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Brazil: Despite a Challenging Outlook, the Local Market Grows Leaps and Bounds

It has not been an easy 12 months for Brazil’s corporate sector, which faces a multitude of challenges, both internal and external. Bolsonaro’s victory in the elections, though divisive, at least provided some reprieve from the political uncertainty that has weighed on Brazil’s markets in the run up to the vote. Still, many questions remain around the direction of policy, and the new government’s ability to push it through congress, as well as broader shifts in the macro-economic environment.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX was mixed last week despite the dovish signals from the Fed’s Powell. Weak data from emerging Asia support the notion that the ongoing US-China trade war will continue to weigh on global growth and trade, which is negative for EM. We remain cautious on EM, especially given our less dovish take on the Fed.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX remains vulnerable to ongoing global trade tensions. It may also suffer from the recalibration of market expectations regarding Fed policy. We remain negative on EM near-term until the outlook for both of these major drivers becomes clearer.

As the Economic Cycle Begins to Turn, Distressed Debt Opportunities Remain Limited

It’s been a slow year for investors eyeing distressed debt opportunities. With distressed funds worldwide securing substantially lower volumes than in 2018, and a potential reversal in US interest rate rises on the horizon, many investors currently view conventional strategies more favourably. Against a backdrop of continued volatility and a growing number of warning signs in both developed and local economies, it’s unclear just how soon such opportunities will arise.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM and risk assets should get a near-term boost from the good news coming out of the G20 meeting. Still, we caution against getting too optimistic on EM. Current US tariffs on Chinese goods will remain in place, which will continue to act as a headwind on global growth and trade.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM is benefiting from the more benign global liquidity story. However, we do not think this is enough to sustain the rally. Global growth and trade remains at risk and so we are cautious about piling into EM right now.

Once a Mirage, An Asset Class Begins to Emerge: GCC Local Currency Bond Markets

The growth of the GCC debt capital markets in the first decade of this century was reasonably stunted as the region’s need for debt funding was negligible in the face of abundant liquidity ensuing from high oil prices. Due in large part to its sources of revenue and the prevalence of currency pegs, the region’s borrowers have predominately relied on US dollar funding. But as the region’s corporate entities grow and become more sophisticated, requiring deeper and more diverse domestic funding markets, that looks set to change – with regional governments taking the lead.

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

All eyes are on the Fed and we suspect it will stay true to its message of steady rates until the economic outlook worsens enough to warrant easing. In other words, the Fed is unlikely to be as dovish as the market hopes and so the dollar should benefit. Elsewhere, US-China trade tensions remain high and show no signs of letting up. The backdrop remains EM-negative.

Brazil: Beware of Murphy’s Law

The current fragile state of Brazil’s economy carries high risks. This time around, there are no buffers, because the unemployment rate is already at record highs. A recession now would entail social costs much greater than those of 2015, warns XPI's Zeina Latif.

Off the Record in Kenya: Private Equity, Banking Consolidation, and a Blossoming FinTech Sector

The last three years have been tough for Kenyan banks and corporates. The introduction of the interest rate cap in 2016 sapped liquidity, leaving many corporates deprived of financing. But the last few years have also seen the blossoming of new liquidity pools including private equity and mobile lenders, which are beginning to claw market share away from banks, according to CFOs and bankers who spoke with Bonds & Loans on a recent research trip to Nairobi.

 

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