Emerging Markets Debt Daily
EM Exports – Rebalancing on the Way?Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income StrategyMay 07, 2021
China’s exports beat consensus, but its global exports share is set to decline as other EM benefit from the re-opening. Mexico’s inflation jumped higher, reinforcing expectations of a rate hike.
China’s April trade surplus beat expectations by a wide margin (USD42.85B), driven by stronger exports. The recovery of global demand was the main supporting factor, but the worsening pandemic situation in parts of the world gave an extra boost to exports of medical supplies. Going forward, the re-opening of the world economy and the global trade rebound (see chart below) should leave more room for exports from other emerging markets (EM). This means that China’s share in global exports will decline, but this will be healthy rebalancing among EM regions.
Mexico’s inflation traveled back in time in April (by about four years―to 2017). Yep, we’ve got another upside surprise. Annual headline inflation soared to 6.08% year-on-year, and annual core inflation accelerated to 4.13%. Hopefully, inflation will moderate once the low base effect is out of the picture, but the window of opportunity for additional policy easing is closing fast. The market now believes that the central bank’s next move―in about six months―will be a rate hike. The peso is liking the prospect of policy tightening by the way―the currency rallied by 84bps against the U.S. dollar this morning (as of 9:15am ET, according to Bloomberg LP).
Is LATAM’s far-left political scare over? The recent price action in Peru and Colombia suggests that the market is becoming less emotional and more rational (naturally, after a big selloff). It’s still too early to sit back and relax, but: (1) the recent polls in Peru show that the gap between the two candidates is narrowing; the congress is (and will be) fragmented; and there are institutional roadblocks that can help to prevent radical changes; (2) the Colombian government is working around the clock to put together a new tax reform proposal that would allow it to avoid a rating downgrade. Stay tuned!
Charts at a Glance: Global Trade – Finally Above Pre-Pandemic Average
Source: Bloomberg LP
PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies. A reading above 50 indicates expansion, and a reading below 50 indicates contraction; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change.
Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.