Emerging Markets: What Changed - Friday, August 10

(from my colleague Dr. Win Thin)

Moody’s upgraded Vietnam one notch to Ba3 with stable outlook.

The National Bank of Romania delivered a dovish surprise.

US State Department announced new sanctions on Russia for its nerve gas attack.

Central Bank of Russia said it may reduce its volume of daily FX purchases under the budget rule in order to help reduce FX volatility.

US President Trump added fuel to the fire by announcing increased tariffs on Turkish imports.

Turkey tweaked foreign currency reserve requirements for commercial banks.

S&P upgraded Israel a notch to AA- with stable outlook.

A widening graft probe in Argentina is raising concerns.

In the EM equity space as measured by MSCI, Hong Kong (+2.2%), China (+1.9%), and Indonesia (+1.6%) have outperformed this week, while Brazil (-8.4%), Russia (-7.5%), and Chile (-5.0%) have underperformed. To put this in better context, MSCI EM fell -1.0% this week while MSCI DM fell -0.7%.

In the EM local currency bond space, Indonesia (10-year yield -13 bp), Israel (-9 bp), and Korea (-8 bp) have outperformed this week, while Turkey (10-year yield +266 bp), Brazil (+41 bp), and Russia (+35 bp) have underperformed. To put this in better context, the 10-year UST yield fell 11 bp to 2.88%.

In the EM FX space, IDR (+0.1% vs. USD), EGP (+0.1% vs. USD), and CZK (+0.1% vs. EUR) have outperformed this week, while TRY (-20.1% vs. USD), ARS (-5.9% vs. USD), and RUB (-5.7% vs. USD) have underperformed. To put this in better context, MSCI EM FX fell -0.9% this week.

Moody’s upgraded Vietnam one notch to Ba3 with stable outlook. The agency cited strong growth potential and improvements in the health of the banking sector. Moody’s added that the upgrade was “underpinned by strong growth potential, supported by increasingly efficient use of labor and capital in the economy.” Our own sovereign ratings model has Vietnam at BBB-/Baa3/BBB- and so further upgrades are warranted to actual ratings of BB-/Ba3/BB.