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(Bloomberg) – Bargain buyers in emerging markets are in celebration mode. And the party is not over yet.
The prospect of a Joe Biden presidency verified by a divided Congress got everyone through Eaton Vance Corp. to Medley Global Advisors, predicting a further rise in risk assets, just a week after developing country stocks, currencies and bonds hit buffers. the American election was approaching. BlackRock Inc. says assets in developing countries, which look more attractive in this low-interest world, could benefit from a more subdued leader in the White House. The Biden administration’s political approach will likely reduce uncertainty, according to UBS Global Wealth Management.
The gains for emerging markets would support the view that the election outcome is likely to cap U.S. interest rates for longer and weaken the dollar, increasing developing country debt and currencies as they struggle to fund efforts to contain the worst of the Covid-19 pandemic.
Gauges for developing-country stocks and currencies hit their highest levels in more than two years on Friday, after being rocked last month by uncertainty over the outcome of the US election. Local bonds had their best weekly performance since April in the five days through Friday. The Mexican peso and offshore yuan surged on the prospect of easing trade tensions.
“A Biden presidency with a Republican Senate is probably the best possible scenario for emerging market assets and if this result holds, it should provide a very solid framework for the asset class,” said Eric Stein, chief investment officer. bond at Eaton Vance. In Boston. “Biden should have a less confrontational approach towards China and countries other than Trump.”
Asian markets are likely to outperform their emerging peers, as the region’s control against the coronavirus pandemic is helping economies recover faster than in other parts of the world where tight lockdowns are returning. China’s October exports accelerated unexpectedly, and inflation and credit reports expected this week will likely point to stable underlying demand.
“Flow data over the past few months suggests that investor purchases of EM assets have been heavily skewed in favor of a handful of Asian countries,” said Nick Stadtmiller, strategist at Medley Global Advisors in New York. “Asian economies are expected to grow faster than other emerging market competitors over the coming year, and this growth differential has supported Asian markets.”
Still, there are a few weak spots to worry about. Turkey remains at the top of the watch list for traders after President Recep Tayyip Erdogan sacked the governor of the country’s central bank because a series of interest rate hikes failed to stop the fall in read it at an all time high. Zambia could become Africa’s first sovereign defaulter since the start of the pandemic if investors on Friday rejected a request to postpone interest payments on its $ 3 billion Eurobonds until April.
In Latin America, Mexico and Peru will decide on interest rates, while a mission from the International Monetary Fund will arrive in Argentina to negotiate a new program with the authorities.
Surprise from Turkey
The lira, the worst performing emerging market currency of 2020, will likely remain volatile after Erdogan appointed former finance minister Naci Agbal to replace Murat Uysal as central bank governor
This move is unlikely to change current trends in inflation, reserves and the Lira – if not followed by significant policy changes, according to Goldman Sachs Group Inc.
“Only future monetary policy actions will show whether the new appointment again involves a change in policy and, if so, in which direction,” economists Murat Unur and Clemens Grafe wrote in a report. November 19
Mexico and Peru to decide
Mexico’s central bank will meet on Thursday and as many expect officials to leave the policy rate unchanged, Bloomberg Economics is bracing for a quarter point cut to 4% Inflation figures for October, meanwhile, have probably increased compared to the previous month. September industrial production, released on Wednesday, is expected to mark a recovery from the start of this year while remaining below pre-pandemic levels The peso was among the best performing in developing markets last week In Peru, policymakers are expected to keep interest rates at 0.25% on Thursday and repeat their plans to keep conditions expansionary, according to Bloomberg EconomicsCongress will vote on a motion to impeach President Martin Vizcarra on Monday. Most investors expect the motion to fail, as did last month’s attempt, but political uncertainty held back Peruvian sol last week
Data and Events
China will announce the CPI and PPI data on Tuesday. The CPI probably slowed to 0.8% in October from 1.7% the month before, according to a Bloomberg survey. The Chinese economy has recovered from the pandemic but household spending could still be relatively weak Chinese local bonds have returned 6.6% this year in dollars, according to a Bloomberg Barclays index, while the onshore yuan has gained more 5% overall financing this week, which will reveal how much credit is supporting the economy The Philippines will release third-quarter GDP on Tuesday, and Malaysia will release the same data on Friday Both countries are expected to say their economic contraction has slowed in the period even as virus cases The Philippine peso is the best-performing Asian currency outside of China this year, while the Malaysian ringgit has weakened Taiwan will release October trade data on Monday. A recovery in exports and growing demand for technology products have seen the Taiwan dollar gain more than 4% this year. India will release the CPI figures on Thursday. Accelerating inflation has stalled the Reserve Bank of India since it cut interest rates in May. The CPI for October is estimated at 7.1%, still above the RBI’s target range of 2% to 6%. India is also due to release trade statistics this week. India’s local bonds are one of Asia’s best performers this year, even as the rupee lags all regional peers Mymar has started counting millions of votes expressed on Sunday in the country’s second election since the end of military rule. 2011, with de facto leader Aung San Suu Kyi and her National League for Democracy in power set to win another term The nation’s kyat has climbed about 11% against the dollar this year, according to data compiled by Bloomberg In Brazil, retail sales data for September, to be released on Wednesday, will be watched for signs of how lower emergency aid transfers have affected spending patterns. A reading of economic activity for the same month will likely show a fifth monthly increase, according to economists polled by Bloomberg. IMF mission to arrive in Buenos Aires on Tuesday October inflation reading will likely show recovery Colombia to release September retail sales and industrial production data on Wednesday, which could offer clues to the pace The country’s central improved its growth forecast for 2020 last week, saying the recovery in the third quarter was faster than expected The Colombian peso was one of the best in emerging markets last week
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