Market Insights en-gb Mon, 19 Feb 2018 11:38:03 GMT 1796 Bonds & Loans Latin America Deals of the Year Awards 2018 The issuers, borrowers and mediators of the most innovative and outstanding debt capital market deals on the continent to be lauded at the prestigious awards ceremony. Top deals of 2017 in Latin American DCM - as voted by you 16 Feb 2018 Latin America Market Insights 73 Fri, 16 Feb 2018 16:40:32 GMT Latin American capital markets saw the largest deal flows and market developments on record in 2017, largely supported by a global economic recovery, a weakening dollar (which peaked at the start of the year), strengthening EM currencies, and rising commodity prices. Following a robust selection process which involved an industry-wide vote, and our evaluating over 300 deals on criteria focused on structural innovation, size, quality of execution, pricing, timing, scarcity value and contribution to opening up new markets, 17 issuers along with their advisers listed below are the inaugural winners of the Bonds & Loans Latin America Awards for Deals of the Year.

Over the past 12 months, sustained improvement in fundamentals was met with a stabilizing, though at times tenuous, political environment – with the likes of Brazilian President Michel Temer and Argentine incumbent Mauricio Macri holding off calls for resignations, a softening of rhetoric in the US and progress on NAFTA negotiations. Uncertainty surrounding the upcoming election cycle in 2018 also helped catalyse a wave of new issuance from across the region.

Market conditions were so favourable in fact, that deal flow out of Latin America was hardly interrupted throughout the year, despite persisting corruption scandals and rising global geopolitical tensions, with both local currency issuance on the rise amid improving FX rates and multiple corporates returning to market to refinance debt and stretch out tenors under better terms. That said, the sheer volume of successful and impressive transactions over the past 12 months made the task of picking just the nominees for Bonds & Loans’ Deals of the Year Awards difficult enough.

Top Trends

Liability management amid more favourable rates and a global hunt for yield was a dominant strategy this year. Sovereigns, as is the convention, led the way with some bold issuances, including the first century bond in emerging markets, and the first sovereign Euroclearable local-currency bond in Latin America. 

Scarcity value became a significant pricing driver, allowing for a wider spectrum of issuers to debut or return to market after a long break. High-yield issues that investors would have sniffed at in previous years were snapped up almost as quickly as investment grade notes, providing a convenient opportunity for capital holders to diversify their risk profile and gain exposure in new geographies.

The year also saw some highly sophisticated, exquisitely tailored project and structured financing schemes emerge, signalling the long-touted arrival of complex instruments that ought to help find and secure funding for the large-scale infrastructure, transport and housing development programmes under way across the region. Many of these were carefully put together by major Western banks with the specific aim of shifting much of the risk on to the private sector – a key development that should keep the sovereign balance sheets out of the red, especially those that are working to de-dollarise their economies.

Looking ahead, a booming American economy and the cheap dollar could tilt the Fed more to the hawkish side, meaning that 2018 might not be such an easy ride for emerging market economies. With a number of key elections coming up in the region (some increasingly hard to predict), Venezuela’s economy teetering on the edge, stock market jitters and the unpredictability of the Trump administration, the emerging market rally that buoyed Latin American debt capital markets could peter out; then again, it may not.

The region’s fundamentals are strong. Growth has been recovering, and local politics – though still difficult to predict at times – is normalising. With European central banks’ unwinding and Fed hikes unlikely to be rapid – and certain to be signalled well in advance – the outlook for South American economies is as bright as it has ever been.

As we reflect on the deals that voters selected as winners of Bonds & Loans Deals of the Year Awards 2018, we hope to inspire the next wave of innovative transactions and encourage borrowers to challenge themselves and their treasury teams to go bigger and be bolder. Congratulations to all the winners of our inaugural Latin America Deals of the Year Awards.


Sovereign Debt Deal of the Year

Deal Type: Senior Unsecured Bond

Issuer / Borrower: Republic of Argentina

Deal Size: USD2.75bn

Issue Date:  June 2017

Tenor: 100 years

Joint Lead Managers/ Joint Lead Managers: Citi, HSBC; Nomura, Santander,

Advisers: Cleary Gottlieb Steen & Hamilton; Shearman & Sterling

A hundred years of solitude is not a bad thing if it means you are the only Latin sovereign to successfully place a century bond, the largest on record. That is exactly what Argentina did in June this year, pricing a landmark USD2.75bn deal at 7.125%, with a hefty 3.7x oversubscription. The deal, which saw the yields tighten 35bp from IPTs, marked a record tenor for a sub-investment grade entity and saw the sovereign establish its yield curve across currencies – with transactions in USD, EUR and CHF – and tenors, with maturities between 3 and 20 years from pricing. Solid distribution – mostly to accounts in North America and Europe – and a diversified group of investors, including fund managers, hedge funds and banks, showed a lot of hunger for Argentinian credit and laid the path for more Argentinian issuers to tap the markets in 2018.

Quasi-Sovereign Debt Deal of the Year

Deal Type: Multi-tranche Bond

Issuer / Borrower: Pemex

Deal Size: USD5.5bn

Issue Date: December 2016

Tenor: 5-10 years

Bookrunners: Bank of America Merrill Lynch, Citi, JPMorgan, Mizuho, Morgan Stanley

Advisers: Cleary Gottlieb Steen & Hamilton; Ritch, Mueller, Heather y Nicolau / Shearman & Sterling

A regular issuer over many years, in 2017 Pemex once again took an early lead with a massive USD5.5bn triple-tranche transaction that included fixed and floating rate instruments, a first in LatAm since 2014, and drew a mammoth USD30bn orderbook, allowing for a 40-45bp tightening from IPTs across all tranches. The issuance also carried a symbolic significance, being the first capital markets deal from Latin America and Mexico, and the second in EM following the US Presidential election, successfully weathering the market volatility brought about by Trump’s win. Finding the window of opportunity following a sudden recovery in oil price and a series of successful oil field auctions by Mexico led Pemex to tap the market early, and pre-fund much of its 2017 external financing.


