CoreMacro
| Emerging Markets
Research on emerging economies, from in-depth country reports to calls on EM stocks, bonds, and currencies.
Poland’s inflation will stay elevated. And yet, its return to the European mainstream has improved its financial market outlook. Accordingly, we are recommending new trades on Polish equity, fixed income, and currency.
The Chilean economy is in a unique position worldwide: as it is the first to enter a recession, it will be the first to recover. Together with historically cheap valuations, this will lead to a sustained outperformance of Chilean stocks relative to their EM peers.
Many commentators have attributed the latest increase in Chinese interest rates to an improving economy, the large issuance of government bonds, the tax payments season, and other technical factors. Yet, these explanations are missing the key point: the PBoC has steered interbank rates higher to defend the currency. Higher borrowing costs are the last thing the mainland economy now needs.
The recent rate hike by the Philippines central bank cannot control food inflation. Nor can it stem the currency slide.
Despite very low inflation, Bank Indonesia raised its policy rates last month to support the currency. The strategy did not work before and will not work now. Stay short the rupiah.
In financial systems, cracks typically begin on the periphery and then expand to the center. Hence, the ruptures on the fringes often act as an early warning. These fissures tend to widen and spread to the core, causing a breakdown in the S&P 500. Investors should consider buying US Treasurys aggressively when the S&P 500 slips below 4,000.
While Mexican markets will continue selling off in absolute terms, their recent underperformance versus their EM peers is a temporary setback in a cyclical and structural bull market. Domestic politics are evolving from stable to bullish: the new president will rule in a technocratic manner, respecting private sector interests. The Mexican economy will achieve a soft landing even if the US enters a recession.
Numerous breakdowns are occurring in global equities outside the US large cap. All these market moves point to a global economy that cannot handle high borrowing costs. Unless EM share prices find a bottom in absolute and relative terms before year-end, they will have experienced a structural breakdown.
Investors should book profits on our long Egyptian Treasury bill trade as the outlook for the Egyptian pound has worsened. The position has generated an 11.4% return in US dollar terms since its initiation eight months back.
