EM Review: Hong Kong Bill, Latin America Rout Dented Risk Taking

(Bloomberg) -- Emerging-market currencies and stocks slid for a third week, recording losses in November, as Latin America’s mounting political tensions and the unsolved U.S. and China trade war dented investors appetite for these assets. The Brazilian real and the Chilean peso fell to all-time lows, prompting central bank interventions, and the Colombian peso traded at the weakest level ever amid anti-government demonstrations.

The following is a roundup of emerging-markets news and highlights for the week ending Dec. 1.

Highlights:

• U.S. President Donald Trump signed a bill into law that expresses U.S. support for Hong Kong protesters, a move that strains relations with China and further complicates the president’s effort to wind down his trade war with Beijing
  • China’s foreign ministry reiterated a threat of retaliation without offering any details
  • Hong Kong leader Carrie Lam didn’t make any new concessions to protesters after pro-democracy forces won a landslide in local elections, a move that risks leading to further violence after months of unrest
• Trump said Tuesday that talks with China on the first phase of a trade deal were near completion after negotiators from both sides spoke by phone. “We’re in the final throes of a very important deal,” he said
  • China’s government wants tariffs to be rolled back as part of the phase one trade deal with the U.S., Global Times said in a tweet on Sunday, citing unidentified people in Beijing
  • China’s Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin discussed core concerns in a phone call, the Chinese government said in a statement, without elaborating
• The Chilean peso, Colombian peso and Brazilian real all touched record lows
  • Brazil’s central bank intervened in the currency market saying the market was dysfunctional and vowing to intervene further if needed
  • Chile’s central bank also announced an intervention program, under which it will sell as much as $10 billion on currency spot market and up to $10 billion in currency hedges
• Turkish and Qatari central banks are boosting the size of a currency-swap deal to $5 billion, extending the gas-rich Gulf nation’s support for its ally by adding to its foreign-exchange reserves
• Emerging-market ETFs received inflows for a seventh straight week, led by Brazil

Asia:

• China saw solid demand for its third offering of dollar bonds in three years, though U.S. investors largely left the deal alone amid the trade war. Final orders amounted to more than $16.5 billion for the $6 billion of securities, compared with $13.2 billion for $3 billion last year
  • The official manufacturing purchasing managers’ index rose to 50.2, the first reading indicating expansion since April
  • Profits at Chinese industrial companies fell the most since at least 2011 in October, dropping 9.9% from a year ago
  • China’s central bank governor sounded a cautious tone on the health of the global economy on Sunday, while signaling that monetary policy makers will continue to refrain from large-scale easing steps
• North Korea fired two short-range ballistic missiles and could be planning even bigger moves, stepping up pressure as it threatens to walk away from sputtering nuclear talks unless Trump offers up concessions by year end
• Thailand said its latest round of stimulus will spur more than 100 billion baht ($3.3 billion) of spending, as it steps up efforts to fight an economic slowdown caused by baht strength and the trade war
  • Excess global liquidity is expected to increase the volatility of the baht, Bank of Thailand Governor Veerathai Santiprabhob says
  • Current account surplus narrowed to $2.905b in October from $3.531b a month earlier
• Japan and South Korea took fresh swipes at one another, raising questions about whether relations between the U.S. allies would improve after they reached a last-minute deal earlier in November to rescue an expiring intelligence-sharing pact
  • Top South Korean and Japanese diplomats will likely meet on the sidelines of a gathering of Asian and European foreign ministers later this month to discuss a resolution to a year-long dispute, Yonhap News reported
• Bank of Korea keeps interest rate unchanged at 1.25%
  • Governor Lee Ju-yeol insisted that Korea’s economy was already passing through its most painful moment
  • The central bank lowered the 2020 GDP growth forecast to 2.3% from 2.5% previously
  • Exports dropped 14.3% from a year earlier in November, worse than estimate of 9.7% decline
  • South Korea and Indonesia are seeking to sign a bilateral trade agreement in the first half of 2020
• India’s economy grew 4.5% in the third quarter from a year ago, the weakest pace in more than six years
  • Prime Minister Narendra Modi is finally attempting to overhaul India’s most controversial labor laws to attract investment and make it easier to do business in a country where changing archaic rules is a challenge for any government
  • India seized control of a second non-bank lender, stepping up efforts to contain the economic fallout from the nation’s shadow banking crisis
  • The RBI bought has about $18 billion of foreign exchange since the end of September, according to estimates by Bloomberg Economics, propelling reserves to a record
• Philippine central bank Governor Benjamin Diokno said a rate cut is “possible” as early as December if inflation remains low, just weeks after saying there would be no more monetary easing this year
  • The Philippines sold its maiden foreign-currency catastrophe-linked bonds to help cover costs of major calamities, in conjunction with the World Bank
  • October budget deficit narrowed as spending growth slowed
• Indonesian bonds have drawn record annual inflows this year
  • Bank Indonesia will retain its “accommodative” monetary policy stance, Governor Perry Warjiyo told bankers
• Malaysia will seek ways to resolve the ringgit’s depreciation because it is a source of concern for the public, Bernama reported Prime Minister Mahathir Mohamad as saying
• Sri Lanka kept its benchmark interest rate unchanged for a second month as it tries to balance a slowing economy with rising inflation. It held the standing lending facility rate at 8%
• Taiwan raised its economic forecasts for this year and next as evidence mounts that the it is benefiting from investment flows amid the U.S.-China trade war
  • Economy’s third quarter growth was revised up to 2.99%