Investment Grade Corporate Bond Deal of the Year

Deal Type: Dual Tranche Bond

Issuer / Borrower: Braskem

Deal Size: USD1.75bn

Issue Date: October 2017

Tenor: 6 years, 11 years

Bookrunners: BNP Paribas, Credit Agricole, Itau, Morgan Stanley, Santander, SMBC Nikko, UBS

Advisers: Lobo de Rizzo, White & Case; Milbank Tweed Hadley & McCloy, Pinheiro Neto

After a 3.5-year absence from the capital markets, petrochemicals giant Braskem came back with a bang, placing a USD1.75bn dual-tranche bond at a volatile time, just as the company settled lawsuits with Brazilian, US and Swiss authorities. Investors were overwhelmingly pacified by Braskem’s commitment to the internationalization of its business, evident from the 47% of 2016 revenues generated by exports and international sales. The 10-year tranche priced 4bp inside the T+235 achieved by the sovereign just a day earlier and had a negative new issue concession of 2bp – a particularly impressive feat. At USD1.75bn, the issue was oversubscribed 8x and became the second largest international bond from a Brazilian non-state corporate ever.


Bond Deal of the Year by a Debut Issuer

Deal Type: Senior Bond

Issuer / Borrower: Fenix Power Peru

Deal Size: USD340mn

Issue Date: August 2017

Tenor: 10 years

Bookrunners: Citi, Scotiabank, SMBC Nikko

Advisers: Cleary Gottlieb Steen & Hamilton; Milbank Tweed Hadley & McCloy

Prior to the transaction, Fenix Power Peru was able to secure three investment grade ratings on the back of implicit support from Chilean utility Colbún, and owing to the structural enhancements, including an amortizing profile and debt service reserve account. With 4x oversubscription, it was an impressive debut that priced inside PetroPeru’s notes and achieved investment grade despite the issuer’s 7x initial leverage. The Singapore listing and a nearly perfectly balanced orderbook were reflective of exceptional diversification and strong institutional participation from investors across the globe.

 Infrastructure Finance Deal of the Year

Deal Type: Project Finance Facility

Issuer / Borrower: Blackrock/ Lazaro Cardenas Port Logistics Project

Deal Size: USD347mn

Issue Date: August 2017

Tenor: 2-15 years

Mandated Lead Arrangers: Citi

Advisers: Milbank, Tweed, Hadley & McCloy, Ritch, Mueller, Heather y Nicolau; Paul Hastings, Nader, Hayaux y Goebel

In one of the most elegantly tailored transactions of the year, Blackrock and Citi Bank conjured up a bespoke dual-tranche bond and loan hybrid to finance the Lazaro Cardenas port project. To finance two parallel greenfield and brownfield phases, the arrangers and agents created a fully integrated solution, with a hybrid dual-tranche facility featuring a short-term fully amortizing Term Loan, alongside a long-tenor Private Placement. This bold innovative approach allowed the issuer to monetize the full tenor of the underlying offtaker contract, while eliminating refinancing risk and locking in equity returns early, with an added bonus of achieving an investment grade rating. Notably, the hybrid marked first ever placement of a 4(a)(2) project bond in Latin America and saw the tightest spread for a CFE-related project financing.


Power Finance Deal of the Year

Deal Type: Syndicated A/B Loan

Issuer / Borrower: Greenwind S.A.; El Corti Wind Farm

Deal Size: USD104mn

Issue Date: September 2017

Tenor: 9 years

Sponsors/ Mandated Lead Arrangers / Lenders: Pampa Energía, Castlelake; IDB Invest; ICBC, Santander

Advisers: Salaverri, Dellatorre, Burgio & Wetzler Malbran; Winston & Strawn; Clifford Chance; Bruchou, Fernandez Madero & Lombardi

As Argentina, Latin America’s third largest power market, continues to diversify its energy sources, Greenwind S.A. – a joint venture between Pampa Energia and Castlelake L.P. – blazed a trail with a senior corporate syndicated loan to finance the new El Corti wind farm. The deal, which marked the first cross-border financing under the new RenovAr programme (a policy that will bring the share of renewables in the country’s energy mix to 20%), saw two loan tranches worth USD104mn, syndicated within a A/B framework. With a corporate guarantee from Pampa Energia, the deal saw unprecedented 9-year tenors, marking a new chapter in financing of infrastructure projects in Argentina and demonstrating the feasibility and investor appeal of projects linked to the RenovAr programme.


Project Finance Deal of the Year

Deal Type: A/B Bond Financing

Issuer / Borrower: Invenergy - Campo Palomas

Deal Size: USD150.9mn

Issue Date: July 2017

Tenor: 19.5 years

Placement Agent / Lender of Record: DNB Markets, Inc.; IDB Invest

Advisers: White & Case / Hughes & Hughes; Clifford Chance / Ferrere Abogados; Mayer Brown / Appleby

Issues out of Uruguay are precious and hard-to-come-by, which makes this sophisticated financing structure for the Campo Palomas wind project particularly impressive. With an innovative A/B bond structure under the IIC’s umbrella, a stunning 20-year tenor, and a green certification to boot, this investment grade project bond opened new doors for the renewable energy market in Uruguay, where a fifth of energy produced comes from sustainable sources.

 Structured Bond Deal of the Year

Deal Type: Dual Tranche Green Bond

Issuer / Borrower: Mexico City New Airport

Deal Size: USD4bn

Issue Date: September 2017

Tenor: 10 years, 30 years

Bookrunners: Citi, HSBC, JPMorgan

Advisers: Cleary Gottlieb Steen & Hamilton / Jones Day; Galicia / Paul Hastings

A sizeable deal to finalize the financing for the construction of the port of entry to the largest metropolis in Western hemisphere arrived amid a favourable macro backdrop, with resilient global growth and a soothing monetary policy outlook allowing the issuer to price the largest corporate green bond to date. It broke a number of other records, including largest green bond from a Latin American issuer, largest USD airport bond, and largest 30-year corporate individual tranche bond in the region and emerging markets more broadly, on par with Pemex’s 30-year issue. Pricing with a negative new issue concession of -5bp, the 2028 and 2047 notes saw healthy distribution across multiple geographies (including Asia) and types, with the bulk snapped up by fund managers, and around 18% of each going to insurance and pension funds.


Natural Resources Finance Deal of the Year

Deal Type: Syndicated A/B Loan

Issuer / Borrower: Renova

Deal Size: USD410mn

Issue Date:  May 2017

Tenor: 6 years, 9 years

Mandated Lead Arrangers/ Lead Arrangers / Deal Managers: IFC, Rabobank; BID Invest, FMO, ING, Santander, Natixis; ICBC, ABN Amro, Itau BBA

Advisers: Curtis, Mallet-Prevost, Colt & Mosle; Becker, Glynn, Muffly, Chassin & Hosinski / Marval, O'Farrell, Mairal

With IFC and Rabobank as mandated lead arrangers, Renova executed an excellent multi-tranche syndication, which allowed it to secure funding for capacity expansion at some of the longest tenors seen in Argentina to date. A two-step syndication with IFC and IIC anchoring the financing as lenders of record under twin A/B Loans, involved securing preliminary funding from DFIs for the longest tranche, followed by commitments from commercial lenders solicited during the market sounding. This was a standout transaction that helped carve a path for borrowers in Argentina’s agricultural sector and the wider market.

