EM Review: Vaccine-Led Rally Eased as Infection Numbers Surged

(Bloomberg) -- Emerging-market stocks and currencies posted a second week of gains last week as news of a vaccine breakthrough added to optimism fueled by the outcome of the U.S. elections. Gains were tempered as the week went on by a surge in global coronavirus infections. Central banks said a vaccine won’t end the economic problems caused by the pandemic.

The following is a roundup of emerging-market news and highlights for the week through Nov. 15:

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Highlights:

• Almost a year into the coronavirus pandemic, the world received a burst of good news, with a vaccine developed by Pfizer Inc. showing “extraordinary” results, while an antibody therapy from Eli Lilly & Co. was granted emergency-use authorization in the U.S.
  • California passed the milestone of 1 million infections as the U.S. Centers for Disease Control and Prevention said almost no part of the country is being spared in the surge. Japan saw a record number of infections
  • Brazil reversed its decision to suspend trials of a coronavirus vaccine from Chinese developer Sinovac Biotech Ltd., allowing tests to resume less than 48 hours after being halted amid criticism the initial pause was politically motivated
  • Three of the world’s top central bankers said the prospect of a Covid-19 vaccine isn’t enough to put an end to the economic challenges created by the pandemic
• U.S. President-elect Joe Biden is moving ahead with plans to address the pandemic and shape his incoming administration. Biden said Donald Trump’s refusal to accept the result of the election was an “embarrassment”
  • China congratulated Biden and Kamala Harris on winning the U.S. presidential election, ending days of speculation about when Beijing would formally acknowledge the victory
• Secretary of State Michael Pompeo said the U.S. isn’t finished yet when it comes to getting tough on China, with just over two months left in the Trump administration. Trump signed an order prohibiting U.S. investments in Chinese firms determined to be owned or controlled by the country’s military
  • The U.S. has imposed sanctions on four more officials accused of undermining Hong Kong’s autonomy, showing the Trump administration is ready to keep hitting out at China
• Chinese technology giants from Alibaba Group Holding Ltd. to Tencent Holdings Ltd. lost almost $260 billion of market value over two days of selling on jitters over the fallout from Beijing’s attempt to rein in its most powerful private-sector firms
• China’s top legislative body passed a resolution allowing for the disqualification of any Hong Kong lawmakers who aren’t deemed sufficiently loyal. Chief Executive Carrie Lam’s government immediately banished four legislators, prompting the remaining 15 in the 70-seat Legislative Council to resign en masse hours later
• Turkish President Recep Tayyip Erdogan signaled a cease-fire with international investors, pledging to support his new economic managers with market-friendly policies
  • Turkey’s new central bank governor has told lenders he will offer clearer guidance on monetary policy, according to people with direct knowledge of the conversations
• Peru’s President Martin Vizcarra was forced out of office when congress unexpectedly voted to impeach him, plunging the nation into a political crisis
  • Manuel Merino assumed the presidency following the impeachment of Vizcarra, but resigned on Sunday. Lawmakers then rejected a proposal to appoint Rocio Silva, a human rights activist, to replace him
  • Peru’s central bank kept borrowing costs at an all-time low to bolster an economic recovery that’s threatened by the political turmoil and the pandemic
• Russia is locking in lower borrowing costs in the wake of Joe Biden’s U.S. election victory, kicking off its first dual-tranche sale of euro-denominated bonds. Russia said foreigners bought about 60% of the securities
• Zambia is squaring up for a bruising encounter with foreign bondholders after saying it can’t pay interest on one of its Eurobonds, making it Africa’s first sovereign default since the coronavirus pandemic struck. Holders of the Eurobonds rejected a request to suspend interest payments for six months
• Mexico’s central bank surprised analysts by holding its benchmark rate at a four-year low, curtailing a record monetary easing cycle as inflation remains above target
• Asia Pacific nations including China, Japan and South Korea signed the world’s largest regional free-trade agreement, encompassing nearly a third of the world’s population and gross domestic product
• Poland joined Hungary in threatening to veto the European Union’s 1.8 trillion-euro ($2.1 trillion) budget over the bloc’s efforts to make sure funds only go to countries that adhere to democratic standards
• Investors added the most money to emerging-market exchange-traded funds in 10 months as Joe Biden’s victory in the U.S. election boosted investor appetite for risk assets

Asia:

