Even with this month’s retreat in Treasury yields, investors could be forgiven for taking a cautious view of emerging markets.
The renewed surge in Covid-19 infections from India to Argentina and political risks in Turkey and Peru have made investors more selective. Citigroup Inc. said in a report that the recent plunge in Indian assets is a reminder that the global fight against Covid-19 isn’t over yet for many developing economies, even though an environment of stabilizing U.S. yields would bode well for emerging-market currencies and bonds.
With the Federal Reserve set to maintain its dovish stance at this week’s policy meeting, investors are looking to snap up assets pummeled by the first-quarter Treasury-market selloff and the global pandemic. Morgan Stanley is touting emerging-market local bonds, which gained for a third week in the five days through Friday after underperforming other risk assets this year. Barings U.K. finds value in corporate bonds in Brazil and Turkey after their spreads widened along with sovereign debt.
“At this stage, we think that rotation from emerging-market outperformers to underperformers will help drive markets,” said Jon Harrison, a London-based managing director for emerging-market macro strategy at TS Lombard. He expects U.S. growth to drive Mexican stocks, while China’s market lags behind peers as President Xi Jinping targets the nation’s tech giants.
Economic data will serve as a guide on the progress of the global recovery. Mexico, South Korea and Taiwan will unveil gross domestic product data, while China is due to report April purchasing manager indexes on Friday.
Turkey will also continue to capture the market’s attention after the lira overtook the Argentine peso as this year’s worst-performer among peers.
Lira Bears Wake
- Turkey rejected President Joe Biden’s recognition of the mass killing of Armenians in 1915 as a genocide, saying the U.S. had opened “a deep wound that undermines our mutual trust and friendship”
- The lira had its worst week in the five days through Friday since President Recep Tayyip Erdogan’s shock dismissal of the nation’s central bank chief after he raised interest rates in March. Concerns that Turkey’s relations with the U.S. could fray and that the government may again dip into its foreign-exchange reserves weighed on the currency
- The new governor, Sahap Kavcioglu — a newspaper columnist and critic of high interest rates — is due on Thursday to hold his first press conference on the inflation outlook
- Bloomberg Economics expects the central bank to increase its year-end forecast for price gains because of higher oil prices and a weaker lira
- Colombia’s central bank is expected to leave its key interest rate on hold Friday while reiterating that policy makers are monitoring new developments, keeping the door open for potential changes going forward.
- Investors will also monitor any…
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