Structured Finance Deal of the Year

Deal Type: Dual-Tranche Structured Project Finance Loan

Issuer / Borrower: Lima Metro Line 1

Deal Size: USD396mn

Issue Date: August 2017

Tenor: 3 years, 17 years

Sponsors / Mandated Lead Arrangers: Graña y Montero, Ferrovias Participaciones; Mizuho, SMBC

Advisers: Paul Hastings / Philippi Prietocarrizosa Ferrero Du & Uria; Clifford Chance / Rodrigo Elias & Medrano

The USD396mn financing package for the expansion of Lima’s first metro line consisted of a 3-year USD80mn working capital facility and a 17-year USD316mn term loan, which was provided to a Delaware-based SPV that could purchase CPAOs from the concessionaire without recourse, and is eventually going to be refinanced on the capital markets via structured bonds. The unique structural solution, implemented for the first time on a Peruvian project with government certificates, mitigated construction and operation risk for the term loan lenders, while the working capital facility eliminated concessionaire’s and sponsors’ risk. A tailor-made internal derivative that allowed for structuring a fixed-rate loan with bond-refinancing option was the icing on the cake for this award-winning deal.


Local Currency Bond Deal of the Year

Deal Type: Euroclearable Local Currency Bond

Issuer / Borrower: Republic of Chile

Deal Size: CLP1tn

Issue Date: January 2017

Tenor: 4 years

Bookrunners: BNP Paribas / Citi / Goldman Sachs / JPMorgan

Advisers: Cleary Gottlieb Steen & Hamilton; Shearman & Sterling

Chile affirmed its highest standing among Latin American economies with this inaugural CLP-denominated Euroclearable issuance, which proved so popular among international investors (who comprised 20% of the final book) that it spurred a flurry of sovereign bonds across the region. The deal reaffirmed the Republic’s status as leader of developing local-currency markets in Latin America and opened the path for others, namely Peru, to follow its lead. Going forward, the bond is expected to help drive down cost of funding in the Republic, as well as deepen the domestic CLP market to new pools of liquidity by simplifying to it for offshore investors, and aligning Chile's post-trade processes with international standards. 

Financial Institutions Deal of the Year

Deal Type: Basel 3 Subordinated Tier 2 Bond

Issuer / Borrower: Bancolombia

Deal Size: USD750mn

Issue Date: October 2017

Tenor: 10 years

Bookrunners: Bank of America Merrill Lynch, Citi, UBS

Advisers: Sullivan & Cromwell; Cleary, Gottlien Steen & Hamilton, Philippi Prietocarrizosa Ferrero DU & Uria

The country’s first Basel III-compliant instrument was impressively priced, with IPTs originally put at low to mid 5% – but as the orderbook was allowed to “stew” overnight that figure dropped by nearly 63bp to 4.875%, the lowest coupon for any subordinated issue out of Colombia, and for any Basel III-compliant notes out of Latin America. It was also the first intermediate tender offer in Colombia, allowing to minimize the premium on the notes, with additional write-off provisions and a 5-year call option alleviating some of the investors’ concerns.


Transport Finance Deal of the Year

Deal Type: Dual Tranche Dual Currency Bonds

Issuer / Borrower: GLOBALVIA - Autopista del Sol (Ruta 27)

Deal Size: USD350.75mn

Issue Date: May 2017

Tenor: 13 years, 10 years

Bookrunner: Citi

Advisers: BLP, Jones Day; Clifford Chance, Consortium

Globalvia’s dual-currency project bond – Its inaugural issuance on the international and local Costa Rican debt capital markets – achieved a number of ‘firsts’ and enabled it to sustainably increase its debt capacity. With impressive tightening of 62.5bp and nearly 3x oversubscription leading to the issue being upsized to USD300mn, it was the first non-IG project bond from Central America and the largest non-state entity issue out of Costa Rica. Of note also is the NPV-related cash trap mechanism embedded in the deal, which enables it to protect investors and mitigates prepayment risk.


Sub-Investment Grade Corporate Bond Deal of the Year

Deal Type: 144a/RegS Bond

Issuer / Borrower: Suzano

Deal Size: USD300mn

Issue Date: March 2017

Tenor: 30 years

Bookrunners:  Bank of America Merrill Lynch, Bradesco, Itau, JPMorgan, Morgan Stanley, Santander

Advisers: Cleary Gottlieb Steen & Hamilton; Clifford Chance

In a landmark transaction for both the paper & pulp industry and Latin America’s DCM, Suzano achieved a hat-trick of goals with a record 30-year tenor for the sector across emerging markets, the first full non-IG 30-year bond in EMs and the first 30-year dollar-bond from Brazil’s corporate sector since 2014. The company braved tough conditions, in the midst of a sell-off in commodities to successfully extend its average debt term (from 3.5 to 5 years) and prepare itself for eventual adverse cycle in the paper and pulp industry. The bonds priced only 30bp wider than the 10-year benchmark notes issued in August 2016 (pricing similar to some IG debt) and saw strong demand from international investors, with nearly a third of the notes placed with European accounts.

 Liability Management Deal of the Year

Deal Type: Euroclearable Local Currency Bond

Issuer / Borrower: Republic of Peru

Deal Size: PEN10bn

Issue Date: August 2017

Tenor: 15 years

Bookrunners: Bank of America Merrill Lynch, BNP Paribas, HSBC, Scotiabank

Advisers: Lazo de Romaña, Simpson Thacher & Barlett; Garrigues, Shearman & Sterling

Following in Chile’s footsteps, Peru launched its debut Euroclearable issue as part of a liability management programme to reduce FX exposure, extend the duration of its debt and lower servicing costs. With no new-issue premium and pricing only 200bp above Peru’s USD curve, the deal represented the largest single PEN-denominated tranche, attracted strong interest from investors in the US, UK, Europe and Peru and performed well on the secondary markets, tightening to 5.58% in the following months. One of the largest EM local-currency transactions in history, this was notably the first deal by the sovereign to not include a bond-market LM component.


