Emerging Markets; What Has Changed

(from my colleague Dr. Win Thin)

Chinese President Xi has strengthened his grip on power. 
Mozambique said it is in “debt distress” and hired advisors for a debt restructuring. 
South Africa revised its macro forecasts in the Finance Ministry’s Medium-Term Budget Program.
Chile’s ruling center-left coalition lost municipal elections.

In the EM equity space as measured by MSCI, Poland (+3.2%), Chile (+3.1%), and Hungary (+0.9%) have outperformed this week, while the Philippines (-3.2%), Peru (-2.2%), and China (-1.9%) have underperformed. To put this in better context, MSCI EM fell -0.8% this week while MSCI DM fell -0.4%.

In the EM local currency bond space, Peru (10-year yield -2 bp), Malaysia (flat), and Chile (flat) have outperformed this week, while the Philippines (10-year yield +67 bp), Turkey (+23 bp), and Indonesia (+21 bp) have underperformed. To put this in better context, the 10-year UST yield rose 11 bp this week to 1.85%. 

In the EM FX space, CLP (+2.4% vs. USD), ZAR (+0.7% vs. USD), and THB (+0.3% vs. USD) have outperformed this week, while COP (-1.1% vs. USD), TRY (-1.0% vs. USD), and RUB (-0.9% vs. USD) have underperformed.

Chinese President Xi has strengthened his grip on power. The Chinese Communist Party (CPC) issued a communique calling on its members to “closely unite around the CPC Central Committee with Xi Jinping as the core.” While perhaps subtle, the wording is significant as it comes ahead of a government shuffle next year when 5 of the 7 Standing Committee members are due to retire. Xi will clearly consolidate his grip even further then.

Mozambique said it is in “debt distress” and hired advisors for a debt restructuring. Debt restructuring is a precursor for the IMF to resume aid to the country. Mozambique has already restructured so-called “tuna bonds” earlier this year. The government reportedly plans to reach an agreement with its creditors on a “debt-resolution proposal” in December, to be implemented in January.