Emerging Markets: What has Changed



(from my colleague Dr. Win Thin)
  • The Philippine central bank moved to an interest rate corridor
  • Saudi Arabia is preparing to sell its first global bond ever
  • Transport Minister Yildirim, a close ally of President Erdogan, will become Turkey’s new Prime Minister
  • The new Brazil cabinet continues to take shape with a market-friendly bias

In the EM equity space, South Africa (+2.2%), Singapore (+1.1%), and Taiwan (+1.0%) have outperformed this week, while UAE (-3.4%), Brazil (-2.2%), and Colombia (-2.0%) have underperformed.  To put this in better context, MSCI EM fell -1.1% this week while MSCI DM rose +0.2%.
  In the EM local currency bond space, Peru (10-year yield -12 bp), Malaysia (+1 bp), and Hungary (+2 bp) have outperformed this week, while Brazil (10-year yield +31 bp), Thailand (+30 bp), and Ukraine (+27 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 15 bp this week to 1.85%. 
 
In the EM FX space, ARS (+0.6% vs. USD), EGP (+0.1% vs. USD), and CZK (flat vs. EUR) have outperformed this week, while ILS (-2.5% vs. USD), IDR (-2.1% vs. USD), and ZAR (-2.0% vs. USD) have underperformed.
 
The Philippine central bank moved to an interest rate corridor.  It cut the overnight borrowing rate 100 bp to 3% and cut the overnight lending rate 250 bp to 3.5%.  The corridor will be 50 bp to either side of the overnight borrowing rate.  The special deposit account rate was kept steady at 2.5%.  Governor Tetangco said that the rate cuts don’t reflect a policy change.  Rather, they are operational adjustments to boost the effectiveness of the bank’s interest rate policy.  The changes are effective June 3.  Bank Indonesia announced a similar move recently.
 
Saudi Arabia is preparing to sell its first global bond ever.  The nation has sent invitations to banks to arrange the sale of it expects to be a “significant” amount.  No details about the size or currency denomination.  Banks were asked to respond with proposals by next week, and officials said that the bond offering will probably take place after the Muslim holy month of Ramadan ends on July 5.
 
Transport Minister Binali Yildirim, a close ally of President Erdogan, will become Turkey’s new Prime Minister.  The nomination of Yildirim (who will also become head of the AKP) will be voted on at the extraordinary AKP convention this Sunday.  The appointment of Yildirim will further strengthen Erdogan’s control of the government.  Later this year, the AKP will likely try to make a constitutional change that would allow Erdogan to become AKP leader.  Currently, the president is not allowed to have a party affiliation.
 
The new Brazil cabinet continues to take shape with a market-friendly bias.  Ilan Goldfajn was named head of the central bank, and Finance Minister Meirelles said Tombini would remain in the government (role unknown right now).  Meirelles said the economic team will be announced gradually over the next few days, with the next round to be heads of the state-owned banks.  No big surprises on the economic team so far.  All good names, but nothing really unexpected.  




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Emerging Markets: What has Changed Emerging Markets:  What has Changed Reviewed by Marc Chandler on May 20, 2016 Rating: 5
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