Syndicated Loan Deal of the Year

Deal Type: 5 Tranche Term Loans and Revolving Facility

Issuer / Borrower: Cemex

Deal Size: USD4.05bn

Issue Date: July 2017

Tenor: 5 years

Bookrunners: Bank of America Merrill Lync, Banorte, BBVA Bancomer, BNP Paribas, Citi, Credit Agricole, HSBC, ING, JPMorgan, Mizuho, Santander

Advisers: Slaughter and May; Clifford Chance, Galicia

In a deal that perfectly encapsulates the cement maker’s recent push to cut debt servicing costs and deleverage, Cemex was able to upsize a USD3.6bn syndication to USD4.05bn, with five tranches in three currencies distributed among 20 banks. The loan, launched to refinance a previous 8-tranche facility, priced at 125-350bp over Libor, had a carefully tailored consolidated leverage and coverage ratios and allowed several major lenders to increase their exposure to CEMEX, bringing the issuer a step closer to reclaiming its investment grade rating.

Syndicated Loan Deal of the Year by a Debut Borrower

Deal Type: Acquisition Financing Facility

Issuer / Borrower: Grupo Industrial Saltillo

Deal Size: USD326.5mn

Issue Date: November 2016

Tenor: 3 years, 5 years

Mandated Lead Arrangers: HSBC, Santander, Scotiabank

Advisers: Santamarina & Steta, Cuatrecasas; White & Case

Grupo Industrial Saltillo’s USD326.5mn senior secured facility to finance the purchase of Spanish auto-manufacturer Infun consisted of a USD276.5mn 5-year term loan and a USD50mn 3-year revolving credit facility, and was fully underwritten by the bookrunners. The purchase opens new doors for the Mexican conglomerate, allowing it to diversify into new products and geographies – notably, the Asian markets. The transaction was oversubscribed, with impressively balanced distribution across the globe, roughly a third each for European, American and Mexican accounts.

Mining Projects Macro Deals Policy Americas Mexico Brazil Andes Latin America
1795 BBH: Frontier Sovereign Rating Model for Q1 2018 BBH produced the following ratings model to assess relative sovereign risk in Frontier Markets. A country’s score directly reflects its creditworthiness and underlying ability to service its external debt obligations. Signs are pointing to an improving sovereign credit story across global markets 15 Feb 2018 Global Market Insights 55 Thu, 15 Feb 2018 15:18:35 GMT Each score is determined by a weighted compilation of fifteen economic and political indicators, which include external debt/GDP, short-term debt/reserves, import cover, current account/GDP, GDP growth, and budget balance.

These scores translate into a BBH implied rating that is meant to reflect the accepted rating methodology used by the major agencies. We find that our model is very useful in predicting rating changes by the major agencies. The total number of Frontier Markets covered by the BBH model is currently 39.


There have been 17 rating actions since our last update in November. There were 11 positive actions and 6 negative, continuing the improving trend last year. For all of 2017, the actions were 29 positive and 33 negative, which represents a 53% share for the negatives. This is an improvement over 2016, where 60 actions out of the 73 total (82%) were negative.

The deterioration in credit quality of the Frontier Markets in recent years largely reflects the negative impact from slower global growth and low commodity prices. Given that this trend appears to be reversing, we look for further improvement in Frontier ratings as we move through 2018. Of course, there will be divergences within Frontier Markets, just as we have seen divergences in the Emerging Markets.

Since our last update, Fitch has been the most negative with four moves. Fitch downgraded Namibia from BBB- to BB+ with stable outlook and Oman from BBB to BBB- with negative outlook. It also moved the outlook on Costa Rica’s BB rating and Pakistan’s B rating from stable to negative.

On the flip side, Fitch provided five positive moves. It upgraded Bulgaria from BBB- to BBB, Serbia from BB- to BB, and Croatia from BB to BB+, all with stable outlook. Fitch also moved the outlooks on Argentina’s B rating and Mongolia’s B- rating from stable to positive.

Moody’s downgraded Nigeria from B1 to B2 with stable outlook. On the other hand, it upgraded Argentina from B3 to B2 and Mongolia from Caa1 to B3, both with stable outlooks.  Elsewhere, S&P downgraded Jordan from BB- to B+ and Angola from B to B-, both with stable outlooks.

S&P also leaned more positive, just like the other two agencies. The two negative moves saw Oman downgraded from BB+ to BB and Bahrain from BB- to B+, both with stable outlooks. On the flip side, S&P had twice as many positive moves. It upgraded Bulgaria from BB+ to BBB- and Serbia from BB- to BB, with stable outlooks. S&P also moved the outlook on Sri Lanka’s rating from negative to stable and on El Salvador’s rating from stable to positive.

Frontier Sovereign rating model Q1 2018


Despite improving global growth and higher commodity prices, we see persistent downgrade risk ahead as signaled by the negative outlooks that are still hanging over many of the countries. Improving credit metrics for the commodity exporters will most likely be an early 2018 story. Again, there will be some exceptions as divergences are likely to remain in play.


All five countries in this region saw steady implied ratings. Bangladesh’s implied rating was steady at BBB/Baa2/BBB after rising a notch last quarter. We see strong upgrade potential to actual ratings of BB-/Ba3/BB-. Sri Lanka saw its implied rating steady at BB-/Ba3/BB- after rising a notch last quarter. Upgrade potential remains in play for actual ratings of B+/B1/B+. Mongolia’s implied rating was steady at B-/B3/B- after rising a notch last quarter. This puts it right at actual ratings of B-/B3/B-.

Vietnam’s implied rating remained steady at BBB-/Baa3/BBB-. We still see upgrade potential for actual ratings of BB-/B1/BB-. Pakistan’s implied rating was steady at BB-/Ba3/BB- after falling a notch last quarter. There is still some upgrade potential for actual ratings of B/B3/B, but it’s ebbing.


Most countries in this region saw steady implied ratings. However, more than a third saw their implied ratings rise. Botswana’s implied rating rose a notch to A/A2/A, recouping half of the two-notch drop last quarter. However, this still suggests very little upgrade potential for actual ratings of A-/A2. Mozambique’s implied rating improved two notches to CCC+/Caa1/CCC+. This moves it above actual ratings of SD/Caa3/RD.

Angola’s implied rating rose a notch to B+/B1/B+, recouping half of the two notches lost earlier this year. This puts it slightly above actual ratings of B-/B2/B. Nigeria’s implied rating rose a notch to BB-/Ba3/BB-, moving it slightly above actual ratings of B/B2/B+. Ghana’s implied rating rose a notch to BB-/Ba3/BB- and so we see growing upgrade potential to actual ratings of B-/B3/B.

