Goldman’s Upbeat Call on Emerging Markets Faces Trial by Data

“The next key question is whether there is enough of a stabilization in economic data to justify and sustain the better performance of emerging-market assets, and indeed support a further leg higher,” strategists led by London-based Kamakshya Trivedi wrote in a report, backing high-yielding assets that give positive carry. “We lean towards the glass half-full camp.”

READ: Case for Emerging Markets Intact Even if Sell-Off Is Tweet Away

For all the indications that a revival in risk appetite is gaining momentum, the threat of a downturn remains, according to Fidelity International, which favors hard-currency debt and duration in domestic bond markets such as those of China, South Korea, Russia and Egypt.

“The biggest concern remains the potential for U.S.-China trade talks to run sour, or for the proposed phase one deal, due to be signed this month, to remain underwhelming in nature,” said Paul Greer, a London-based money manager at Fidelity whose developing-nation debt fund has outperformed 96% of peers this year. “We remain skeptical about the potential or any uplift of rebound on emerging-market growth or trade between now and year-end.”

To Cut or Not to Cut?

• The Bank of Thailand is set to cut its benchmark rate on Wednesday, with the strength of the baht, Asia’s biggest gainer this year, a headwind to growth, according to economists
  • The Finance Ministry last week lowered its 2019 GDP forecast to 2.8% from 3%. A further reduction in interest rates won’t do much to restrain the baht, a member of BOT’s monetary policy committee said
• Bank Negara Malaysia will probably keep borrowing costs unchanged on Tuesday in its last meeting of the year
  • The nation’s economic growth is expected to remain resilient due to a supportive fiscal budget, while inflation is likely to stay moderate, analysts at Malayan Banking Bhd, including Suhaimi Ilias in Kuala Lumpur, wrote; they now predict no change in the overnight policy rate, compared with a previous call of a 25 basis-point cut. Malaysia last lowered rates in May
  • The ringgit was Asia’s best-performing currency on Friday
• Peru is expected to leave interest rates unchanged on Thursday; policy makers have already said economic growth is accelerating despite domestic political turmoil
• Poland, Romania and the Czech Republic will also probably keep policy rates on hold; Serbia will also decide policy on Thursday
• Brazil’s traders will scan the minutes of the last central bank meeting on Tuesday for clues on the path of interest rates next year. Last week, policy makers enacted a 50 basis-points cut in the Selic to 5% and signaled a same-size reduction in December; it sent a more cautious message about additional easing though. Swap rates rose, lifting the belly of the curve, to account for odds of a shorter-than-expected easing cycle
• The October inflation print due on Thursday will also be on trader radars, as central bank forecasts for prices remain low. Economists forecast annual inflation to decelerate to 2.53%, from 2.89% in September

South African Relief

• South Africa dodged its third junk rating late Friday as Moody’s Investors Service maintained the nation’s lowest investment-grade score
• While Moody’s cut the outlook on the nation’s credit rating to negative from stable, investors were relieved that the rating company didn’t follow S&P Global Ratings and Fitch Ratings in lowering the nation’s debt to non-investment grade
• The South African rand has lost nearly 4% over the past six months, the fourth-most in the developing world

Economic Data and Events

• China will probably announce on Friday that exports extended declines in October following additional U.S. tariffs that were slapped in September
• MSCI Inc. is to announce the results of its semi-annual index review Friday, when it may add eligible A shares
  • The benchmark Shanghai Composite Index climbed 1% on Friday amid buying by overseas investors
• PMI data this week will come from the Philippines, China, India, Poland, Russia, Egypt, Hungary, Brazil, Saudi Arabia and the United Arab Emirates
• Turkey is set to say Monday that annual inflation decelerated further to 8.6% in October, from 9.3% the previous month
  • Inflation likely bottomed out in October because of base effects but will probably return to double digits before the end of the year, according to Bloomberg Economics
  • The lira was among the best performers in emerging markets last week
• Russia, Hungary, Mexico and Colombia will also release inflation data
• Indonesia reports third-quarter GDP data on Tuesday and the Philippines will release its own on Thursday. Economists predict growth further slowed in Indonesia, while the pace accelerated in the Philippines
  • Economic Planning Secretary Ernesto Pernia said last month Philippine growth likely bounced back to the 6% level last quarter as inflation cooled
  • READ: ASIA REACT: PMIs Show No Economies Escape Trade-War Pain (1)
• Taiwan, Malaysia, and the Philippines will report trade data this week
• Saudi Aramco announced its intention on Sunday to list shares on the local stock exchange in Riyadh, in what could be the world’s biggest initial public offering
  • The shares are likely to start trading in December
• Romania’s new government is facing a tight confidence vote in parliament on Monday before it can take over from the administration that was ousted last month