• China indicated that it wants Australia to improve strained relations, saying Canberra should know what needs to be done to get ties back on track
  • At least 20 giant bulk carriers are anchored off the Chinese port of Jingtang and unable to offload millions of tons of Australian coal, the latest casualty of the diplomatic row between Canberra and Beijing
  • China’s consumer inflation threatens to drop below zero in coming months as pork prices reverse trend from last year’s surge
  • The default of a Chinese coal miner has triggered concern over the health of state-owned firms and their lenders
• Foreign investors have returned to South Korea, helping to boost the value of the nation’s stock market to a record $1.5 trillion amid optimism U.S. policies will become more predictable under a new leader
  • Biden assured the leaders of Japan and South Korea of his commitment to alliances with the two Asian nations, signaling he will pursue a markedly different strategy from Donald Trump
  • The nation’s labor market took a turn for the worse in October, with the jobless rate rising and employment falling by the most in six months

• India increased stimulus measures to rescue companies and save jobs. The additional steps amount to about 9 trillion rupees ($121 billion), taking the nation’s total virus relief to almost 30 trillion rupees

  • Retail inflation accelerated to 7.6%, the highest level in more than six years in October, boosting the chances that policy makers will keep interest rates on hold for longer
  • India approved an incentive program of 1.46 trillion rupees to attract companies to set up manufacturing in the nation
  • Prime Minister Narendra Modi’s party, which is in coalition with the ruling alliance in Bihar, retained control of the eastern state after an election battle that went down to the wire
• Indonesia is banking on a 75-trillion rupiah ($5.3 billion) wealth fund to replenish state coffers and attract foreign direct investment into its economy
• Germany has found no evidence that Thailand’s King Maha Vajiralongkorn has done anything illegal while living there, the German Press Agency DPA said, citing a Foreign Ministry statement
  • Thailand’s government wants the central bank to temper a rally in the baht, which is threatening efforts to boost exports to balance a slump in tourism revenue, according to Finance Minister Arkhom Termpittayapaisith
  • Thailand is better placed to weather the economic crisis triggered by the coronavirus pandemic than the Asian financial crisis as the nation’s key financial indicators are stronger, according to central bank Governor Sethaput Suthiwart-Narueput

• Malaysia’s economy contracted at a slower pace in the third quarter, rebounding from a decades-low fall as looser restrictions on movement boosted most sectors

  • Malaysia’s 2021 budget may not have an easy passage through parliament unless the government makes changes to its spending plan, opposition leader Anwar Ibrahim said
  • The country will rely on local borrowings to finance next year’s record 323 billion ringgit ($78 billion) spending plan, Finance Minister Tengku Zafrul Abdul Aziz said
• The Philippines’ economic contraction moderated in the third quarter by less than forecast, signaling an unsteady recovery from the pandemic
  • The government will borrow $300 million to finance the purchase of coronavirus vaccines, President Rodrigo Duterte said
  • The country shut financial markets and government offices for a day as Typhoon Vamco barreled into the main Luzon island
• Taiwan exports grew at the fastest pace since February, defying concerns U.S. sanctions on Huawei Technologies Co. would hurt trade
• Myanmar’s ruling party led by Aung San Suu Kyi has won enough parliamentary seats to retain power in the nation’s second election since the end of military rule a decade ago, officials results showed

EMEA:

• Turkey’s current account remained in deficit for a 10th month amid a deterioration in trade balance and tourism
  • The nation made it easier for foreign investors to access lira funding, a move that’s aimed at undoing some of the restrictions imposed over the last two years
• After pandemic measures triggered the biggest economic declines in living memory across most of eastern Europe, the region snapped back into action. Hungary’s gross domestic product posted the biggest quarterly gain from July to September, jumping 11.3% from the previous three-month period that saw a record 14.6% plunge. Poland, Romania, Slovakia and Bulgaria also posted big quarterly gains
• Hungary capped its busiest year of Eurobond sales yet by selling benchmark-sized Eurobonds to help prefinance debt maturing in 2021 as global risk appetite rebounds.
  • In a rush of legislative activity, Hungarian Prime Minister Viktor Orban’s government moved to change the electoral law, enshrine Christian religious doctrine on gender and marriage in the constitution, temporarily ban demonstrations, revamp court procedures and loosen rules governing public funds
• Pressure is growing on Poland’s Prime Minister Mateusz Morawiecki to oppose the European Union’s budget proposal that links access to the bloc’s funds with maintaining the rule of law
• Croatia’s long-term foreign debt rating was upgraded by Moody’s to Ba1, one level below investment grade
• Romania unexpectedly trimmed reserve requirements for banks to counter renewed economic damage being wrought by a second wave of Covid-19 infections
• Egypt cut interest rates for a second meeting, seeking to give a boost to local businesses battling the impact of the coronavirus
• The United Arab Emirates was assigned the fourth-highest investment grade at Fitch Ratings as the nation prepares to issue a federal bond for the first time
• Oman is seeking to raise money off the back of its largest oil block, as the cash-strapped Gulf nation looks for new ways to tame its budget deficit and steady a reeling economy
• Kuwaiti companies will enter the emerging-market stocks benchmark compiled by MSCI Inc. this month. But you would barely know it looking at the main local equities index
• Saudi Arabia’s outlook was cut to negative from stable by Fitch Ratings as the coronavirus pandemic and lower oil prices clobber the kingdom’s finances
• Bahrain’s Prime Minister Sheikh Khalifa Bin Salman Al Khalifahas died, the state-run Bahrain News Agency reported, citing the nation’s royal court. The nation named Crown Prince Salman Bin Hamad Bin Issa Al Khalifa as the country’s new prime minister