Tanzania’s implied rating was steady at BBB-/Baa3/BBB- after rising a notch last quarter. However, it is not rated by the major agencies.  Algeria’s implied rating was steady at BBB-/Baa3/BBB- after rising a notch last quarter but it too remains unrated by the agencies.

Uganda’s implied rating was steady at BB/Ba2/BB after rising a notch last quarter. This still suggests ongoing upgrade potential to actual ratings of B/B2/B+. Zambia’s implied rating was steady at BB/Ba2/BB after rising two notches last year, keeping it well above actual ratings of B/B3/B. Cote d’Ivoire’s implied rating was steady at BB+/Ba1/BB+ after falling several notches over the course of last year, but we still see upgrade potential for actual ratings of Ba3/B+.

Mauritius’ implied rating was steady at BBB/Baa2/BBB after falling a notch last quarter. This suggests ongoing downgrade risks to Moody’s sole rating of Baa1. Namibia’s implied rating was steady at BB/Ba2/BB, but still suggests ongoing downgrade risks for actual ratings of Ba1/BB+. Kenya’s implied rating was steady at B+/B1/B+, which puts it right at actual ratings.

There was only one country that saw its implied rating fall this quarter. Tunisia’s implied rating fell a notch to B/B2/B, which moves it slightly below actual ratings of B1/B+.

Latin America and Caribbean

Most countries in this region saw steady implied ratings. However, a quarter saw their implied ratings fall. Argentina’s implied rating was steady at B+/B1/B+ after rising a notch last quarter. This still suggests some upgrade potential for actual ratings of B+/B3/B, as Macri’s reform program bears fruit.

Jamaica’s implied rating was steady at BB/Ba2/BB. This still suggests some upgrade potential for actual ratings of B/B3/B.  El Salvador’s implied rating was steady at BB/Ba2/BB. Guatemala’s implied rating was steady at BBB/Baa2/BBB, but still sees some upgrade potential to actual ratings of BB-/Ba1/BB.

The Dominican Republic’s implied rating was steady at BB+/Ba1/BB+ after falling a notch last quarter. This still suggests some upgrade potential to actual ratings of BB-/Ba3/BB-.  Trinidad & Tobago’s implied rating was steady at BB+/Ba1/BB+ after falling a notch last quarter. This suggests ongoing downgrade risks to S&P’s BBB+ rating. Moody’s Ba1 rating is on target, however.

Costa Rica’s implied rating fell a notch to BBB-/Baa3/BBB-. However, it remains above actual ratings of BB-/Ba2/BB. Bolivia’s implied rating fell a notch to BB/Ba2/BB, which moves it closer to actual ratings of BB/Ba3/BB-.

Eastern Europe

Most countries in this region saw steady implied ratings. Ukraine bucked the trend as its implied rating improved a notch for the second straight quarter, from CCC- to CCC. This is still largely below actual ratings of B-/Caa2/B-, however.

Serbia’s implied rating remained steady at BB+/Ba1/BB+. This still suggests some upgrade potential for actual ratings of BB-/Ba3/BB-. Bulgaria’s implied rating was steady at BBB+/Baa1/BBB+ after rising a notch last quarter. This suggests ongoing upgrade potential for actual ratings of BBB-/Baa2/BBB. Croatia’s implied rating was steady at BBB-/Baa3/BBB- after improving a notch last quarter, which shows ongoing upgrade potential to actual ratings of BB/Ba2/BB+. Kazakhstan’s implied rating was steady at BB-/Ba3/BB- after falling a notch last quarter. There are ongoing downgrade risks to actual ratings of BBB-/Baa3/BBB.

Romania’s implied rating fell a notch to BBB-/Baa3/BBB-, resuming the fall after remaining steady last quarter. We no longer see upgrade potential to actual ratings of BBB-/Baa3/BBB-.  

Middle East

Most countries in this region saw steady implied ratings, as higher oil prices help the exporting countries in this region stabilize. Indeed, Saudi Arabia’s implied rating was steady at A-/A3/A-. This keeps it close to actual ratings of A-/A1/A+.

Jordan’s implied rating was steady at BB-/Ba3/BB- after falling a notch last quarter, and suggests some upgrade potential for actual ratings of B+/B1/NR. Lebanon’s implied rating was steady at CCC/Caa2/CCC, which still suggests strong downgrade risks to actual ratings of B-/B3/B-. Bahrain’s implied rating was steady at B/B2/B after falling a notch last quarter. However, it is still facing strong downgrade risks to actual ratings of B+/B1/BB+.

Oman’s implied rating fell a notch to BBB/Baa2/BBB. This moves it closer to actual ratings of BB/Baa2/BBB-, though it’s clear that the agencies are split. Kuwait’s implied rating fell a notch to BBB+/Baa1/BBB+. This moves it further below actual ratings of AA/Aa2/AA.


It is clear that fundamentals are still worsening for some countries across the Frontier Markets universe. Much of this was driven by slow global growth and low commodity prices. These trends have already started to reverse, however, and so we expect to see an improving sovereign credit story as we move through 2018. We believe that our model will help to identify the potential winners and the losers within this divergence theme.

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1794 Standardisation and Harmonisation Will Propel the Sukuk Market Forward Almost 20 years ago, global fixed income investors scarcely heard of the word ‘sukuk’, let alone understood the asset’s unique structural features or benefits. Much has changed since, with the global sukuk issuance topping USD74.8bn at the end of 2016. But with the asset class’ impressive growth being hamstrung by liquidity shortages and a lack of global standards, the development and proliferation of those standards – and a protracted effort on behalf of market makers to harmonise those standards – is needed to help take the market to the next level. Stephan Pouyat, Euroclear, on the necessary next steps in fostering growth of Islamic finance 14 Feb 2018 Global Market Insights 55 Wed, 14 Feb 2018 14:47:06 GMT Malaysia, which has been a Euroclear member for over two decades, took a pioneering role in fostering the global sukuk market through carefully crafted legislation and a willingness to develop a deep domestic market that is also broadly appealing – and critically, accessible – to international investors.

Today, the country boasts 16 licensed Islamic banks, six of which are subsidiaries of foreign lenders.

At the end of 2016, the Malaysian government, central bank, and private sector entities accounted for close to half of the global supply of sukuk. Its ability to develop a robust, well-tested set of standards was central to securing its lead in the market – and ensuring it could successfully increase liquidity while effectively balancing investor, borrower, and systemic risks.

The first modern private-sector sukuk to be sold to a pool of domestic and international investors was issued by Malaysia Shell MDS Sdn Bhd in 1990 (MYR125mn ijarah transaction), and over a decade later, in 2002, the Malaysian government issued its inaugural USD600mn sukuk in global markets.

