EM Review: Rally Extends as Dollar Weakens Amid Growth Doubts

Emerging-market stocks and currencies posted a second week of gains, with investor appetite underpinned by a falling dollar and an accommodative Federal Reserve. Last week’s advance was limited by concerns about a resurgence in virus cases and the dim global outlook for growth as the U.S. and Mexico posted record slumps.

The following is a roundup of emerging-market news and highlights for the week through Aug. 2:

Click here for our emerging-markets weekly preview, and listen here to our weekly podcast.


  • The Federal Reserve left interest rates near zero and vowed to use all its tools to support a recovery from an economic downturn that Chairman Jerome Powell called the most severe “in our lifetime”
    • The dollar declined to its lowest in more than two years after the U.S. reported a record drop in gross domestic product in the last quarter and unemployment claims surged, raising concern over the strength of the economy
    • U.S. gross domestic product shrank the most on record in the second quarter and 17 million Americans claimed state unemployment benefits in mid-July
    • President Donald Trump raised the notion of delaying the Nov. 3 election until after the coronavirus pandemic eases, something he can’t do without the consent of lawmakers who have already rejected the idea
    • Senate Republicans presented their $1 trillion plan to bolster the pandemic-ravaged U.S. economy in a series of bills that would trim extra unemployment benefits, send $1,200 payments to most Americans and shield businesses, schools and other organizations from lawsuits stemming from coronavirus infections
  • The Trump administration will announce measures shortly against “a broad array” of Chinese-owned software deemed to pose national-security risks, U.S. Secretary of State Michael Pompeo said

    • Chinese Foreign Minister Wang Yi said Beijing would respond “firmly and rationally” to peremptory U.S. acts and called on other countries to resist what he called America’s bullying
    • The U.S. sanctioned a Chinese entity and two individuals for “serious human rights abuses” against Uighurs in the Xinjiang region, the latest sign of strained ties between Washington and Beijing
  • The first official gauge of China’s economy in the second half of the year showed continued upward momentum in the recovery
  • The world economy’s fragile recovery is in danger of stalling. A resurgence of coronavirus infections across the Asia-Pacific region, which was considered to have broadly curbed the virus more effectively than elsewhere, is being viewed as an early warning for the rest of the world
  • Gold smashed a record
  • The International Monetary Fund approved $4.3 billion in emergency funding for South Africa, the largest emergency disbursement for any country yet to assist with fighting the coronavirus pandemic
  • Chile’s central bank announced measures to ease volatility in the local market as people deluged pension funds to withdraw part of their savings, pulling billions of dollars from the system
  • The Bank of Russia surprised economists by delivering its smallest interest-rate cut in months and only cautiously leaving the door open to further reductions
  • Colombia cut interest rates for a fifth straight meeting as a return to stricter lockdown measures in the nation’s biggest cities threatens to prolong the worst slump in more than a century
  • Russia plans to start mass vaccinations against Covid-19 in October, with health workers and teachers first in line to get the inoculation against the disease, Health Minister Mikhail Murashko said
  • Mexico’s economy sank the most on record in the second quarter, as a haphazard national response to the coronavirus pandemic hurt jobs and output while failing to slow the outbreak, posing a dire challenge to President Andres Manuel Lopez Obrador
Asset MovesWeeklyJuly
MSCI EM stocks index+1.7%+8.4%
MSCI EM FX index+0.3%+1.4%
Bloomberg Barclays global EM local currency bonds index+0.3%+2.0%


  • Chinese President Xi Jinping called for a greater push on reforms to stimulate domestic demand and the economy to ride out mounting risks and challenges, saying conditions remain “complicated and grave”
    • Chinese importers of computing chips are ramping up their purchases of equipment through Hong Kong, in the expectation that U.S. sanctions on the territory will soon make the trade much harder
    • China’s insatiable appetite for equities is stoking the fastest growth in years for its $385 billion hedge fund industry
    • China took another step toward meeting agricultural commitments made in the phase one trade agreement with the U.S. with its biggest-ever purchase of American corn
  • South Korea is on track to rebound from the largest economic contraction in decades, the country’s deputy finance minister said, citing better-than-expected industrial production
  • India is positioning an additional 35,000 troops along its disputed Himalayan border with China as the possibility of an early resolution to the deadly tensions between the two neighbors fades

    • India is witnessing the return of a worrying trend of greater tolerance for loose lending and provisioning practices, which risks putting it on the same path that took Japan to the “lost decade” in the 1990s, former central banker Viral Acharya said
    • Leaders in India’s technology industry industry are urging the country to go even further to protect the interests of local companies against foreign rivals, or risk ceding the world’s fastest growing internet arena to Chinese and American monopolies
    • India is retiring the current benchmark 10-year debt just two months after it was issued, compared to about 12 months for earlier offerings, to make way for a new issuance
  • Indonesia’s budget deficit is set to widen to 5.2% of GDP next year, up from a previous estimate of 4.7%, as govt plans to keep up higher spending to counter impact of coronavirus pandemic on economy

