(Bloomberg) — Investors aren’t rushing to buy the dip as U.S.-China trade tensions escalate.
The results of India’s elections are due this week, South Africa will decide on interest rates and Argentinian investors will be able to react to Cristina Fernandez de Kirchner’s surprise decision to run as a vice-presidential candidate, potentially adding volatility to an asset class already famed for its erratic behavior.
“Some interesting opportunities are beginning to present themselves in some spots of the EM universe, but over the coming weeks it feels like caution is warranted,” said Paul Greer, a London-based money manager at Fidelity International, whose emerging-market debt fund has outperformed 98 percent of peers this year after reducing risk in recent months.
Developing-nation currencies relinquished all of their 2019 gains amid growing pessimism over the prospect of a trade deal between the world’s two largest economies, while stocks and local-currency bonds fell to the lowest level since January. Carry-trade returns from eight emerging markets funded by short positions in the dollar slid below its 200-day moving average on Friday, heralding further declines.
“For now we are being patient, observing the U.S-China trade negotiations and price action in core rates and equities, and biding our time,” said Greer.
Central Banks on Hold
The ANC’s re-election is set to lay the groundwork for another dovish statement from the South African Reserve Bank, according to Bloomberg EconomicsWhile there’s a chance of a few dissenting votes in favor of cutting rates, the central bank will likely remain on hold this yearPolicy makers in Nigeria, Egypt and Zambia are also set to maintain their benchmark rates this week, according to Bloomberg Economics. Israel will also hold its main rate, according to analyst forecasts compiled by Bloomberg
Modi’s Fate
The last phase of India’s marathon election ended on Sunday and will determine whether Prime Minister Narendra Modi — whom investors view as a relatively pro-business leader — gets a second term. The results will be announced on ThursdayThe rupee’s one-week implied volatility against the dollar more than doubled last week to the highest level since 2014“We continue to consider this a close-to-call election, though our baseline remains one of the Modi administration clinging on to the power for the second term,” Prakash Sakpal, an economist at ING Groep NV, wrote in a May 16 note“We believe the markets also are priced in for such an outcome,” given the outperformance of the rupee since FebruaryREAD: Fears of Poll ‘Bolt From the Blue’ Has India Markets WorriedREAD: It’s Started! Your Guide to India’s Marathon Election
Turkey Turmoil
President Recep Tayyip Erdogan ruled out U.S. demands that Turkey delay the purchase of an advanced Russian missile-defense system, and said Moscow may even bring forward the delivery date from JulyPushing ahead with the deal carries a high risk of U.S. sanctions that could plunge Turkey into renewed economic turmoil READ: Why Russian Missiles Divide Turkey and the U.S.The lira is the worst performer in emerging markets this year after Argentina’s peso
Kirchner’s Surprise
Cristina Fernandez de Kirchner will run as a vice-presidential candidate in Argentina’s upcoming elections, stunning many who believed she’d positioned herself to return to the top jobKirchner, 66, will run on the same ticket as Alberto Fernandez, a veteran politician and her late husband’s former cabinet chief, she said in a message broadcast Saturday on her official YouTube channelThe prospect of her return, and potential reversal of President Mauricio Macri’s pro-business stance, put financial markets on edgeArgentina will release an activity index on Wednesday that will probably show the economy contracted in March after growing for three months. The numbers could challenge Macri’s election-year push to convince voters that the economy is turning around
Other Events and Data
Brazil Vice President Hamilton Mourao visits China this week to meet President Xi Jinping and other leading officials, aiming to reestablish a relationship dented by President Jair Bolsonaro’s negative remarks about the Chinese during his campaign last yearBolsonaro faces an increasingly tough domestic situation amid nationwide protests, political tension and shrinking growth estimates. The real underperformed developing-nation peers last week, falling on Friday to the lowest in eight monthsZimbabwe will supply the interbank foreign exchange market with $500 million on Monday as its tries to resuscitate a currency trading system implemented in February that’s been plagued by a lack of liquidityThai lawmakers will soon meet to pick a prime minister after a disputed election in March. The newly-elected parliament will convene on WednesdayThailand, Taiwan, Peru and Chile will release GDP figures for the first quarter. Mexico will post final GDP data for the period
–With assistance from Tomoko Yamazaki, Lilian Karunungan, Nupur Acharya, Alec D.B. McCabe and Julia Leite.
To contact the reporters on this story: Netty Ismail in Dubai at [email protected];Karl Lester M. Yap in Manila at [email protected];Justin Villamil in Mexico City at [email protected]
To contact the editors responsible for this story: Dana El Baltaji at [email protected], Shaji Mathew
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