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.
In May, Kenya became the latest African sovereign to take advantage of relatively subdued global rates and tap international bond investors for fresh funding, but a closer look at debt sustainability metrics suggest the country, and some of its peers, may be slowly running out of room to borrow.
Scores and rankings of ESG – shorthand for environment, social and governance – factors has become supremely important for investors looking to funnel capital towards more sustainable activities, often on the basis that better ESG means more sustainable cashflow generation capacity and lower overall risk. But are there limits to the linkages that can be drawn between credit performance and ESG rankings?
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.
As Gabon is the fifth largest oil producer in sub-Saharan Africa, the health of its economy is tied to its hydrocarbons industry. But since the 2014 oil crash, the legislation currently governing the sector has been wholly unsuitable. Now, the government is hoping to woo international oil companies (IOCs) by revising the code; but the President’s recent illness, along with a failed coup attempt this week, are halting legislative progress, and the industry’s prospects in the African country remain hazy.
It has been a difficult year for Argentina. With inflation climbing above 40%, the ARS losing over half of its value against the US dollar, and lingering fears remaining following the Notebook scandal, investor confidence has been heavily dampened. But a reform-minded government, coupled with multilateral support, has created a sense that Argentina’s numerous structural deficiencies are beginning to be addressed, according to investors, corporate chiefs and DCM bankers on the ground in Buenos Aires.
EM FX has come under renewed pressure as the dollar staged a broad-based recovery after the FOMC meeting. Data this week is likely to show continued robustness in the US economy, cementing a December hike by the Fed. Elsewhere, concerns about China, Italy, and Brexit are likely to weigh on market sentiment. We remain negative on EM.
EM FX got some traction last week as the dollar rally stalled. Still, event risk remains high in many EM countries, notably Brazil, Mexico, South Africa, and Turkey. The FOMC meeting this week is widely expected to see no actions, but the Fed should signal that a December hike is on track. As it is, US yields are marching higher again. We believe the global backdrop for EM remains negative.
EM FX ended last week on a firm note but the week was still a bad one. We think risk-off impulses will continue and likely intensify in the coming weeks. As such, we remain negative on EM as an asset class. China will provide its first glimpse of October with PMI readings, while US jobs report Friday will be the data highlight of the week.
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12 Jul 2019