    • Bank Indonesia’s unprecedented move to buy about $27 billion in bonds directly from the government may prove to be an exception rather than the norm in emerging markets
    • Demand for long-dated Indonesian bonds surged at an auction Tuesday, signaling robust offshore appetite amid easing concerns about the nation’s debt monetization plan
  • Thailand picked Sethaput Suthiwart-Narueput, a member of the Bank of Thailand’s Monetary Policy Committee, as central bank governor
    • Economy is seen contracting 8.5% this year after the coronavirus pandemic battered the nation’s tourism and manufacturing industries, according to the Finance Ministry
    • Thailand extended the country’s state of emergency for a fourth time, by one month through Aug. 31, an expected decision aimed at keeping the country’s Covid-19 count to one of the lowest in Asia
    • The Bank of Thailand’s plan to sever the link between gold trading and the baht may be a way to limit the currency’s gains without incurring the wrath of the U.S. over foreign-exchange manipulation
  • A Malaysia court has ruled former prime minister Najib Razak guilty in the first verdict to come in the series of trials linked to 1MD
    • Malaysia had a record trade surplus in June
    • Prime Minister Muhyiddin Yassin’s government continues to bolster its hold on power as the state of Sabah, previously held by the opposition, dissolved its local government after several state lawmakers defected
  • Philippine President Rodrigo Duterte pushed for corporate tax cuts and targeted support for pandemic-hit industries as part of a recovery plan
    • Philippine cabinet officials want the capital and nearby areas to be placed again under strict stay-home orders for 15 days starting August 3 as coronavirus cases rise more than fivefold to over 100,000
    • Duterte appointed Bruce Tolentino and Anita Linda Aquino to the seven-member rate-setting Monetary Board of the central bank
    • The Philippines will allow more businesses to restart, with the government forging ahead with opening the economy even as coronavirus cases doubled in July
    • The Philippine foreign minister sparked a diplomatic fight over Twitter by asserting ownership over the Malaysian state of Sabah on the island of Borneo, reviving a longstanding territorial dispute between the Southeast Asian nations
  • One board member of Taiwan’s central bank sees foreign-exchange gap with island’s primary export competitors the only reason to consider cutting borrowing costs, according to the minutes of the monetary authority’s June 18 meeting released Thursday
    • Taiwan’s GDP contracted 0.7% in the second quarter from the same period last year


  • Egypt is starting to claw back capital lost earlier during the global pandemic when foreign investors pulled more than half of their money from the local debt market
    • Egyptian President Abdel-Fattah El-Sisi said his country is committed to talks to resolve an impasse over the filling and operation of Ethiopia’s mega-dam on the Nile’s main tributary
    • The nation’s current-account shortfall narrowed to $2.8b in the first quarter from $4.5b a year earlier, thanks mainly to a decline in the non-oil trade deficit and remittances from workers abroad, the central bank says in a statement
  • Oman’s government has asked ministries to slow down projects and identify spending priorities as it looks to tackle the widest budget deficit among Gulf Arab economies
  • Lebanon may only count on the International Monetary Fund for as little as half the bailout it had originally sought to help unlock other assistance the country critically needs to bridge the crisis, according to a top official
    • The nation had its rating cut to the lowest grade by Moody’s Investors Service, which said that bond investors will likely suffer major losses on their holdings as the government struggles to secure aid to ease a crippling financial crisis
  • Israel’s military said forces from the Lebanese militant Hezbollah group infiltrated a volatile frontier area controlled by the Jewish state, where they exchanged fire with Israeli troops before retreating back into Lebanon
  • South Africa may introduce a debt limit in its budget, bowing to a suggestion proposed by the International Monetary Fund almost two years ago
    • The central bank will steer clear of policies that have failed throughout history as it continues supporting an economy devastated by the coronavirus pandemic, Governor Lesetja Kganyago said
    • South Africa lost more in tax revenue in the first three-and-half months of its fiscal year than it borrowed from the International Monetary Fund and the African Development Bank combined
    • South Africa’s trade surplus swelled to a record after eased lockdown restrictions allowed more exports, while demand for imports weakened
    • South Africa’s inflation rate rose for the first time in four months in June as restrictions on household consumption of goods and services were eased
    • Eskom Holdings SOC Ltd., South Africa’s indebted state-owned power utility, won a court case against the national energy regulator in a decision that will allow it to boost revenue from consumers
  • Ghana’s central bank held its benchmark interest rate for a second consecutive meeting as inflation expectations trended upward
  • Bank of Angola left its benchmark interest rate unchanged at 15.5%
  • Ethiopia plans to start setting a central bank benchmark interest rate and to introduce a floating exchange rate, according to National Bank of Ethiopia Governor Yinager Dessie
  • The head of Poland’s central bank said more action is possible as record daily jumps in Covid-19 infections loom over the European Union’s biggest eastern economy

