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Investor Insights Global

17 Sep 2018   Macro, Currencies, Policy

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX ended mixed in Friday, capping off an up and down week. RUB and TRY initially firmed on their respective rate hikes but gave back some of those gains heading into the weekend. Trade tensions are likely to remain high, as press reports suggest President Trump is pushing ahead with tariffs on $200 bln of Chinese imports even as high-level talks are planned. With US rates pushing higher, we think the backdrop for EM remains negative.

The Flipside of Turkey

United States sanctions against two Turkish government ministers triggered the recent bout of volatility in the Turkish currency market. While Turkey was fundamentally vulnerable to begin with, due to a lengthy period of bad economic policies, the fact that volatility was so severe and spread far beyond Turkey indicates that this was not just about Turkey. It is also about the major shift in America’s use of soft power on the global stage.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX ended Friday on a mixed note, with TRY and ARS leading the gains. However, the jobs data supports our view that the Fed is likely to continue hiking rates, which is negative for EM. Furthermore, trade tensions will remain high after the US announced plans to slap tariffs on an additional $267 bln of Chinese imports. This negative backdrop should weigh on EM this week.

Will ESG Standards and Ratings Heterogeneity Kill the Sustainable Finance Market?

As the world continues to embrace ESG-led investing, a dizzying array of standards and ratings tools has emerged to help clarify the underlying non-economic impact of an investment and help investors make sense of ESG-linked assets. This explosion in ratings, criteria and standards, however, could sow more confusion than they aim to resolve.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX has come under pressure again due to ongoing trade tensions and rising US rates, but saw some modest relief Friday after the PBOC announcement on FX forwards. This helped EM FX stabilize, but we do not think the negative fundamental backdrop has changed. Best performers last week were MXN, PHP, and PEN while the worst were TRY, ZAR, and KRW.

A LIBORious Transition: Weaning the World off the Most Popular Credit Benchmark

About a year has passed since the UK FCA’s Chief Executive Andrew Bailey set the deadline for the financial markets’ transition away from LIBOR, upon which roughly USD350tn in securities, loans and derivatives across five major currencies is contracted. Finding an alternative that can satisfy the diversity of markets that rest upon this crucial benchmark is proving to be more elusive than anticipated, beckoning questions about the pace and scale of transition.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX enjoyed a respite from the ongoing selling pressures, with most currencies up on the week vs. the dollar. Best performers were CLP, MXN, and ZAR while the worst were TRY, CNY, and COP. BOJ, Fed, and BOE meetings this week may pose some risks to EM FX.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX saw some violent swings last week, due in large part to some unhelpful official comments. BRL and TRY were the best performers last week, while RUB and CLP were the worst. When all is said and done, however, we think Fed policy remains unaffected and so we remain negative on EM FX. Also, global trade tensions remain high after Trump threatened tariffs on all Chinese imports entering the US.

EM Bond Outlook: Better 2H 2018 Expected

It has been a tough start to the year for emerging market bonds, but things are looking up as we head into 2H 2018 – you just need to know where to look.

Trump’s Trade War with China: Impact on EM FX and Rates

US President Donald Trump unilaterally started the trade war with China and he shows no signs of letting up. His policies on trade mark a major departure from America’s long-standing commitment to free markets. The combination of protectionist measures and fiscal profligacy is likely to further increase the challenges faced by American companies in their quest to compete internationally by pushing up the real effective exchange rate.

 

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