Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S. (Photographer: Michael Nagle/Bloomberg)

Emerging-Market Equities Post Longest Rally in a Year: EM Review

(Bloomberg) -- Emerging-market equities rose for a fourth week last week as signs of easing trade tensions supported the appetite for riskier assets. Currencies dropped amid a stronger dollar.

The following is a roundup of emerging-markets news and highlights for the week ending Jan. 20:

Asset MovesWeekly
MSCI EM stocks index+1.7%
MSCI EM FX index-0.2%
Bloomberg Barclays Global EM Local Currency bond index -0.3%

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Highlights:

  • China has offered to go on a six-year buying spree to ramp up imports from the U.S., in a move that would reconfigure the relationship between the world’s two largest economies, according to officials familiar with the negotiations
    • China will also cut taxes “on a larger scale” to help support its slowing economy, according to senior economic policy officials
    • Chinese exports slumped in December, fueling concerns about global growth
    • Current monetary policy is in line with the economic situation and prices, People’s Bank of China Deputy Governor Zhu Hexin said
    • Trump administration officials are considering measures to roll back tariffs on Chinese products in order to calm financial markets, the Wall Street Journal reported; the U.S. Treasury Department quickly denied the report
  • President Donald Trump canceled the U.S. delegation’s trip to the global economic summit in Davos, citing the government shutdown, which is now the longest on record
  • Trump and North Korean leader Kim Jong Un are planning to meet near the end of February in Vietnam for a second summit, despite evidence that the Asian country is advancing its nuclear weapons program
  • Federal authorities in Seattle are investigating Huawei Technologies Co. for allegedly stealing trade secrets from U.S. partner companies, according to people familiar with the matter, which could complicate trade negotiations between the U.S. and China
  • Saudi Arabia and four other Gulf nations will join JPMorgan Chase & Co.’s emerging-market bond indexes this month, potentially paving the way for billions of dollars in inflows into the securities
  • The Russian ruble was among the best performers; the Senate blocked a Democratic bid to force the Treasury Department to keep sanctions on three Russian companies linked to oligarch Oleg Deripaska, as most Republicans backed the Trump administration’s plan to lift the penalties
  • Trump warned Turkey of economic devastation if its army attacks Kurds in Syria. Trump and Turkish President Recep Tayyip Erdogan later talked on the phone to sort out disagreements, boosting the lira
  • South Africa’s central bank maintained its key interest rate at 6.75 percent, and trimmed inflation expectations at its first meeting of the year
  • Mexico sold its first global bonds under President Andres Manuel Lopez Obrador’s administration, paying a spread of 185 basis points over Treasuries to raise $2 billion with 10-year notes

Asia:

  • Chinese exports and imports fell in December, showing the impact of the trade war and an economic slowdown
  • The PBOC has been quietly guiding interbank borrowing costs down without actually cutting official interest rates, with the latest move a record one-day injection of cash into the market
  • China’s top lawmaking body has fast-tracked approval of a foreign investment bill, in a sign that President Xi Jinping wants to advance policy moves to support trade negotiations with the U.S.
  • India’s rupee was among the underperformers; The Reserve Bank of India, in consultation with the Indian government, has decided to rationalize the framework for external commercial borrowings and rupee-denominated bonds to improve the ease of doing business
    • The trade deficit narrowed in December to $13.1 billion from a $16.7 billion shortfall in November. The median estimate in a Bloomberg survey was $14.5 billion
    • Inflation rate came in at 2.19 percent in December, compared with 2.33 percent the previous month
  • Indonesia’s rupiah was among the worst performers, while the Jakarta Composite Index advanced for a fourth week; Bank Indonesia held its policy rate at 6 percent, as expected in a Bloomberg survey
    • Indonesia posted a record trade deficit in 2018 after a slump in the rupiah boosted imports and the trade war hurt exports; the shortfall was $1.1 billion in December, bringing the full-year deficit to $8.6 billion, data from the statistics bureau showed
    • Indonesia is prepared to raise taxes on imports again if it fails to boost exports to rein in the country’s ballooning trade deficit, Finance Minister Sri Mulyani Indrawati told the Financial Times
    • Presidential candidate Prabowo Subianto is proposing deep tax cuts to bolster Southeast Asia’s largest economy
    • President Joko Widodo pledged to intensify the fight against corruption through merit-based political appointments in the first presidential debate, while Prabowo mooted higher pay for bureaucrats to tackle the menace seen as hindering the country’s development
  • The baht was among the outperformers; Bank of Thailand said in its report assessing financial-sector stability that the search for yields has led to an under-pricing of risk, a possible source of fragility for parts of the financial sector
  • The Philippines Stock Exchange Index advanced for a third week; the central bank sees easing inflation boosting consumption and investment this year, Deputy Governor Diwa Guinigundo said
    • Bangko Sentral ng Pilipinas will consider reducing banks’ reserve-requirement ratios if inflation expectations aren’t “in danger of being dis-anchored,” Guinigundo said
    • Growth in overseas remittances came in below estimates in November
  • Malaysia’s government formed a committee that’s expected to reduce fiscal debt and liabilities to a manageable level within the next 18 months
    • Prime Minister Mahathir Mohamad considered giving subsidies to industries he wants to promote
    • Malaysia’s intake of direct taxes rose to a record last year
  • Vietnam won’t devalue the dong to boost exports and the government is seeking to attract more investors, citing a red-hot economy, business-friendly policies and a Communist party led by free-traders