During that period, the government took a leading role in fostering the market, making critical amendments to its tax legislation – which levelized treatment of sukuk with other investment instruments, liberalising the banking sector and encouraging potential sukuk issuers to come to market.

The Shariah Advisory Council, under the hospice of the country’s Central Bank, was created in 1997 to effectively unify the application of sharia principles across Malaysia’s financial landscape and create a set of robust local standards and guidelines. It also successfully encouraged and fostered a vibrant domestic Islamic insurance sector (Takaful) well-participated by Muslims and non-Muslims alike, creating strong organic demand for sharia-compliant instruments.

Malaysia is by no means the only sovereign doing this. A handful of GCC countries, Morocco, Turkey, Indonesia, and increasingly non-majority Muslim countries like the UK and Luxembourg, are vying to become global Islamic finance hubs as demand for these assets continues to grow.

Many of these countries follow a similar path towards developing a market for sukuk. Often, sovereigns take their first steps by issuing a benchmark (or smaller) sized transaction denominated in a highly liquid hard currency. Much like a conventional Eurobond, these transactions help issuers establish a credit curve and allow international investors the opportunity to familiarise themselves with the issuer without taking on FX risk.

However, governments regularly need to borrow in their own currency, and where possible limit their exposure to foreign currencies in the process – but may still require foreign liquidity. Sukuk issuers can issue local currency notes in international markets and distribute payments in hard currency, but they shift FX risk onto investors in the process.

To find a healthier middle ground, some sukuk issuers seek to issue in local currency and distribute payments in both hard and local currencies. This scenario carries the added benefit of matching international investors with their preferred FX risk appetites, and stimulating local demand for these instruments.

If executed more frequently and on a larger scale, they can be less impactful on local currency inflation and the issuer country’s current account deficit than pure hard currency issuances. It is also an important stepping stone towards the development of a viable local currency market for sukuk, often the lowest-cost and least-risky option for borrowers.

The Sukuk Archipelago

In a sense, however, the market’s main inhibitors are a product of its own local and regional successes.  Demand for these assets has only grown in recent years as the need to diversify into more stable, premium instruments became more urgent – ever more so in the wake of the global finance crisis of 2007-8.

At the same time, many sovereign states – particularly those mentioned earlier – have sought to create their own legislative and market infrastructure to support the development of Islamic capital markets, in their bid to foster strong local demand for these instruments and create frameworks that allow international investors ease of access.

This is entirely reasonable, given the underlying motivation for stimulating these markets’ growth, but it has had unintended consequences. The global market is at risk of stalling due to a lack of globally-consistent standards pertaining to sukuk structures, documentation and reporting, regulatory frameworks, and dispute resolution mechanisms.

One of the primary challenges for investors is that many of these frameworks are quite distinct from one another. What may apply as a structural or legal feature for one type of sukuk in one jurisdiction may not in another.

Accounting and reporting standards pertaining to sharia-compliant assets differ significantly between regions and countries. Implementing sharia-compliant finance structures within different Islamic and non-Islamic legal frameworks often forces investors to navigate a complex archipelago of enforcement and dispute resolution regimes.

Taken together, these challenges produce unnecessary cost and complexity for sukuk issuers and investors, leading to drawn-out transaction execution timelines, and leading investors to demand higher premiums to compensate for additional complexity and risk.

The result?

Liquidity is often diverted into more established, vanilla instruments that are more consistent across jurisdictions.

Market Efficiency – Getting the Sukuk market to the next level

As a market leader that transacts directly with buyers and sellers of all kinds of assets – and as the world’s largest holder of sukuk and fixed income instruments, we have a good sense of the steps frequently taken by issuers and borrowers, banks, investors and governments throughout their capital markets journey.

Critical to supporting that journey is the need to foster dependable, enforceable, investor-friendly rules and regulations that are consistent across a range of markets. This is essential for creating the necessary infrastructure – of which clearing and settlements is integral – for investors and sukuk issuers to be able to easily buy, sell, trade, or redeem these instruments.

One of the things we are trying to do at Euroclear is harmonise the different accounting and reporting standards pertaining to sharia-compliant instruments. By creating a singular, sharia-compliant reporting standard, we can help investors navigate the sukuk archipelago and increase the overall efficiency of the market. It is a win-win for everyone.

Elsewhere, the market is finding ways of reaching consensus – particularly if one looks at the flurry of retail investor-friendly sukuk products that have launched in recent years. The growing popularity of Exchange Traded Funds (ETFs), which are based on popular sukuk indexes often structured and developed by experts and sharia scholars from different regions, and traded seamlessly on large international exchanges, is one of the ways the market is easing international investor access and increasing liquidity in the sukuk market.

More work is needed to harmonise Islamic finance standards across different jurisdictions, but our hope is that by playing a role in the discussion we can help further the sukuk market development while continuing to do what we do best: making post-trade, and global investing, easier.

More Analysis on Sukuk Market

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1793 As Chile Elects a Conservative, is Latin America Cooling on Populism? Chilean politics is often seen as a bellwether for deeper shifts occurring across the continent’s political scene. The recent election of the “old new” president Sebastián Piñera is in line with the apparent swing to the right seen in recent years – but, more importantly, indicates that politics in Latin America is becoming more nuanced, predictable and mature. Chilean election brings signs of political stabilization in Latin America 13 Feb 2018 Chile Market Insights 68 Tue, 13 Feb 2018 16:51:39 GMT For years, the developed world has poked fun at the ease with which populist (mostly left-wing) politicians were able to rise to power in South America, and all-too-often borrow those economies into a fiscal hole, until the next “saviour” rises, promising wealth for all. But as the developed world is now forced to deal with its own spate of “people champions” – both left and right – it may be Chile’s turn to laugh.

The election of Piñera, who replaced the centre-left reformist Michelle Bachelet, was part of an emerging trend of successful and media-savvy businessmen coming to power in the region, Argentina’s Mauricio Macri and Peru’s Pedro Pablo Kuczynski, as well as the business-friendly Michel Temer replacing the impeached Rousseff in Brazil.

But digging a little deeper, it becomes apparent that all these stories, in context, are quite unique, with Macri largely getting the benefit of the doubt of the international community, while both PPK and Temer have already lost much of their political capital to corruption scandals.

Chile for years has been one of the leading economies on the continent, but it suffered a prolonged downturn at the end of Bachelet’s tenure; so the first few months of Piñera rule could make or break his administration.

