(from my colleague Dr. Win Thin)
Disclaimer
- MSCI announced it will include 222 China Large
Cap A-shares in its Emerging Markets Index.
- Czech central bank is pushing out rate hike
expectations.
- Hungary central bank eased again using
unconventional measures.
- MSCI announced that it has launched a
consultation on reclassification of Saudi Arabia from Standalone to
Emerging Market status.
- South African court ruled that the Zuma no
confidence vote can be secret.
- South African government official wants to change
the mandate of the central bank.
- Brazil Senate committee rejected the labor reform
bill by a 10-9 vote.
- Banco de Mexico signaled an end to the tightening
cycle.
In the EM equity space as measured by
MSCI, Taiwan (+2.7%), Indonesia (+2.1%), and China (+2.0%) have outperformed
this week, while Colombia (-5.2%), Qatar (-2.6%), and Brazil (-2.5%) have
underperformed. To put this in better context, MSCI EM rose 0.8% this week
while MSCI DM fell -0.1%.
In the EM local currency bond space,
Russia (10-year yield -15 bp), Mexico (-7 bp), and Thailand (-6 bp) have
outperformed this week, while Brazil (10-year yield +34 bp), Poland (+7 bp),
and China (+5 bp) have underperformed. To put this in better context, the
10-year UST yield was flat at 2.15%.
In the EM FX space, PEN (+0.4% vs. USD),
CLP (+0.3% vs. USD), and EGP (flat vs. USD) have outperformed this week, while
RUB (-3.3% vs. USD), COP (-1.4% vs. USD), and BRL (-1.4% vs. USD) have
underperformed.
MSCI announced it will include 222 China
Large Cap A-shares in its Emerging Markets Index. It will be a 2-step inclusion process and will
likely represent an approximate 0.73% increase in China’s overall share in MSCI
EM to 28.55%, slightly higher than the 0.5% that was previously flagged.
Czech central bank is pushing out rate
hike expectations. Vice
Governor Tomsik said there was no rush to hike since a stronger koruna is doing
some of the tightening already. He noted that “If the koruna keeps its
current pace of appreciation, it’s appropriate to discuss shifting the start of
rate hikes from the third quarter to the fourth.” Governor Rusnok also
made similar comments.
Hungary central bank eased again using
unconventional measures. The
bank lowered the cap on deposits in its 3-month facility to HUF300 bln for 3Q,
down from HUF500 bln for 2Q. The central bank now forecasts meeting its
3% CPI target in early 2019, six months later than its previous forecast.
It sees 2017 inflation at 2.4% vs. 2.6% previously, and sees 2018
inflation at 2.8% vs. 3.0% previously.
MSCI announced that it has launched a
consultation on reclassification of Saudi Arabia from Standalone to Emerging
Market status. The decision
will be announced in June 2018, and we think it will be reclassified then if
the Saudi authorities stick to their economic reforms. If implemented,
MSCI estimates that Saudi Arabia would hold a 2.4% share in its EM index.
Top South African court ruled that the
Zuma no confidence vote can be secret.
However, the court added that the decision wiill be made by parliamentary
speaker Mbete, a senior member of the ruling ANC. She has said in the
past that the decision is not hers to make. This suggests that Zuma will
survive the no confidence vote, as the vote will likely remain public and ANC
members are unlikely to break ranks publicly.
South African government official wants to
change the mandate of the central bank.
Public Protector Mkhwebane suggested removing the reference to “protect
the value of the currency” and replace it with “promote balanced and
sustainable economic growth in the Republic, while ensuring that the
socio-economic wellbeing of the citizens are protected.” We don't think
that should be in any central bank's mandate, and confirms our fears that Zuma
is likely to tilt more populist ahead of the elections.
Brazil Senate committee rejected the labor
reform bill by a 10-9 vote. Finance
Minister Meirelles downplayed it, saying this was part of the normal
legislative process. We see it more negatively, as reports are already
emerging that the government is considering a watered-down version.
Banco de Mexico signaled an end to the
tightening cycle. It hiked
rates 25 bp, as expected, but noted that “the reference rate has reached a
level that is consistent with the convergence of inflation to the 3% target.”
Governor Carstens also noted that the pause could be maintained even in
the face of further Fed tightening, though admitting that it will depend a lot
on market conditions then.
Disclaimer
Emerging Markets: What's Changed
Reviewed by Marc Chandler
on
June 23, 2017
Rating: