(from my colleague Dr. Win Thin)

In the EM equity space as measured by MSCI, Mexico (+3.8), Colombia (+2.9%), and the Russia (+2.3%) have outperformed this week, while China (-3.5%), Chile (-2.9%), and Thailand (-2.0%) have underperformed. To put this in better context, MSCI EM fell -1.7% this week while MSCI DM fell -0.6%.

In the EM local currency bond space, Brazil (10-year yield -25 bp), Mexico (-21 bp), and Peru (-13 bp) have outperformed this week, while Turkey (10-year yield +44 bp), Indonesia (+25 bp), and Argentina (+24 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 5 bp to 2.85%.

In the EM FX space, TRY (+2.1% vs. USD), MXN (+1.8% vs. USD), and RUB (+0.5% vs. USD) have outperformed this week, while ARS (-6.4% vs. USD), CLP (-2.2% vs. USD), and ZAR (-1.9% vs. USD) have underperformed. To put this in better context, MSCI EM FX fell -1.0% this week. 

PBOC fixed USD/CNY at the highest level since December 14. Despite rising concerns that China is purposely devaluing the yuan, we believe the recent weakness simply reflects broad-base EM FX weakness. To keep things in perspective, note CNY remains one of the top performers in EM at -2% YTD.   

Bank Indonesia delivered a larger than expected 50 bp to 5.25%. Most analysts expected 25 bp, though a handful looked for 50 bp. Though inflation remains low, the bank had hiked twice already to help support the rupiah. Governor Warjiyo said the move was meant to keep ahead of the curve. He added that the hikes will be supported by intervention in the FX and bond markets in order to ensure sufficient liquidity. We expect more hikes in H2

Bulgarian Prime Minister Boyko Borissov survived a second no confidence vote this year. The opposition called the vote over what it sees as the government’s failure to curb crime and boost the nation’s defense capabilities. The vote was 131-104 without any abstentions to reject the motion. This should allow the government to proceed with plans to adopt the euro.