest level during the street protests last June. This follows the recent CNT/MDA poll showing her popularity at 32.9%. The possibility of a change in government in Brazil is exciting markets. Especially since the ruling PT signaled that Lula (the presumed ace card down their sleeves) will not be running in Dilma’s place. Local assets continue to trade well, notably Petrobras, up over 50% from the March lows.
2) It was a crucial week for Thai politics as Prime Minister Yingluck was found guilty of abusing power and forced to step down. The resurgent conflict between red and yellow shirts has claimed 25 lives since October, and a further escalation is very possible now. The legal situation of the government is quite delicate after the February elections were invalidated because voting did not take place across the country on the same day (largely because protestors blocked voting). Now a new round of elections has been set for July 20, but the opposition had previously threatened to boycott it again. Now that Yingluck has been ousted, it’s not clear what will happen.
3) Geopolitical tensions flare up between China and Vietnam. The trigger for the recent escalation was the decision by China to drill for oil in waters that are also claimed by Vietnam. Chinese ships reportedly used high powered water cannons and rammed several Vietnamese vessels. In English, the area is known as the Parcel Islands. Some observers suggest that China sent as many as 80 ships, including 7 military vessels, along with aircrafts to protect the rig. In his recent trip to the region, Obama made it clear that the US will throw its support on the side of Japan and the Philippines (also involved in the dispute), so it would not be difficult to imagine that Vietnam will be joining that group of counter-weights to China’s influence.
4) Czech central bank Governor Singer said that there is a rising likelihood that the end of the koruna cap may be delayed. Current forward guidance is an exit from the cap in early 2015, but Singer is clearly preparing the markets for a potential shift to later in 2015. Data this week was mostly firmer, with IP, retail sales, construction, and trade pointing to an accelerating recovery. Yet deflation risks remain, with CPI up only 0.2% y/y in all three months of Q1.
5) It appears that Putin has backtracked from a weekend referendum in east Ukraine, but pro-Russian groups say that it will proceed. OSCE (European security organization) of course supports that call. It is not clear if this is quid pro quo for a delay of the planned May 25 presidential election. Putin said that Russian troops have been pulled back from the Ukrainian border, so it does seem like a step back from the brink is taking place. However, the situation remains very fluid and the troop withdrawals have not been confirmed yet.
6) Romania set 2019 as a target date for euro adoption. While Czech, Hungary, and Poland have for now shelved plans to enter the euro zone, Romania notified EM officials of its intention to adopt the euro on January 1, 2019. Central bank Governor Isarescu said that Romania will meet all convergence criteria this month, in light of falling inflation. Note Moody’s recently moved the outlook on its Baa3 rating to stable from negative. We agree, as our model sees Romania correctly rated at BBB-/Baa3.
7) As mostly expected, the Philippines central bank raised the reserve ratio by 1 percentage point to 20% while keeping rates on hold at 3.5%. The stealth tightening is in line with comments by governor Tetangco, who seems to be focused more on financial stability rather than inflation. Indeed, M3 showed another robust increase of 34%, the 9th consecutive month of +30% growth. Still, inflation at 4.1% y/y in April is by no means negligible, justifying a hawkish bias for the bank and keeping alive the risk of a rate hike further down the line. Elsewhere, Moody’s raised its rating on the Philippines by a notch to Baa2 with a stable outlook. Our model views it as a BBB+/Baa1/BBB+ credit and we see further upgrades ahead.
Emerging Markets: What has Changed
Reviewed by Marc Chandler
on
May 08, 2014
Rating:
Reviewed by Marc Chandler
on
May 08, 2014
Rating:
