EM Review: Risk Rally Eased on Stimulus Delays, Vaccine Hitches

(Bloomberg) -- The October rally in emerging-market stocks slowed last week as delays to a U.S. fiscal stimulus package and setbacks in Covid-19 vaccine trials reduced risk appetite. A warning from the International Monetary Fund that the world economy still faces an uneven recovery added to the somber mood.

The following is a roundup of emerging-market news and highlights for the week through Oct. 18:

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

Highlights:

• The chances of U.S. Congress passing a pre-election stimulus are all but gone, as Treasury Secretary Steven Mnuchin blamed politics for undermining the months-long negotiations
• The sprint to find medical breakthroughs to contain Covid-19 stumbled as a pair of pharmaceutical giants working to develop treatments and vaccines suffered setbacks in the clinic
• The IMF said the world economy still faces an uneven recovery until the coronavirus is tamed, even as it offered a less-dire view of this year’s recession
  • The pandemic will produce lasting shifts to global growth, pushing China even more to the forefront and well beyond the U.S., according to Bloomberg calculations using IMF data

• China drew bumper demand for a dollar bond sale, raising $6 billion

  • The offshore yuan tumbled the most in almost seven months on Monday after China’s central bank took steps to restrain the currency’s rally
  • Chinese domestic equities are worth more than $10 trillion for the first time since 2015
  • China is set to pass a new law that would restrict sensitive exports vital to national security, expanding its toolkit of policy options as competition grows with the U.S. over access to technologies that will drive the modern economy
• The world’s richest nations agreed to renew a debt-relief initiative for the poorest through at least the first half of 2021, falling short of a World Bank call for a full-year extension
• Argentina’s government is not going to devalue the peso, President Alberto Fernandez said amid widespread speculation on the issue
• India expanded its market borrowing plan for a second time this year to an unprecedented 13 trillion rupees ($177 billion), a move that’s likely to roil the nation’s bond market
• Indonesia’s central bank kept its policy rate unchanged as it uses other measures, such as government bond purchases, to help shore up the economy
• South Korea’s central bank left its key rate unchanged amid signs a resurgence of the coronavirus is waning and exports and inflation are picking up. Governor Lee Ju-yeol said it wasn’t time to consider full-scale quantitative easing
• Zambia skipped an interest payment on its debt, moving closer to becoming the first African nation to default on dollar bonds since the onset of the coronavirus pandemic
• The European Union is poised to blacklist six people and one entity in Russia over the attempted murder of opposition leader Alexey Navalny

Asia:

• China’s exports rose for the fourth month while imports surged, pointing to further recovery in the month for global trade and a robust domestic rebound

  • China has suspended purchases of Australian coal, according to people familiar with the order, as Beijing continues to tightly control imports of the fuel amid soured political relations between the two countries
  • China lashed out at Canada after Prime Minister Justin Trudeau vowed to stand up to Beijing’s “coercive diplomacy”
  • Hong Kong demanded the U.S. withdraw its pending regulation to label goods manufactured in the city as “Made in China,” expressing a “strong objection” to the requirement at a meeting of the World Trade Organization
  • Foreign investors bought Chinese bonds worth at least 140.5 billion yuan ($21 billion) in September, a sixth straight monthly increase
  • China’s central bank added more funds than expected to its banking system to support the economic recovery from the pandemic and assist companies to pay taxes due in the coming week
  • Demand for Chinese dollar bonds sank to the lowest level since a pandemic-induced sell-off roiled global credit markets in March, a sign of investor fatigue after a record order splurge
  • China’s consumer inflation slowed in September, driven by a moderation in food price gains

• India’s economic growth forecast was slashed further by the IMF, with the nation now facing the biggest contraction of major emerging markets

  • India’s consumer-price inflation accelerated more than estimated in September
• South Korea’s jobless rate jumped as businesses’ reluctance to resume hiring was strengthened by a resurgence of the coronavirus
• Indonesia overtook the Philippines in its number of coronavirus cases, becoming the country with the largest outbreak in Southeast Asia

• Thailand declared a state of emergency in the capital after tens of thousands of anti-government protesters surrounded the prime minister’s office demanding greater democracy and less power for the monarchy