EMEA:

• Turkey said it had been clear all along of its intention to deploy a newly-acquired Russian missile system, a day after it risked triggering U.S. sanctions by starting the first tests of the S-400s
  • Turkish gross domestic product is growing at an accelerating pace in the last three-month period of the year and 5% expansion is a possibility, Treasury and Finance Minister Berat Albayrak tells lawmakers
• South African Reserve Bank Deputy Governor Kuben Naidoo said if Moody’s Investors Service cuts the country’s credit rating to junk there could be a sell-off of between $5 billion and $8 billion of its bonds
  • There is a high likelihood that the government’s finances will deteriorate further, posing risks to the stability of the financial system, the central bank said
  • South African business confidence improved in the fourth quarter for the first time in almost two years, yet the economy remains stuck in a downward phase. A quarterly gauge measuring sentiment rose to 26 from a two-decade low of 21
  • Non-residents have sold a net $9.8 billion of South African stocks and bonds in 2019, already the most in a year since Bloomberg started compiling the data in 1998
• Vale SA, the Brazilian mining giant, plans to place its Mozambican coal operations on maintenance for three months, essentially closing the tap on about one-third of the southeast African country’s export earnings
• Nigeria’s central bank held its benchmark rate for a fourth straight meeting at 13.5%, saying the surge in inflation to a 17-month high is just temporary
• Ghana wants to issue a Eurobond and conclude a $750 million share sale in a mining royalties fund by February, Finance Minister Ken Ofori-Atta said
  • Country is considering a minimum loan-to-deposit ratio for banks
• Kenya’s central bank cut its benchmark interest rate to 8.5% from 9%, its first reduction in 16 months as the removal of a cap on borrowing costs will make it easier for policy decisions to help boost credit and economic growth
• Ukraine’s central bank openly accused billionaire Igor Kolomoisky of orchestrating an intimidation campaign through public protests and negative media coverage as he fights to win back control of the country’s biggest lender from the state
• Abu Dhabi is planning to put as much as $1.5 billion into Saudi Aramco’s initial public offering, as the oil giant taps friendly neighbors to prop up a deal that’s so far failed to draw foreign investors, people with knowledge of the matter said
  • The retail tranche of Saudi Aramco’s initial public offering is fully covered
  • IPO has drawn total bids of $44.3 billion, about 1.7 times the amount the government is seeking to raise
• Saudi Arabia arrested at least eight intellectuals as it extended a crackdown on political dissent that’s sparked condemnation abroad
• Lebanon repaid a $1.5 billion Eurobond on Thursday, an official with knowledge of the matter said, buying the country time as speculation swirls over its ability to avoid a default during a political and economic crisis
  • Its chances of escaping a default still look grim as reserves shrink
  • Lebanon’s Finance Ministry issued two bonds, each valued at $1.5 billion, to the central bank, a person familiar with the matter says
  • Parliamentary consultations to name a new Lebanese prime minister were expected to have started Thursday, with caretaker premier Saad Hariri saying he won’t take on the job permanently amid nationwide unrest
• The Bank of Israel extended a pause in interest rates at 0.25% even as it conceded political uncertainty risks damaging the economy, opting to keep in reserve its minimal room for maneuver as major central banks suspend monetary easing
• Hungary economy grew 5% in the third quarter, Czech Republic expanded 3.4% and Poland grew 3.9%, all confirming preliminary readings
• Namibian President Hage Geingob won a second term despite the worst-performance yet for his South West Africa People’s Organization as a stuttering economy curbed support for the ruling party
• Bulgaria’s long-term foreign currency debt rating was upgraded by S&P to BBB, the second-lowest investment grade score, from BBB-
• The outlook for Bahrain’s debt rating was revised to positive from stable by S&P
• Zimbabwe’s central bank maintained its key rate at 35%
• Iraq’s parliament approved the resignation of Prime Minister Adel Abdul Mahdi after some of the worst violence during two months of anti-government protests