Political Swing

Bachelet and Piñera have dominated Chilean politics over the past decade: the former held power from 2006-10 and again in 2014-2018, with Piñera’s 4-year reign sandwiched in-between; but while his return falls at the end of a tough period for Chile’s economy, there is an argument to be made about the bad luck suffered by his predecessor in her second term, with depressed copper price and a global downturn undermining admittedly misguided in places, but largely centrist and sensible reform policies.

This could make the balancing act required from Piñera quite tricky, especially considering the painful associations most Chileans still have with excessively conservative right-wing governments ever since the Pinochet regime collapsed. Rather than a full-blown swing to the right, this latest shift is a sign of a mature, responsible middle-class dominated population that wants to see a similar sense of fiscal responsibility from its government, argued John Price, Managing Director, Americas Market Intelligence.

“Bachelet’s coalition in the first government were centrists and fiscal conservatives; the second time round, as the middle class began to feel the weight of the bill footed at it by the government, there was a wholesale rejection of the status quo and a big swing to the left by the coalition,” said the expert.

During her second campaign, Bachelet promised to do away with education-for-profit, tax code reform and constitutional amendment to give greater power to so-called non-elected parties (civil society).

“That scared the bejesus of the ruling elites, and they brought the whole might of the media machine on her. And on top of that, copper prices collapsed, so she could no longer afford the reforms. That put pressure on her to walk back on the less realistic campaign vows,” the analyst added.

As a result, Bachelet ended up in a zugzwang, with a right-wing media assault on the one side and a leftist cabinet on the other leaving little room to accomplish the original goals. And her plight was aggravated by the scandal blowing up around her daughter-in-law, who was accused of issuing false invoices in a scheme to avoid paying about USD165,000 in taxes. That, considering Chileans’ well-known intolerance for corruption, delivered the decisive blow to her ratings.

Todd Martinez, Fitch Ratings’ Chile Analyst, also pointed to the deflated copper prices and weaker global growth as the key factors behind the economic slump and the public’s disillusionment with the New Majority coalition, but agreed that some of the damage was done by Bachelet’s policies – namely the tax reform: although it made sense to lift Chile’s low tax burden for education initiatives, this likely dampened the investment climate in the near term before the long-term benefits had a chance to materialise; and the labour reform, which was criticized for empowering the unions rather than modernizing the labour market.

Looking at the big picture, neoliberal centre-left governments, with a combination of social liberalism and fiscal conservativism, dominated Chile’s post-Pinochet political landscape until Bachelet’s arrival, when the trend was broken. Price is convinced that it was indicative of the middle class’s growing dissatisfaction with the heavy tax burden – or at least the desire to see the proceeds distributed more evenly and effectively (Chile is second after Brazil by wealth inequality in Latin America). That torch has now been passed to the business-friendly new president.

“Piñera understands this paradigm shift towards more Canadian or Australian-style social inclusion, but with support for business and the private sector. Both right and left parties in Chile have converged in the centre over the years, and that is what reassures investors – the continuity of policy and regulations.”

Cautiously Optimistic Outlook

The post-election rally in Chilean stocks reflected the upbeat sentiment that the market-friendly new leader brought about. But it is not clear how much substance there is behind the pro-business rhetoric, and how the campaign promises are to be achieved, particularly as the country is faced with a steepening budget deficit, while the left-leaning congress is likely to tie Piñera’s hands.

First of all, many of Bachelet’s initiatives have been positive and effective, and the congress is unlikely to allow the new president to roll them back. The economy is admittedly still dependent on revenues from (and susceptible to the fall in price of) copper, but is otherwise fairly diverse, with competitive exports in sectors like wood production, fisheries, horticulture, wine and others. And the fundamentals are still strong: the country has the most advanced pool of pensions in the region, which invest in new technologies and small-business, among other things; and a sophisticated private education model, which Chileans are beginning to export abroad.

One major challenge for the new administration will be the need to address Chile’s productivity gap. According to the Time magazine, Chile came 33rd in the list of 35 Most Productive countries, squeezed between Latvia and Russia. Total factor productivity (TFP), which measures the efficiency of all inputs into a production process, has remained stagnant since the beginning of the 1990s, dragged down by the mining sector, which the economy relies so heavily on. Productivity in this sector has fallen 1.2% annually over the last 15 years, according to BBVA research.

“The “low-hanging fruit” of productivity reform has been mostly reached a while ago,” explained Martinez. “They are now targeting the right bottlenecks, investing in human capital for long-term gain, but inevitably these efforts would mostly yield results in the medium-to-long term.”

Price labelled Chile’s conundrum “the middle-income productivity plateau” – and getting over that hump requires more dramatic and radical reforms. And the problem is made aggravated by an ageing population, which requires fresh blood; immigration is the standard cure for this, but is traditionally a thorny issue for the country.

To tackle the productivity issue, Piñera promised tax cuts, but with taxes already reasonably low and fiscal deficit climbing, this approach may not be very realistic. Investment could provide a growth boost, but its effect will depend heavily on how sustained investor confidence is. Some believe that Piñera’s sheer presence should be sufficient.

“Prospective investors have been sitting on a lot of cash, waiting for Bachelet’s term to end,” said Ashmore’s Jan Dehn. “Piñera doesn’t need to do anything – just his presence is encouraging”.

Borrowing or revenues?

But that mandate may not last very long, if the core problems are not resolved. One worry is that in his campaigning, Piñera was loud and clear on policies that would lift the fiscal deficit – including a corporate tax cut (whose cost may yet rise from initial estimates), additional health spending, pensions and infrastructure push, but less specific on those that would lower it.

“The problem is not only that he has to fund these initiatives, but do so while bringing down the fiscal deficit - the path to that is unclear,” Martinez pointed out. “Will it be paid for with revenue, or higher borrowing? The latter means higher deficit and higher debt levels; the former is unlikely because he was promising to LOWER corporate taxes.”

Given that there is no global downturn (with China’s hard-landing) and copper prices remaining stable (a further rise would actually be damaging, as it would push up the peso and make Chilean non-mining exports less competitive), while investors – local and foreign – live up to the expectations of increasing capital inflows, Piñera’s government will have opportunities to address some of the structural deficiencies and realise policy objectives.

Infrastructure development could be one such option. Improving transport links, particularly with Argentina is essential, as well as building new ports and developing more hydroelectricity which is already the main source of power.

“One area he could target is lower budget financed capital spending and more reliance on the private sector, such as PPPs. That would be particularly useful for infrastructure,” Martinez said. That would invigorate the debt capital markets, where conditions have been largely favourable for a while, but local issues have been fairly sparse due to weak confidence.

