Emerging Markets
1. Let’s begin with emerging economies where Gulf-based bank shares are seeing sharp declines. One of the reasons for the sell-off is the loss of bank deposits.
The correction is not limited to Saudi Arabia as Abu Dhabi banks also come under pressure – pushing the nation’s overall stock market lower.
Elevated Saudi interbank borrowing rate (LIBOR equivalent) shows how these bank withdrawals ended up tightening liquidity.
2. The Turkish lira hit another record low against the dollar on US rate hike expectations.
3. Russia’s economy is facing a setback as the nation’s industrial production contracts again.
Moreover, as the oil rally stalls, Russian bond yields are on the rise.
4. Of course, Russia is not the only EM country heavily exposed to commodity prices. Colombia’s budget is under pressure due to declines in oil revenue.
Source: Deutsche Bank, @NickatFP, @joshdigga
5. This next chart shows commodity exposure across developing economies.
Source: HSBC, @NickatFP, @joshdigga
6. In other developments, Indian banking system’s non-performing loan balances have risen significantly in recent years.
Source: Goldman Sachs, @NickatFP, @joshdigga
7. Philippine government bond yields are on the rise as investors pull back. Rodrigo Duterte’s policy pivot away from the US is popular domestically, but it makes international investors uneasy.
8. Inflation across emerging economies has been moving lower. However, given the Fed’s expected action, monetary policy easing in some countries may be limited.
Source: HSBC, @NickatFP, @joshdigga
9. Brazilian and Argentinian stock markets have been on fire as investors bet on growth under the new governments.
China
1. Turning to China, the nation’s bond yields have been declining recently as foreign investors step in. Here is the 2yr government bond yield.
2. This next chart shows rising offshore interest in China’s fixed income.
