SWI swissinfo.ch: Local Risks in Emerging Markets Are Giving Traders Something to Worry About

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Local Risks in Emerging Markets Are Giving Traders Something to Worry About
This content was published on February 18, 2019 11:49 AM Feb 18, 2019 - 11:49

People unload fruits and vegetables from boats at the Port of Manaus in Manaus, Amazonas state, Brazil, on Friday, Feb. 1, 2019. Part of President Jair Bolsonaro's electoral appeal rested on a business-friendly pledge to rein in an overbearing state by dismantling environmental agencies, but those promises swiftly changed following the deadly Brumadinho dam break. Photographer: Dado Galdieri/Bloomberg
(bloomberg)

(Bloomberg) -- With the U.S.-China trade dispute dominating headlines this year, idiosyncratic risks in emerging markets have played second fiddle to concerns over global growth.

Not anymore.

South Africa, Nigeria, Thailand and Russia each gave money managers a reminder of how quickly local issues can flare up over the past week. It happened just as some investors were starting to ask if the emerging-market trade was getting overcooked. A Bank of America Merrill Lynch survey of global fund managers showed that not only are developing-nation assets the most popular in the world, the trade has never been so crowded.

With the rand last week’s biggest decliner, investors will be keen to hear details of the South African government’s plan to split 96-year-old Eskom Holdings SOC Ltd. when Finance Minister Tito Mboweni presents the nation’s budget. Standard Chartered Plc cautioned the South African currency was most at risk of a large sell-off among high-yielding currencies this year.

Nigerian is counting the cost after the would-be Feb. 16 presidential election was postponed at the 11th hour, with dollar-bond yields rising and stocks falling on Monday. For the record, Indonesia’s central bank, among the more hawkish in emerging markets last year, decides interest rates on Thursday.

Listen here to Emerging Markets Weekly Podcast

The MSCI Inc.’s index of currencies capped a second week of declines Friday, the longest losing stretch since September and a whisper away from closing below its 100-week average for the first time since August. When it fell past that level in 2014, the gauge went a losing run that extended into 2016. The index rebounded on Monday.

Even Inaction Is Action

    So long as capital inflows are healthy, Indonesia’s policy makers probably won’t feel compelled to raise rates this year, even after the nation’s current-account deficit widened in the fourth quarter of 2018, according to Helmi Arman, an economist in Jakarta at Citigroup Inc. Bank Indonesia boosted the key rate by a total of 175 basis points last year to 6 percent to curb the decline in the rupiah
    Investors will sift through minutes of the Mexican central bank’s latest meeting as swap rates indicate monetary easing in the coming year. Banxico left its key interest rate unchanged at a decade high this month, saying that while the inflation outlook has remained steady, it faces risks from renewed exchange-rate weakness
        The peso dropped last week amid concern over the future of Petroleos Mexicanos. The world’s most-indebted oil company will refrain from issuing new debt this year and begin prepaying existing liabilities as part of a broad turnaround plan

Thai Growth

    Thailand’s economy grew at a faster pace in the fourth quarter than the previous three months, as local demand helped to offset a slide in exports, according to official figures released Monday
        Gross domestic product rose 3.7 percent from a year ago, up from a previously reported 3.3 percent in the third quarter and compares with the median estimate for a 3.6 percent expansion in a Bloomberg survey. The economy grew 4.1 percent for the whole of 2018

Let’s Talk Politics

    Brazil’s proposal to overhaul its pension system will be sent to Congress on Feb. 20, including minimum retirement ages and substantial savings to public coffers. Stocks and the real climbed after President Jair Bolsonaro gave a green light to the plan
        “We expect the first lower house vote to take place in June and final approval in the Senate by 4Q19,” said Alberto Ramos, the chief Latin America economist at Goldman Sachs Group Inc. in New York
    Saudi Arabia’s Crown Prince Mohammed Bin Salman will meet with China’s President Xi Jinping and attend a high-level joint dialogue during his Feb. 21-22 visit, according to Chinese Foreign Ministry spokesman Geng Shuang
        READ: Saudi Arabia Explores Investments Ahead of Prince’s Asia Tour
    Nigerian investors may turn bearish if they think the delay to elections was down to political machinations, according to Robert Omotunde, the head of investment research at Lagos-based Afrinvest West Africa Ltd.
        Expectations that the vote would go smoothly buoyed Nigerian equities and bonds in recent weeks. The benchmark stock index’s 7.1 percent advance this month through Friday was among the largest in the world, according to data compiled by Bloomberg

(Adds analysts comments in third paragraph.)

--With assistance from Tomoko Yamazaki, Philip Sanders, Rita Nazareth and Colleen Goko.

To contact the reporters on this story: Dana El Baltaji in Dubai at delbaltaji@bloomberg.net;Lilian Karunungan in Singapore at lkarunungan@bloomberg.net;Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net

To contact the editors responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net, Dana El Baltaji

©2019 Bloomberg L.P.
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