    • Poland’s corporate bond market has again proved to be a minefield for retail investors as prosecutors investigate potential fraud at a real estate investment company with at least 531 million zloty ($142 million) of debt
  • Turkey’s banking regulator fined two lenders for breaching a rule introduced to boost credit to businesses suffering from the economic fallout of the coronavirus pandemic, BloombergHT reported, citing people familiar with the matter that the broadcaster didn’t identify
    • Turkey’s parliament gave authorities new powers to tighten their grip on social media, delivering on a pledge made by President Recep Tayyip Erdogan who’s complained of offensive postings
    • Turkey’s central bank surprised by raising its inflation projections for the end of this year by more than a percentage point, a sign it won’t rush to resume interest-rate cuts after a two-month pause
  • Belarus accused a Kremlin-linked military contractor of sending 200 fighters to destabilize the country ahead of Aug. 9 presidential elections in which longtime ruler Alexander Lukashenko is facing an unprecedented challenge
    • Russia plans to register a coronavirus vaccine by Aug. 10-12, clearing the way for what its backers say would be the world’s first official approval of an inoculation against the epidemic
    • Coronavirus subsidies that have helped mortgage lending grow at an “explosive” rate risk inflating a housing bubble in Russia, a deputy finance minister warned Tuesday

Latin America:

  • Argentina’s main bondholder groups said they represent more than 50% of the country’s overseas debt, potentially strengthening their bargaining power at a crucial time in the country’s bond restructuring talks
    • Argentina’s creditors have approached several international organizations to seek endorsement for a proposal to change the rules that govern some of the country’s overseas securities, according to people familiar with the matter
    • Country will seek a new program with the International Monetary Fund whatever the outcome of talks with bondholders, Economy Minister Martin Guzman said
    • Government said it will support “adjustments” to the terms of bond contracts that were adopted by the previous administration when it tapped global capital markets in 2016
    • Argentina’s province of Buenos Aires will wait for a resolution on the country’s debt talks before continuing discussions to restructure $7 billion of overseas bonds, according to people with direct knowledge of the matter
    • YPF SA, Argentina’s state-controlled oil firm, exchanged almost 60% of $1 billion of bonds due in March, reducing its immediate debt burden
  • A federal judge in New York denied a request by two U.S. investment firms for a temporary restraining order blocking Ecuador’s plan to restructure $17.4 billion in sovereign debt

    • Finance Ministry expects to announce the decision of bondholders on whether to support the proposal for restructuring on Aug. 3
  • Brazil posted a record budget deficit for a third month with the government poised to spend billions of dollars more going forward
    • Analysts lifted their 2020 growth estimates for the fourth straight week and country lost far fewer formal jobs than expected in June
    • Lawmakers are expected to resume discussions about the government tax reform bill this week; govt presented the first part of its proposal on July 21 and local media reports the second phase may include proposed changes to income tax
    • Lower House speaker Rodrigo Maia made a commitment with Brazilian companies representatives to create a working group to speed up law projects related to an environmental agenda
  • Economic paralysis in Mexico due to the pandemic contributed to a 10% decline in total tax revenue in June, pushing officials to forecast a wider budget deficit in 2020 by using a more realistic growth estimate for the year even as the Finance Ministry didn’t change its official forecast
    • Central bank deputy governor Gerardo Esquivel said there may be more than one interest rate cut in the pipeline for Mexico this year as policy makers have room to keep easing monetary policy
    • Mexico has overtaken the U.K. to become the country with the third-most deaths due to Covid-19, according to data released by the Health Ministry Friday night
    • Country unexpectedly posted its biggest-ever trade surplus in June
    • President Andres Manuel Lopez Obrador said he will consider reversing Mexico’s energy opening after 2021, stoking the worst fears of international oil companies that have invested billions in the country since the end of the state monopoly
    • Petroleos Mexicanos posted its narrowest quarterly loss in a year despite an unprecedented oil-market crash
  • Chilean President Sebastian Pinera overhauled his cabinet in an attempt to regain control over the ruling coalition, days after splits in the government paved the way for a pension law he bitterly opposed
    • Pinera announced in his annual address to Congress a public investment plan worth $34 billion for 2020-2022
    • Unemployment rate rose to the highest since 2010, while retail and industry slumped
  • Colombia was the latest Latin American country considering a plan to let workers tap private pension savings, a move intended to soften the slump in consumer spending
    • Country extended quarantine due to Covid-19 through Aug. 30
  • Peru plans a second round of cash handouts from August to October, President Martin Vizcarra said
    • Next year’s budget will be smaller than this year’s as a result of the economic crisis and drop in tax revenue, Finance Minister Maria Antonieta Alva said
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