• South Africa plans to introduce a new short-dated bond to help lower government borrowing costs by lessening dependence on more expensive long-term debt, National Treasury officials said

  • The nation’s official unemployment rate returned to a 17-year high in the third quarter as the easing of a coronavirus lockdown allowed more people to look for work
  • Almost three years after he won control of South Africa’s ruling party, President Cyril Ramaphosa is moving to cement political control and gaining greater leeway to implement unpopular budget cuts and drum up international investment
• Zimbabwe plans to select a financial adviser by Christmas to help it raise $3.5 billion to compensate White farmers it violently evicted from their land two decades ago, Finance Minister Mthuli Ncube said
• Ivory Coast President Alassane Ouattara and his main political rival began talks to ease tensions over last month’s disputed election in the world’s top cocoa producer
• Ghana’s inflation rate dropped for a third month in October, inching closer to the central bank’s target range
• Nigeria’s naira has fallen to its weakest level in six weeks in informal trading as the central bank’s interventions in the official window failed to meet demand

Latin America:

• Thousands of Peruvians took part in marches nationwide amid growing public anger over the ouster of President Martin Vizcarra by the opposition in congress
  • Peru’s interim president Manuel Merino, who eventually resigned Sunday, named technocrat Jose Arista as finance minister, and defense minister Antero Flores-Araoz as cabinet chief
• Brazil’s government has given up on plans to create a new social program this year and local media reported officials are now mulling the possibility of boosting the current Bolsa Familia cash transfer program
  • Economy Minister Paulo Guedes vowed fiscal control, saying Brazil wouldn’t spend as much as it did this year if the country were to battle a second coronavirus wave
  • The central bank’s economic activity index, a proxy for GDP, rose 9.47% in the July-September period compared to the previous three months
  • Food costs drove Brazil’s fastest inflation rate for October since 2002, while retail sales disappointed in September after the government started to cut back on emergency aid
  • Candidates backed by President Jair Bolsonaro in Brazil’s main capitals were defeated or had a weak performance at Sunday’s municipal elections, underscoring limits to the political influence of the Brazilian leader
• Mexico’s consumer prices rose 4.09% in October from a year earlier, holding above the official target range
  • Mexico’s central bank wants to better evaluate the recent increase in the country’s inflation rate before considering a further reduction to its benchmark interest rate, Governor Alejandro Diaz de Leon said
• Argentina will ask the International Monetary Fund for an extended fund facility program as it seeks to delay paying the $44 billion that it owes to the multilateral organization, Economy Minister Martin Guzman said
  • Bondholders accepted the City of Cordoba’s request to restructure debt
  • Argentina hiked interest rates after consumer prices surged at the fastest pace this year
  • Argentina’s Chubut reached an agreement in principle with majority of bondholders, making it the country’s second province to reach a debt deal after the national government restructured $65 billion
• Colombia’s retail sales fell 0.8% in September from the previous year, much less than the slump of 9.3% estimated by analysts; manufacturing production fell 3% vs. -4% forecast
  • Nation lowered its 2020 GDP estimate and now expects a 6% to 7% contraction, compared with a previous estimate of a 5.5% drop
  • Colombia’s finance ministry widened its forecast for the 2020 fiscal deficit to 8.9% of GDP from 8.2%
• Chile’s Chamber of Deputies approved a second withdrawal of 10% of pension funds this year, sending the bill to the Senate
  • The ​​​​peso led losses among emerging-market peers on Friday after a local research company changed its recommendation on pension savings, advising people to move their money into more risky assets
• Voters in Belize elected opposition candidate John Antonio Briceno as Prime Minister; People’s United Party won 26 out of 31 seats in the country’s national assembly
• Ecuador’s Finance Ministry is considering issuing an external bond whose proceeds would be used to supply liquidity to the private sector, Finance Minister Mauricio Pozo said

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