What Brexit will mean for the City of London remains somewhat of a mystery; as European bureaucrats debate the UK’s future in the single market, banks are already preparing their contingency plans. EM debt traders, however, seem unfazed by these developments.
With political tension rising in the developed world and geopolitical events dominating international headlines, investors are fleeing to “safe havens” in an attempt to reduce their exposure to the volatility of the market.
We believe the Fed is on track to hike at least three times this year. Yet EM currencies were mostly firmer in Q1, despite Fed tightening typically being very disruptive to EM. Why? The US dollar lost some traction as markets pushed out Fed tightening beyond March and Treasury Secretary Mnuchin seemed to push out fiscal stimulus into 2018. Rising commodity prices also helped buoy EM.
In the aftermath of the financial crisis, the US largely benefited from having a strong dollar on its path to recovery. Ten years later, however, the same currency’s value is so distorted that it may well be enough to strangle its economy.
Global green bond issuance is estimated to top US$206bn in 2017, according to figures from Moody’s, but the development of the asset class in emerging markets is still being hampered by lack of incentives, standards and awareness, according to sustainable finance professionals.
As the political future of Europe hangs in balance, investors are looking at EM securities as viable replacements.
Emerging Markets dodged a bullet as the fallout from the US election revealed a brighter economic outlook than many had expected. But with US tightening set to continue at a lower-than-expected pace and EM’s relative value fading gradually, investors are becoming more willing to look at longer maturities for extra carry.
As populist politicians and leaders rise to prominence in the developed world, anti-globalist attitudes and protectionism are also entering the economic frame. With Trump casting doubts over the future of NAFTA and Brexit putting a strain on EU's economic integration, Richard Segal, Senior Analyst at Manulife Asset Management, considers some of the practical effects these policies may bring in the coming years.
Emerging market countries have suffered chronic outflows of wealth due to tax evasion, perhaps more than countries in the developed world. That might be why many EM governments have set their sights on the enormous amount of wealth currently outside their borders.
Last week the world’s economic and political elites descended to the Swiss city of Davos for the annual World Economic Forum (WEF). This year's conference was unlike any other before – fitting given how unconventional 2016 really was – and left economic leaders with more questions than answers.
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