Latin America:

• Brazilian central bank’s intervention surprised markets as the bank’s chief and the economy minister had both said days before they were comfortable with allowing markets to settle the exchange rate
  • President Jair Bolsonaro had said he would like to have a stronger currency, but signaled he would defer to his economy chief
  • Amid confusing messages from policy makers and a sour mood over Latin American assets, the real continued to weaken, prompting the central bank to act again on Tuesday afternoon and Wednesday morning and to sell $1 billion in an auction on Thursday; it is unusual for the central bank to reveal the amount offered
  • Currency depreciation is making traders question a promised 50 basis-point rate cut in December
  • Brazil analysts lifted end-2020 key rate forecast for the first time in at least a year amid the weaker currency and signs that economic activity is slowly gathering pace
  • Bolsonaro still backs Brazil’s pro-market policies, Economy Minister Paulo Guedes said in an interview with O Globo newspaper published on Sunday
  • State-owned oil producer Petrobras unveiled its five-year strategic plan projecting a slowdown in production along with a program to sell assets and slash its debt
  • Brazil current-account deficit widened more than expected in October, while the unemployment rate declined for the first time in three months
• The Chilean peso rebounded on Friday after the central bank announced the intervention, but protests and looting continue
  • Central bank will hold its next monetary policy decision on Dec. 4, two days earlier than scheduled, in a bid to provide “timely information” about the country’s economic situation
  • Government announced an economic reconstruction program and asked lawmakers to speed up the approval of 4 bills that seek to improve public security
  • Industrial production fell in October as a wave of violent protests forced the closure of shops, paralyzed much of the public transport system and led many people to cut short their working hours; unemployment rate was stable
  • Country is gambling its status as a pro-market poster child as the government scraps plans to cut debt in favor of at least $1.5 billion per year in additional social spending to appease protesters
• Mexico fell into recession in the first half of 2019, revised data showed, painting a bleaker picture of a stagnant economy
  • The central bank cut its 2019 growth forecast, citing auto sector weakness in 4Q as one of the reasons, while expecting the economy to improve in 2020, according to its inflation report
  • The majority of the central bank board said monetary policy needs gradual adjustment, while policy makers appointed by President Andres Manuel Lopez Obrador again voted for steeper interest-rate cuts
  • AMLO announced an infrastructure plan worth 859 billion pesos ($44 billion) with most of the capital coming from the private sector
  • AMLO celebrated his first year in office touting his achievements in reducing inequality in the country, while defending an economy that fell short of targets
  • Government may speed up plans for drafting and debating a tax overhaul to generate more revenue if 2020 budget assumptions turn out to be overly optimistic, a top official said
  • The U.S. pushed Wednesday to wrap up final negotiations with Democrats on the USMCA in meetings with top Mexican and Canadian officials
  • The IMF renewed Mexico’s flexible credit line for two more years and cut it to $61 billion
• Argentine creditor groups are taking shape as investors gear up for President-elect Alberto Fernandez to name his cabinet on Dec. 6
  • Government plans to hold debt negotiations with private bondholders and the IMF at the same time as part of a strategy to obtain a better deal, according to a person with direct knowledge of the matter
  • Fernandez said he doesn’t want to borrow more money, wants time to develop the economy
  • The IMF named Luis Cubeddu as the Argentina mission chief “as part of a routine senior staff rotation”
  • Argentina’s economic activity index fell less than expected in September
  • Argentina’s central bank will maintain its rate floor at 63%, while it expects the monetary base to continue expanding in December and January
• Colombia’s anti-government demonstrations lost steam on Wednesday as fatigue set in after seven straight days of protests, and police became less confrontational
  • A day before, President Ivan Duque pledged tax breaks for the poorest Colombians in a bid to quell protests
• Luis Lacalle Pou of the center-right National Party beat the left-wing candidate in Uruguay’s presidential election, in the first shift to the right in 15 years

--With assistance from Yumi Teso and Philip Sanders.

To contact Bloomberg News staff for this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net;Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net;Selcuk Gokoluk in London at sgokoluk@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Karl Lester M. Yap

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