When to buy EM debt

Real yields are much higher in EM vs DM, and the spread is the widest in 20 years. Source: Bloomberg, Macrobond, Variant Perception With many EM central banks committing to hiking cycles and front-loading rate hikes to combat surging inflationary pressures, nominal...

Food Inflation Tailrisks

Food prices are correlated with EM inflation surprises. The current surge in soft grain prices should be monitored in case it spills over into general inflation expectations Food inflation can have outsized impacts on inflation expectations due to the higher frequency...

Brazilian Real Pressures Starting to Ease

A rebound in economic activity and near-term stabilisation in the fiscal accounts has alleviated pressure on the Brazilian real Although the economic outlook in Brazil remains shrouded in uncertainty as the Covid pandemic continues to rage, pressures on the currency...

Turkey and Hungary’s Harbinger Hikes

Given the scale of demand destruction in the wake of the global health pandemic, central banks should be nowhere near tightening monetary policy. For those that are, policy rate hikes are indicative of intensifying currency stresses and risks of a destabilising...

Inflationary Build-up in EMs

As has been the case in developed markets, policymakers in emerging markets have been quick to deliver monetary stimulus in the face of an unprecedented global health pandemic. While necessary to avert a deeper drawdown in economic activity, the indiscriminate...

Pandemic a Potential Trigger for QE in EM

The unparalleled nature of the response to the COVID-19 crisis – indiscriminately triggering sudden-stops across economies – suggest that some emerging markets could be closer to crossing the Rubicon into full-blown QE. Many EM central banks already purchase...

Brazilian Equities: Pricing in the Bad News

Brazil has so far avoided an aggressive national lockdown, but is nonetheless at the mercy of unprecedented demand destruction in developed markets and the collapse in global commodity prices. With the Bovespa losing 50% of its value in USD terms, the bad news, and...

Remain Selective on EM Debt

We continue to favour EM sovereign debt as an alternative to stretched developed-market debt. We like the higher initial yields on offer and potential capital upside from monetary easing and rolldown from steeper yield curves (top-left chart). If we looked only at...