  • Tens of thousands of anti-government protesters staged a rally for a second day in Bangkok on Thursday, defying a state of emergency
  • The Thai central bank will further ease rules on capital outflows by early next year to allow more flexibility in investing overseas to help lower pressure on the currency’s strength, according to Deputy Governor Mathee Supapongse
  • Thailand’s new Finance Minister pledged to shore up liquidity, boost consumption and government spending to revive an economy headed for its worst performance ever
• The largest party in Malaysia’s ruling coalition threatened to pull out unless it gets better terms, adding pressure on Prime Minister Muhyiddin Yassin to shore up his unstable government or call a snap election
• The Philippine government may borrow more from the central bank to help finance next year’s spending, Finance Secretary Carlos Dominguez said
  • Treasurer Rosalia de Leon said the government will scrap a plan to tap the Samurai bond market this year
  • The economy may contract 7%-9% this year before rebounding to a growth of 6.5%-7.5% in 2021-2022, central bank Governor Benjamin Diokno said
  • Filipinos working outside the country sent $2.48 billion home in August, down 4.1% from a year earlier and 11% less than in July
  • The House of Representatives on Friday approved next year’s 4.5 trillion-peso ($93 billion) budget bill
• Taiwan accused China of staging a “malicious political stunt” after Chinese state media said security agents had uncovered hundreds of spy cases in a mass dragnet
  • A Taiwan dollar that is stronger than 29 per U.S. dollar will not be the normal state of affairs in mid- to long-term, though it’s happening in the short-term, said central bank Governor Yang Chin-long
• Dollar bond sales in Asia surged to the most in nine months last week, giving yield-hungry investors plenty of options.

EMEA:

• Russian President Vladimir Putin “expressed serious concern” to Turkish leader Recep Tayyip Erdogan about the involvement of Middle East militants in fighting between Armenia and Azerbaijan over the disputed Nagorno-Karabakh region

  • Russia is going to miss its target of making 30 million doses of an experimental Covid-19 vaccine this year due to setbacks maintaining the serum’s stability while expanding production
  • Not everyone in Moscow is mourning the ruble’s 20% plunge against the dollar this year. The government minister in charge of getting companies to keep production at home thinks it’s “awesome”
  • The nation’s crude producers are looking to cut 2021 drilling as the pandemic threatens the recovery of prices and global demand, according to an independent oil-service provider

• Turkey’s central government budget swung to a deficit as an increase in spending outpaced revenues, driven by a surge in current transfers, which includes payments to the social security system

  • Two Turkish construction groups in a consortium that includes General Electric Co. started talks to restructure 900 million euros ($1.1 billion) of loans, the latest sign of corporate distress following a plunge in the local currency
  • The U.S. and Germany criticized a Turkish decision to send a survey ship back into contested waters in the eastern Mediterranean, saying the move complicates attempts to ease tensions between NATO members Greece and Turkey
  • Turkey’s current account remained in deficit for a ninth month as the trade balance deteriorated and the tourism slump deepened
• Hungary left its most watched rate unchanged for a third week even as the forint weakened, driven by concern over surging coronavirus cases
• Underlying price pressures in Poland jumped to the highest in almost two decades
  • The rate on Poland’s two-year zloty government bonds fell below zero for the first time

• The Czech Republic urgently needs to start building field hospitals and set up hotels and spas as emergency health facilities to help hospitals which may soon be over their capacity of treating Covid-19 patients

