Emerging Markets: What Changed – Friday, April 13

(from my colleague Dr. Win Thin)

In the EM equity space as measured by MSCI, Colombia (+5.5%), Hong Kong (+2.7%), and Mexico (+2.6%) have outperformed this week, while Russia (-11.6%), Turkey (-4.5%), and Brazil (-2.3%) have underperformed.  To put this in better context, MSCI EM rose 0.6% this week while MSCI DM rose 1.8%. 

In the EM local currency bond space, Brazil (10-year yield -12 bp), Indonesia (-6 bp), and Colombia (-4 bp) have outperformed this week, while Argentina (10-year yield +24 bp), Russia (+22 bp), and India (+21 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 1 bp to 2.82%. 

In the EM FX space, COP (+3.6% vs. USD), CLP (+1.5% vs. USD), and MXN (+1.0% vs. USD) have outperformed this week, while RUB (-6.4% vs. USD), BRL (-1.6% vs. USD), and TRY (-1.3% vs. USD) have underperformed.  To put this in better context, MSCI EM FX fell -0.3% this week. 

Hong Kong Monetary Authority intervened to defend the HKD peg. This is the first time that it has had to intervene at the band limit since the trading band was put in place back in 2005. The other shoe to drop was a rise in HK money market rates, as HKD liquidity is drained from the system by the intervention. This is the way it’s supposed to work, so no concerns whatsoever about the peg. 

Moody’s upgraded Indonesia by a notch to Baa2 with a stable outlook. The agency cited an increasingly credible and effective policy framework as the major factor behind the move, as it will contribute to greater macroeconomic stability. This brings Moody’s in line with Fitch, which upgraded Indonesia back in December. Note that our own sovereign ratings model showed its implied rating rising a notch last quarter to BBB+/Baa1/BBB+ so actual ratings of BBB-/Baa2/BBB still enjoy some upgrade potential. 

Monetary Authority of Singapore tightened policy by adjusting the slope of its S$NEER trading band up “slightly” from zero previously. About 2/3 of analysts polled expected the move. It noted that the “measured adjustment” takes trade risks into account, but its cautiousness is justified. Singapore also reported advance Q1 GDP growth of 4.3% y/y, as expected. CPI rose 0.5% y/y in February. While the MAS does not have an explicit inflation target, we think low inflation and high global trade tensions warrants caution for now.