Emerging Markets: What Has Changed - Friday, April 28

(from my colleague Dr. Win Thin)

Moody’s moved the outlook on Vietnam’s B1 rating from stable to positive.

Nigeria’s central bank introduced a new FX window for portfolio investors.

Moody’s moved the outlook on Romania’s Baa3 rating from positive to stable.

Central Bank of Russia accelerated its easing cycle.

Central Bank of Turkey delivered a hawkish surprise.

Brazil’s lower house easily approved the labor reforms, but popular resistance is rising.

In the EM equity space as measured by MSCI, Poland (+5.0%), Korea (+3.0%), and South Africa (+2.9%) have outperformed this week, while Colombia (-3.3%), Chile (-3.3%), and Egypt (-2.4%) have underperformed. To put this in better context, MSCI EM rose 1.6% this week while MSCI DM rose 2.1%.

In the EM local currency bond space, Czech Republic (10-year yield -16 bp), Colombia (-13 bp), and Russia (-10 bp) have outperformed this week, while Brazil (10-year yield +26 bp), Argentina (+16 bp), and South Africa (+6 bp) have underperformed. To put this in better context, the 10-year UST yield rose 5 bp to 2.30%.

In the EM FX space, TRY (+2.6% vs. USD), MYR (+1.3% vs. USD), and ILS (+1.3% vs. USD) have outperformed this week, while COP (-2.7% vs. USD), CLP (-2.0% vs. USD), and BRL (-1.8% vs. EUR) have underperformed.

Moody’s moved the outlook on Vietnam’s B1 rating from stable to positive. The agency said the main factors for the move were strong FDI inflows coupled with ongoing economic reforms, which is seen leading to continue macroeconomic stability. An upgrade is long overdue, as both S&P and Fitch already have Vietnam at BB-.

Nigeria’s central bank introduced a new FX window for portfolio investors. Some foreign purchases of NGN through this window have reportedly been executed at a rate above 400 per USD, which is well above both the official (315) and black market (385) rates. This is a good sign. Governor Emefiele said the bank will let the market determine the exchange rate, though we believe it will still be managed when needed.