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Investor Insights

20 Aug 2018   Macro, Currencies, Global

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX stabilized last week as the situation in Turkey calmed somewhat. Reports Friday that the US and China are hoping to resolve the trade dispute also helped EM FX ahead of the weekend. However, TRY remains vulnerable as the US threatens more sanctions due to the pastor. Both S&P and Moody’s downgraded it ahead of the weekend and our own ratings model points to further downgrades ahead. Turkish markets are closed this week for holiday.

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.

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.

Central Banks, Sovereign Investors Change Tack on Investing in EM

Sovereign assets and central bank reserves are increasingly finding their way into alternatives and emerging market assets in a bid to boost returns, according to an Invesco survey of 126 sovereign funds and 65 central banks that sheds light on how asset allocations have shifted in recent years.

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.

A Disturbance in the Force: Institutional Frameworks and Vigilantism

The common denominator linking the US Trade War with China, sanctions against Russia and the attacks on Syria was that there were no attempts made to find solutions to these conflicts within multilateral institutions, such as the UN and the World Trade Organisation (WTO). The word used to describe the act of seeking justice outside the formal framework of the law is vigilantism. Vigilantism leads to abuses of power, miscarriages of justice and insecurity. The descent into vigilantism will make the world a less safe place.

Green Bonds Move Forward – But Same Old Questions Persist Unanswered

Global green bond issuance surged to record levels in 2017 with more than USD155bn issued globally, but despite a 78% increase in issuance volumes and the development of innovative new products, analysts contend the market’s growth remains hamstrung by the same old issues as they wait for green’s watershed moment.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX came under renewed pressure last week as US yields rose to new highs for the cycle. RUB and TRY were the top performers last week, while MXN and COP were the worst. There are no Fed speakers this week due to the embargo ahead of the May 2 FOMC meeting. While we see little chance of a hike then, markets are likely to remain nervous.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX was mixed Friday, capping a mixed week as a whole. COP, CLP, and MXN were the best performers last week, while RUB, BRL, and TRY were the worst. While concerns about trade wars and Syrian missile strikes have ebbed, risks to EM remain elevated. US retail sales Monday and Fed Beige Book Wednesday are the economic highlights this week.

 

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