  • A weaker Czech koruna is helping exporters and easing monetary conditions, central bank board member Tomas Holub said
• Cash-strapped Oman is planning to introduce a delayed 5% value-added tax in April, following the lead of Gulf neighbors
  • Oman’s revenue and spending dropped during the first half of the year due to lower oil prices and the coronavirus pandemic
  • Oman’s credit rating was downgraded by S&P to B+ from BB-, outlook revised to stable from negative
• Qatar’s economy performed its worst since at least 2012 during the second quarter amid lockdown measures to combat the coronavirus
• National Commercial Bank, Saudi Arabia’s largest lender by assets, agreed to buy rival Samba Financial Group for $15 billion in the biggest banking takeover this year
• Business conditions in Dubai improved for the third month even as a renewed spike in coronavirus cases poses a threat to the city’s recovery
• South Africa won’t be able to meet its finance ministry’s debt targets and it may be undesirable for it to attempt to do so when the economy is being battered by the fallout from the coronavirus, according to an advisory panel appointed by President Cyril Ramaphosa
  • South African factory output contracted for a fifteenth month in August even as lockdown measures were eased
  • President Cyril Ramaphosa unveiled a plan to revive the economy, with job creation, increased infrastructure investment and enhanced energy security among its key tenets
  • South Africa’s National Treasury will fork out about 6 billion rand ($363 million) to extend a special relief grant for three more months
• Nigerian inflation accelerated for a 13th month on surging food prices driven by border closures and dollar restrictions as well as lower interest rates
  • Protests against police brutality continued in major cities across Nigeria, with demands evolving beyond ending police excesses to calls for good governance across the board
• Ghana’s inflation rate fell for a second month as food-price growth cooled
• Mozambique published its proposed model for a sovereign wealth fund as it prepares to reap as much as $96 billion from liquefied natural gas projects
• The clock is ticking for Zambia to convince reluctant bondholders to accept an interest-payment holiday while it works out a debt-restructuring strategy
• Zimbabwe’s economy is forecast to rebound in 2021 as the country shrugs off the effects of the coronavirus pandemic, Finance Minister Mthuli Ncube said

Latin America:

• Argentina’s inflation accelerated as the economy reopened and as stricter currency controls failed to stabilize the peso; a cut in taxes on leading exports also failed to trigger the wave of dollar sales needed to support the currency
  • Argentina will change course on capital controls for the parallel foreign exchange rate, Economy Minister Martin Guzman said, without being more specific
  • Negotiators for the IMF plan to return to Argentina next month to kickstart talks on a new funding program after a record $56 billion package failed to prevent a default
  • Argentina established a program that will grant financial aid to some companies that present plans to restructure their debt
  • Weeks after Argentina’s central bank said it was ditching a policy of uniform daily devaluations, it spent hundreds of millions of dollars to maintain that strategy
  • Argentina’s ruling coalition is showing signs of strain just 10 months into power, further complicating the nation’s challenge to dig itself out of a deep recession while President Alberto Fernandez’s popularity dives
• Brazil’s economic activity index expanded 1.06% in August, compared with the 1.7% estimate
  • The government is mulling a smaller social program as it struggles to make it fit in next year’s budget, Folha de S. Paulo reported
  • Brazil’s Lower House Speaker Rodrigo Maia said he is discussing with Economy Minister Paulo Guedes the creation of a new tax; Guedes said taxes on digital transactions were discussed by G-20 representatives
• Mexico’s ruling Morena party risks rupture after the two main candidates in an internal leadership contest exchanged accusations that the other is trying to illegitimately take over the movement
  • President Andres Manuel Lopez Obrador said he won’t interfere in the leadership struggle within his party
  • Mexico’s economy is performing close to the central bank’s most optimistic scenario of an 8.8% contraction in 2020, Governor Alejandro Diaz de Leon said
  • Mexico and the U.S. agreed to extend border closure for another month
• Chile’s central bank held its benchmark rate unchanged at a record low amid a sluggish economic recovery as the government lifts quarantine restrictions in more cities
  • Chile’s credit rating was downgraded one notch by Fitch Ratings as public spending and debt soared following a wave of social unrest last year and the coronavirus lockdown
• A Peruvian congressional committee approved a bill allowing a second round of early withdrawals from private pension accounts
  • An economic activity index shrank 9.8% in August from the same period last year and the unemployment rate rose to 16.5% in September
• Colombia will bring $5.3 billion from its International Monetary Fund credit line into the country gradually to avoid causing turbulence in currency markets
• Venezuela’s opposition-led National Assembly is reviewing a draft for new legislation that will allow private companies to trade fuels in the country
• Members of the Paris Club, an informal group of rich nations, are close to suspending Cuba’s debt obligations for this year, in a move that defies U.S. attempts to block any financial relief to the communist island
• Vote-counting has started Bolivia’s in presidential and congressional elections with the socialist movement seeking a return to power
  • Four of the five members of Bolivia’s central bank board quit one day after the government appointed Agustin Saavedra as its new president, Pagina Siete reported, citing resignation letters written by the policy makers

©2020 Bloomberg L.P.