Emerging Markets: What Has Changed

Emerging Markets: What Has Changed – Friday, Sept. 1

Sep 01, 2017Jeremy ParkinsonFinance0

(from my colleague Dr. Win Thin)

India Prime Minister Modi has started a cabinet shuffle.

Freeport McMorAn ceded control of the world’s second largest copper mine to the Indonesian government.

Central Bank of Russia took over Bank Otkritie, once Russia’s largest private bank.

Kenya’s top court nullified last month’s presidential election.

Fitch cut Qatar’s rating by one notch to AA- with negative outlook.

Chile’s economic team saw a big shake-up.

Banco de Mexico boosted its growth forecasts in the latest quarterly inflation report.

In the EM equity space, as measured by MSCI, Egypt (+4.8%), Russia (+4.1%), and Thailand (+3.0%) have outperformed this week, while Czech Republic (-1.5%), Mexico (-1.5%), and Indonesia (-1.3%) have underperformed. To put this in better context, MSCI EM rose 0.6% this week while MSCI DM rose 1.1%.

In the EM local currency bond space, Brazil (10-year yield -16 bp), Russia (-11 bp), and Indonesia (-9 bp) have outperformed this week, while Argentina (10-year yield +29 bp), Hungary (+8 bp), and Korea (+4 bp) have underperformed. To put this in better context, the 10-year UST yield fell 3 bp to 2.13%.

In the EM FX space, RUB (+1.8% vs. USD), CLP (+1.7% vs. USD), and CNY (+1.4% vs. USD) have outperformed this week, while MXN (-1.1% vs. USD), cop (-0.7% vs. USD), and ARS (-0.3% vs. USD) have underperformed.

India Prime Minister Modi has started a cabinet shuffle. Several minor ministers have already resigned, including Skill Development and Agriculture. Popular discontent appears to be rising as the economy struggles ahead of state elections this year, with Q2 growth coming in at a disappointing 5.7% y/y. This was the lowest since Q1 2014, and calls into question the FY2017/18 target of %.

Freeport McMorAn ceded control of the world’s second largest copper mine to the Indonesian government. Freeport agreed to reduce its stake in the Grasberg copper and gold mine to 49% (from over 90% currently) in exchange for operating rights lasting until 2041. It’s unclear how long the company will retain operational control. Nor is it clear how much it will be paid by the government for giving up its majority stake.