EMEA:

  • The Turkish lira rallied after the nation’s central bank left interest rates unchanged and reaffirmed its stance on inflation
  • Private-sector money fled Russia at the fastest pace since 2014 last year as fresh U.S. sanctions and the threat of more to come dented confidence. More than $67 billion left the country in 2018, just under half the volume of outflows four years ago, when falling oil prices and Western sanctions over Russia’s annexation of Crimea battered the ruble
    • November trade surplus was larger than expected
  • Jitters over Romania’s tax on bank assets continued to cause volatility for banking stocks. Romanian lenders are pushing for exemptions to a proposed tax on assets after the Finance Ministry frustrated their hopes of a lower rate, according to people with knowledge of the matter
  • The Hungarian central bank gave its clearest indication yet that the unwinding of monetary policy stimulus is imminent, sparking a rally in the forint
  • Poland’s industrial output fell more than expected in December, while employment rose in line with economists’ forecast
  • Saudi Arabian Oil Co. could tap the bond market for about $10 billion to help fund the acquisition of petrochemicals giant Saudi Basic Industries Corp., according to the country’s Energy Minister Khalid Al-Falih
  • Lebanon’s dollar bonds recovered from their plunge to a record low after top officials said the nation was discussing how to reduce the budget deficit and implement fiscal reforms -- but would not restructure its debt
    • The caretaker economy minister said the country is hopeful of getting outside financial support, but couldn’t confirm that Qatar is prepared to deposit $1 billion with the central bank
  • Egypt plans to issue between $3 billion and $7 billion worth of international bonds in the first quarter of the year, Finance Minister Mohamed Maait said, amid an outflow of foreign capital from local debt markets that could test its ability to meet budget deficit reduction targets
  • Israeli Prime Minister Benjamin Netanyahu ratcheted up his campaign to discredit Israeli journalists and his left-wing opponents, as a decision on his possible indictment nears.

Latin America:

  • Mexico reopened most fuel pipelines after closures that caused gasoline shortages in several states
    • Bank of America Merrill Lynch cut its forecast for Mexico’s economic growth in 2019 to 1 percent from 2 percent
  • Brazil’s Ibovespa rallied for a fourth week; President Jair Bolsonaro is expected to give the green light to a pension reform bill before Jan. 28, his chief of staff said
    • Bolsonaro signed a decree loosening gun regulations and hinted at further measures to arm citizens facing rampant crime
    • The central bank’s outgoing chief Ilan Goldfajn said emerging markets face a growing risk from the economic slowdown rather than from further rate hikes by the Federal Reserve
  • Argentina’s currency returned to the central bank’s targeted range after trading below the lower limit for several days
    • Consumer prices rose less than forecast month-on-month in December, with inflation easing for a third month in response to the central bank’s aggressive monetary policy
    • Argentina and Brazil agreed to review the common external tariffs set by the Mercosur trade bloc and improve access to markets
  • Uruguay tapped international debt markets by selling $850 million of 12-year bonds and has agreed to buy back notes due 2024 and 2027 under a cash tender offer
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