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Emerging Markets Strategy Summary - 27 June 2018

Core Content Overview

This document provides a strategic overview of emerging markets (EM) across various regions, including EM Asia, CEEMEA, Turkey, Poland, and Latin America, focusing on economic indicators, central bank policies, and market outlooks.

Key Market Updates

EM Asia

• Crude Oil Prices: The WTI crude oil benchmark regained its $70/bbl level after US officials urged allies to stop Iranian crude imports by 4 November. This has led to a decline in EM Asia currencies, as the region is a net importer of oil.
• China: The 1-year NDIRS is currently at 3.05%, with a target of 3.25% and a stop at 2.95%. Given the weak RMB against USD, the current easing stage is likely to pause.
• Indonesia: Markets will be closed today for regional elections, which will elect 17 governors, 39 mayors, and 115 regents. The results may provide insights into the performance of President Joko Widodo ahead of the general election in April 2019.

CEEMEA

• Czech Republic: The Czech National Bank (CNB) is expected to remain on hold at 0.75% at its MPC meeting. However, due to the weakening CZK and EURCZK rising above the CNB's Q2 2018 forecast, a rate hike is more likely at the next meeting on 2 August. The absence of Vice Governor Hampl, a hawkish member, may influence this decision.
• Poland: Economic activity is expected to slow, with GDP growth projected at 4.1% y/y in H2 2018 and 3.0% in 2019. The construction sector, which has historically driven GDP growth, is showing signs of weakening. However, EU funds are expected to maintain strong demand, and rising costs could lead to increased pricing pressure.

Turkey

• Inflation: Leading indicators suggest a rise in June inflation to around 14% y/y from 12.1% in May. Food inflation, measured by Turk-is hunger level, increased by 1.7% m/m, worse than the 1.3% decline a year ago. This is expected to push up CPI, with inflation likely peaking around 15% in July.
• CBRT Policy: The Central Bank of the Republic of Turkey (CBRT) has already increased the policy rate by 425bp in May-June to 17.75%. Further tightening may be required if inflation expectations continue to rise.

Latin America

• Argentina: The central bank (BCRA) kept rates unchanged at 40% in its monetary policy meeting. New leadership plans to introduce "major changes in the framework and execution of monetary policy" before the next rate meeting on 10 July. Q1 2018 current account data surprised to the downside at USD -9623 (vs -8600 expected). Short positioning in Argentinian assets has limited ARS downside, with USDARS remaining broadly unchanged.

Strategic Contacts

Legal and Compliance Notes

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