Emerging Markets Yearn for Growth as Yield Buffer Evaporates

(Bloomberg) --

The winning streak in emerging markets may hinge on whether central banks have finally done enough to bring about an economic turnaround.

With policy makers in developing economies widely seen as being in the final stages of their easing cycle, the bulls will be hoping data on Friday that showed China’s economy expanded 6% in December is a sign of things to come. Analysts have raised their earnings-per-share estimates for emerging-market companies for the following 12 months by more than 1% compared with the end of June. The International Monetary Fund is due to give updated economic forecasts on Monday.

Listen here for the emerging markets weekly podcast.

Investors are turning their focus to the growth story now the phase-one trade deal has been signed and policy makers become increasingly wary of extending interest-rate cuts as inflation starts to pick up. Central banks in Malaysia, Indonesia and Nigeria are set to keep their benchmark rates unchanged this week, preserving the positive real yields at least in those three countries.

“Emerging markets, in particular currencies and equities, are in a sweet spot,” said Jim McCormick, the London-based global head of desk strategy at NatWest Markets. “The macro narrative heading into 2020 has shifted. We’ve got stabilization in manufacturing, stabilization in China and global central banks pre-committing to never raising rates again.”

Indexes of stocks and currencies in the developing economies advanced for a seventh week through Friday, the longest winning streak in two years, in the wake of the U.S.-China trade agreement. The gauges were steady on Monday. Meantime, local-currency bonds have had their best run since July.

‘Tactical Pause’

• Bank Negara Malaysia and Bank Indonesia are set to meet on Wednesday and Thursday, with both central banks forecast to keep their benchmark rates unchanged at 3% and 5%, respectively
• “It makes sense for central banks to tactically wait and see where the economic data is headed,” said Frederic Neumann, Hong Kong-based co-head of Asian economics research at HSBC Holdings Plc. “Maybe there’s an argument for tactical pause, but that wouldn’t preempt them from cutting at the subsequent meetings. Those are the two central banks we expect to cut this year”
• Indonesia’s rupiah is the best performer this month among Asian currencies
  • Read: Asia’s Best Currency for 2020? It’s Hard to Look Past the Rupiah
• The Bank of Korea left its seven-day repurchase rate unchanged at 1.25% on Friday, as the governor took a more upbeat view on the economy

Economic Data and Events

• China kept at 4.15% its one-year loan prime rate, which serves as a benchmark for banks’ corporate lending under a new interest-rate framework that was unveiled in August. The five-year loan prime rate also stayed at 4.8% on Monday
  • Read: Steady LPRs Show Go-Slower Stance on Easing
• Taiwan’s export orders posted the first monthly increase since 2018 in December, with the government forecasting that growth will continue in the first quarter of this year
• South Korea will release data for exports and imports for the first 20 days of January on Tuesday. Thailand will report trade figures for the same month on Wednesday
• Taiwan’s preliminary GDP statistics for the last three months of 2019 are due on Tuesday. Growth is expected at 2.8% from a year ago compared with 2.99% in the prior quarter, based on a Bloomberg survey
• South Korea releases preliminary GDP data for fourth quarter 2019 on Wednesday. Economists in a Bloomberg survey predict growth was at 1.9% from a year earlier, compared with 2% in the previous quarter
• Malaysia releases its December CPI figure on Wednesday, hours before its rate decision
• The Philippines will probably report on Thursday that GDP in the fourth quarter quickened to 6.4% from a year ago, compared with 6.2% in the prior three months, according to a Bloomberg survey of economists. Pent-up budget spending and significant central bank easing probably spurred domestic demand, according to ING Groep NV
• South Africa’s inflation data due Wednesday may help explain the Reserve Bank’s unexpected decision to cut rates on Thursday. The consumer-price index probably rose 4% in December, from 3.6% the previous month, according to the median estimate of economists in a Bloomberg survey. That’s still below the mid-point of the central bank’s 3% to 6% target range.
• Poland’s statistics office will provide December wages, employment and construction data on Tuesday, followed by last month’s industrial output and PPI print on Wednesday, and retail sales on Thursday. The central bank will add minutes from its January sitting and December money supply (M3) data on Thursday, with the Finance Ministry also holding this month’s second regular bond auction on Friday
• Holders of Argentina’s provincial Buenos Aires debt will have until Wednesday to accept the local government’s plan to push back a $250 million payment, which would be due Jan. 26. The nation will release its November economic-activity index figures and December trade-balance data on Thursday
• Brazilian inflation data for January, to be published on Thursday, is expected to show some deceleration. It will be the last reading before the central bank next meets. The real has underperformed all its Latin American currency peers so far this month
• Mexico’s bi-weekly reading on Thursday will probably show year-on-year inflation accelerated in the first two weeks of January. Unemployment data on Tuesday will probably show a slight decline in December, according to economists surveyed by Bloomberg. The peso was the third best-performing currency in emerging markets so far this year

--With assistance from Tomoko Yamazaki and Carolina Wilson.

To contact the reporters on this story: Netty Ismail in Dubai at nismail3@bloomberg.net;Lilian Karunungan in Singapore at lkarunungan@bloomberg.net;Sydney Maki in New York at smaki8@bloomberg.net;Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editors responsible for this story: Alex Nicholson at anicholson6@bloomberg.net, Justin Carrigan, Paul Wallace

©2020 Bloomberg L.P.