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Investor Insights

20 May 2019   Investor Insights, Macro, Policy, Global

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM remains hostage to global trade tensions. Last week’s moves by the US to with regards to Japan, EU, Canada, and Mexico should only be viewed as a change in tactics. China is now the sole focus, but these other trade skirmishes are likely to flare again. We remain negative on EM within this environment.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX ended last week on a firm note on optimism that a trade deal will be reached. We think that optimism is misplaced and so look for EM weakness to resume this week. Indeed, rhetoric from both sides over the weekend suggest things will get worse before they get better.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX was whipsawed last week by conflicting Fed views and softer than expected US weekly earnings. We continue to believe that the bar is set very high for a rate cut this year, and that markets have not adjusted accordingly yet. The divergence theme that favors the dollar should come back to the forefront as RBA, RBNZ, and Norges Bank are all likely to deliver dovish holds. Indeed, there are significant risks of rate cuts by the Antipodeans.

Ashmore Group: Beware of Big Fiscal

Having exhausted most monetary policy levers, fiscal stimulus appears to be the ultimate go-to solution for lack of growth in the developed world – but it is often very costly, and tends to stand in the way of deeper, much-needed structural reform. Ashmore's Jan Dehn looks at how this dilemma may be resolved.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX had an awful week, with virtually every currency down against the dollar. The lone exception was MYR, which managed to end flat on the week. The divergence theme remains supportive for the dollar, and that should keep downward pressure on EM. We may see some corrective bounces from time to time but we remain negative on EM. FOMC meeting and China PMI readings should help set the tone for markets.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX is coming off a good week, capitalizing on broad-based dollar weakness. Better than expected data out of China helped boost market sentiment too. Key US and China data will come out this week and should help determine the short-term outlook for the dollar.

Fifty Shades of Green: How are Banks and Investors Approaching ESG?

The world isn’t the only thing heating up. As issues of governance and climate change continue to dominate headlines, financial institutions are facing growing pressure from governments and public opinion alike to integrate Environmental, Social and Governance (ESG) considerations into day-to-day operations – in everything from how they lend or invest to how they run their operational facilities.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX saw broad-based weakness last week. The only exceptions were TRY (+3.5%) and CNY (+0.1%). The former’s gains were driven in large part by official efforts to stabilize it ahead of Turkish local elections this weekend. These gains are artificial and not sustainable, in our view. The global backdrop remains challenging for EM, as global growth concerns appear to be taking precedent over the favourable liquidity story.

GCC Issuance Set to Dominate Sukuk Market for Coming Years

Since Saudi Arabia’s debut sovereign sukuk issuance in 2017, the size of global sukuk markets has exploded. But primary market activity has been dominated by sovereign issuance, with corporates continuing to make up only a small share of the pipeline. Whether this trend will continue remains unclear, and raises serious questions about the long-term potential of the asset class.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM got hit hard last week by risk-off sentiment that picked up in the wake of the FOMC meeting. Like the recent ECB decision, markets are rightfully focusing on the global growth implications of the dovish central banks rather than the liquidity implications. The US yield curve briefly inverted last week. If sustained, it would signal a likely US recession in the next 6-24 months. This is hardly conducive to risk and EM assets, which we see remaining under pressure this week.

 

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