Beyond that, Piñera would do well with playing up to the country’s existing strengths, such as expanding the services and IT sectors, creating fintech hubs and start-up incubators, and exporting its “human capital” – including knowledge and expertise – to the less developed neighbouring states.

Ultimately, with pressures from right and left, it will bode well for Piñera to choose the middle path, somewhere between Bachelet’s socialist diversion and one based on the Chilean elites’ vision. An “If it ain’t broke, don’t fix it” approach to one of the continent’s most advanced economies would be the safe choice, and if Piñera manages to achieve some surprise wins in the process, it will be an added bonus.

From a broader perspective, Chile’s election is indicative of a growing acceptance on the continent, traditionally seen as a leftist stronghold, of centre-right ideologies and more willingness to pick economic prosperity over anti-establishment populism. The recent rejection of ex-President Lula’s appeal to his sentence in Brazil, as well as corruption-linked woes of PPK in Peru and the shockwaves in various other countries from the Odebrecht scandal suggest that tolerance for corruption (or perception of corruption) is on the wane, and politicians are increasingly being held to account.

There is still a long way to go, of course – Colombian politics is entangled in the peace process, which is distracting from any serious action on the reforms front; in Mexico, there is a strong chance of the “anti-Trump” candidate Amlo taking the presidential seat; and Brazil’s election outcome is far from certain. But if Chile is to be viewed as a symbol of where Latin American politics is heading, the signs are encouraging.

More to read on Latin America

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1792 Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead Emerging Market FX ended Friday on a mixed note, as risk assets recovered a bit from broad-based selling pressures. Best Emerging Market performers on the week were ZAR, PHP, and CNY while the worst were COP, RUB, and ARS. Besides the risk-off impulses still reverberating through global markets, we think lower commodity prices are another headwind on EM. Head of EM Strategy Win Thin on key data drivers this week 12 Feb 2018 Global Market Insights 55 Mon, 12 Feb 2018 14:26:39 GMT China is expected to report January money and loan data this week, but no data has been set. Consensus sees an increase in aggregate financing of CNY3.15 trln, with new loans making up CNY2.05 trln. For now, we see CNY trading with the rest of EM. We do not see a deliberate campaign to weaken the yuan.

Singapore reports December retail sales Monday, which are expected to rise 4.5% y/y vs. 5.3% in November. January trade data will be reported Thursday, with NODX expected to rise 7.1% y/y vs. 3.1% in December. Inflation remains low while the real sector data has been spotty. A lot can happen between now and the April MAS meeting but we lean towards steady policy then.

India reports January CPI and December IP Monday. The former is expected to rise 5.1% y/y and the latter by 6.1% y/y. January WPI will be reported Wednesday, which is expected to rise 3.2% y/y vs. 3.6% in December. The RBI delivered a hawkish hold last week and we think there are rising odds of a hike at the next policy meeting April 5. January trade data will be reported Thursday.

Colombia central bank releases its quarterly inflation report Monday. It cut rates 25 bp to 4.5% at the January meeting, as expected. Next policy meeting is March 20, and another 25 bp cut then seems likely. December trade, retail sales, and IP will be reported Wednesday. Q4 GDP will be reported Thursday, and growth is expected to remain steady at 2.0% y/y.

Peru reports December trade Monday. It then reports Q4 GDP Thursday. The economy remains weak, and the latest leg down in copper prices is a concern. CPI rose 1.3% y/y in January, which is in the bottom half of the 1-3% target range. Next central bank policy meeting is March 8 and another 25 bp cut to 2.75% is likely.

Hungary reports January CPI Tuesday, which is expected to rise 2.0% y/y vs. 2.1% in December. If so, it would be right at the bottom of the 2-4% target range. Q4 GDP will be reported Wednesday, which is expected to grow 4.3% y/y vs. 3.9% in Q3. Despite the robust economy, we cannot rule out further easing via unconventional measures. Next policy meeting is February 27.

Poland reports December trade and current account data Tuesday. Q4 GDP will be reported Wednesday, which is expected to grow 5.2% y/y vs. 4.9% in Q3. January CPI will be reported Thursday, which is expected to rise 1.8% y/y vs. 2.1% in December. If so, it would remain in the bottom half of the 1.5-3.5% target range.

Malaysia reports Q4 GDP Wednesday, which is expected to grow 5.7% y/y vs. 6.2% in Q3. Q4 current account data will be reported that same day. Bank Negara started the tightening cycle last month, but we think the pace will be very cautious. Next policy meeting is March 7 and rates are likely to be kept at 3.25% then.

Bank of Thailand meets Wednesday and is expected to keep rates steady at 1.5%. Inflation was 0.7% y/y in January, below the 1-4% target range. The economy is fairly robust but we do not think the central bank is in any hurry to hike rates.

Czech Republic reports January CPI Wednesday, which is expected to rise 2.2% y/y vs. 2.4% in December. If so, it would remain in the top half of the 1-3% target range. The central bank has been hiking rates once every quarter. After hiking February 1, no change is expected at the next policy meeting March 29. Q4 GDP will be reported Friday, which is expected to grow 5.2% y/y vs. 5.0% in Q3.

South Africa reports December retail sales Wednesday, which are expected to rise 4.3% y/y vs. 8.2% in November. The economy is sluggish, but all eyes are on politics now. Press reports suggest President Zuma will announce his resignation this week. If the rand remains firm, we think SARB will cut rates at the next policy meeting March 28.

Brazil COPOM minutes will be released Thursday. At last week’s meeting, COPOM cut rates 25 bp to 6.75% but signaled an end to the easing cycle. Next policy meeting is March 21, no change expected then. Markets are pricing in the first rate hike in Q4. December GDP proxy will be reported Saturday.

Israel reports January CPI Thursday, which is expected to rise 0.2% y/y vs. 0.4% in December. If so, it would remain below the 1-3% target range. While inflation remains low, we think the bar to further stimulus is very high. Next central bank policy meeting is February 26, no change is expected then.

Bank Indonesia meets Thursday and is expected to keep rates steady at 4.25%. CPI rose 3.3% y/y in January, which is near the bottom of the 3-5% target range. We see little reason for the central bank to hike anytime soon. Indonesia also reports January trade data that same day. Exports are expected to rise 6.0% y/y and imports by 16.2% y/y.

Check out the EM Preview for the Week Ahead and other musings on Emerging Markets at BBH’s “Mind on the Markets” blog.


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