EM Review: Last Year's Winning Run Extends to First Week of 2018

  • MSCI’s EMFX Index has rallied more than 20% from a year ago
  • Latam currencies lead world gains amid rising commodity prices

JPM's Santos on 2018 Emerging Markets Outlook

Emerging-market assets extended last year’s winning streak to the first week of 2018 as a weak dollar, low global yields and optimism over global growth boosted demand for developing-nation stocks and bonds.

The MSCI Emerging Markets Index of equities climbed 3.8 percent this week, its best performance since July, while the MSCI Emerging Markets Currency Index gained 0.9 percent. A Bloomberg Barclays index tracking the EM local-currency government bonds had its best week in almost six months.

Highlights for the week ended Jan. 5:

  • The Colombian peso was the best-performing currency during the week, rising 2.8 percent against the dollar, on the back of higher oil prices
  • North Korea accepted a proposal to hold talks with South Korea on Jan. 9 aimed at reducing tensions ahead of the Winter Olympics next month. Gains in the won, which reached a three-year high in the week, were partly driven by signs of an easing of tension between the two neighbors
  • Foreign funds piled into South Korean and Taiwanese stocks, buying more than a net $2 billion of equities from the two markets
  • MSCI’s emerging-market currency index extended an 11-day winning streak, up more than 20% from Jan. 2016 low.

Asia:

  • While China’s official PMI reading held up, purchasing manager indexes for manufacturing in Indonesia, Malaysia and South Korea dipped below 50, the dividing line between expansion and contraction, during December
  • South Korea’s central bank said it will take action if there are excessive one-sided currency moves, while it maintained its stance the spot rate should be market-driven
  • Bank of Thailand said its foreign-exchange market operations aren’t intended to create an unfair export advantage
  • The Philippines’s new tax law is expected to raise the inflation rate by 0.4-0.7 percentage points during the first year of implementation, with the impact tapering over time, President Duterte’s spokesman Harry Roque said. The peso had a fourth weekly gain on the back of the law

EMEA:

  • Angola said it was ready to scrap its dollar peg in a further sign of the new president’s commitment to an economic overhaul that may set the stage for IMF aid and a eurobond sale
  • Turkish banker Hakan Atilla was convicted of helping Iran evade U.S. financial sanctions after a month-long trial that threatens to strain relations between Turkey and the U.S. The lira weakened after the verdict
  • South African rand extended gains for a 6th straight week amid reports that the ruling ANC is to consider ousting President Jacob Zuma.

Latin America:

  • Argentina sold $9 billion of bonds and said demand totaled $21.4 billion. The nation’s peso extended losses this week amid unwinding of carry trade and risks of interest rate cuts after the central bank raised its inflation target last week.
  • Latin American currencies, aside from the Argentine peso, all advanced amid rising commodity prices. Chile’s peso rallied towards 600 this week, reaching the highest level since May 2015.
  • The privatization of Brazil’s state-owned utility Eletrobras remains a contentious subject among lawmakers within the ruling coalition after President Michel Temer signed a measure last week paving the way for the process.

Upcoming data:

Monday, Jan. 8TaiwanDec. trade balance
IndonesiaDec. foreign reserves
ChileDec. CPI, trade balance
HungaryNov. industrial production
TurkeyNov. industrial output
RomaniaInterest rate announcement
Tuesday, Jan. 9MexicoDec. CPI, international reserves
BrazilNov. retail sales
ArgentinaMonetary policy decision
Hungary Nov. trade balance
Wednesday, Jan. 10 ChinaDec. CPI
South
Korea
Dec. unemployment rate, Nov. industrial production
BrazilDec. IPCA Inflation 
PolandMonetary policy decision
HungaryCentral bank minutes
RussiaDec. CPI
Czech RepublicDec. CPI, 3Q GDP
Thursday, Jan. 11MalaysiaNov. industrial production
MexicoDec. consumer confidence
Peru Monetary policy meeting
South AfricaNov. manufacturing
RussiaWeekly gold and foreign reserves
Friday, Jan. 12RomaniaDec. CPI, 3Q GDP
IndiaDec. CPI, Nov. industrial production
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