Emerging Markets: What Changed - Friday, February 16

(from my colleague Dr. Win Thin)

The National Stock Exchange of India will end all licensing agreements and stop offering live prices overseas.

Philippine central bank cut reserve requirements for commercial banks.

Egypt cut rates for the first time since 2015.

Israeli police recommended that Prime Minister Netanyahu be charged.

South Africa President Zuma resigned before a no-confidence vote was held.

Brazil President Temer will issue a decree for the military to take control of security in the state of Rio de Janeiro.

Colombia hopes to start an oil hedging program.

In the EM equity space, as measured by MSCI, South Africa (+7.8%), China (+7.2%), and Russia (+6.8%) have outperformed this week, while Egypt (-1.9%), UAE (-1.2%), and India (flat) have underperformed. To put this in better context, MSCI EM rose 5.3% this week while MSCI DM rose 4.4%.

In the EM local currency bond space, South Africa (10-year yield -33 bp), Turkey (-11 bp), and Poland (-11 bp) have outperformed this week, while the Philippines (10-year yield +18 bp), Israel (+9 bp), and India (+9 bp) have underperformed. To put this in better context, the 10-year UST yield rose 1 bp to 2.86%.

In the EM FX space, RUB (+3.8% vs. USD), ZAR (+3.3% vs. USD), and COP (+3.0% vs. USD) have outperformed this week, while PHP (-1.4% vs. USD), ILS (-1.0% vs. USD), and CNY (-0.6% vs. USD) have underperformed.

The National Stock Exchange of India along with other Indian exchanges will end all licensing agreements and stop offering live prices overseas. MSCI noted that “If the changes are put into effect, the result will be disruptive and harmful to international institutional investors in Indian equities,” adding that India’s market classification could change unless the “restrictive measures” are removed.

Philippine central bank cut reserve requirements for commercial banks one percentage point to 19% effective March 2. Monetary Board Member Felipe Medalla said the bank will consider another reduction after assessing the impact of the first cut. The goal is to bring this requirement below 10% by the end of Governor Espenilla’s term in 2023, Medalla added. The bank said the move will free up PHP90 bln in liquidity, but stressed that it will mop up excess liquidity via its term deposit facility.