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Investor Insights

BBH: EM Preview for the Week Ahead

The still-growing impact of the coronavirus should keep EM and risk sentiment under pressure this week. The weekend G20 meeting in Saudi Arabia acknowledged the risks to the global economy and said participants agreed on a “menu of policy options.” However, the G20 offered little specific in terms of a coordinated policy response.


Mexico reports mid-February CPI Monday, which is expected to rise 3.56% y/y vs. 3.18% in mid-January. If so, inflation would be the highest since July and further into the top half of the 2-4% target range. Next policy meeting is March 26 and another 25 bp cut to 6.75% is expected then. Q4 current account data will be reported Tuesday. Banco de Mexico releases its quarterly inflation report Wednesday, and then releases its minutes Thursday. January trade will be reported Friday, where a deficit of -$2.7 bln is expected.

Brazil reports January central government budget data Thursday, where a primary surplus of BRL40.2 bln is expected. Consolidated budget data will then be reported Friday, where a primary surplus of BRL51.3 bln is expected. Tax revenues rose 9% y/y in January and so the budget data should show some improvement. However, investors continue to focus on sluggish growth and a dovish central bank, which has kept the real under pressure.


Bank of Israel meets Monday and is expected to keep rates steady at 0.25%. CPI rose only 0.3% y/y in January, well below the 1-3% target range. With potential harm coming from the coronavirus, the bank is likely to take a dovish stance. However, it is unlikely to make any changes with the March 2 election less than a week away.

National Bank of Hungary meets Tuesday and is expected to keep policy steady. CPI rose 4.7% y/y in January, well above the 2-4% target range. As such, the bank’s language should shift a bit more hawkish. However, we do not foresee a potential policy change until the March meeting, when updated staff forecasts for the economy will be released.

South Africa Finance Minister Mboweni delivers his budget speech Wednesday. With growth sluggish, there is not a lot of fat to be trimmed here. Some token measures will be taken but the overall budget and debt trajectory won’t be impacted enough to stave off a Moody’s downgrade to Ba1. We expect that to happen in late Q1 or early Q2. South Africa then reports January money and private sector credit, trade, and budget data Friday. Next SARB meeting is March 19 and much will depend on the rand and the potential Moody’s downgrade.

Turkey reports January trade and Q4 GDP data Friday. A deficit of -$4.6 bln is expected, while GDP growth is expected to pick up to 5.0% y/y from 0.9% in Q3. While the economy is picking up, the central bank will be under pressure to continue cutting rates. Next policy meeting is March 19 and much will depend on the lira, which remains under pressure. Rising coronavirus deaths in Iran have led Turkey to temporarily shut its border and halt air and train service between the two nations.


Singapore reports January CPI Monday, which is expected to pick up a tick to 0.9% y/y. While the MAS does not have an explicit inflation target, low price pressures and the weak economy should allow it to ease policy at its April meeting by adjusting its S$NEER band. January IP will be reported Wednesday, which is expected to contract -5.8% y/y vs. -0.7% in December.

Taiwan reports January IP Monday, which is expected to contract -4.3% y/y vs. 6.0% growth in December. Data for the first two months of the year will be distorted by the timing of the Lunar New Year holiday. However, it will be clear that the regional impact of the coronavirus will be very negative and should lead to some stimulus measures. Next central bank policy meeting is March 19 and we see a chance of a dovish surprise then.

Bank of Korea meets Thursday and is expected to keep rates steady at 1.25%. The market is split. Of the 13 analysts polled by Bloomberg, 7 see steady rates and 6 see a 25 bp cut. CPI rose 1.5% y/y in January, well below the 2% target. While the BOK sounded upbeat at its last meeting, the impact of the coronavirus has worsened and so we see a chance for a dovish surprise this week. Korea reports January IP Friday, which is expected to rise 0.1% y/y vs. 4.2% in December. February trade data will be reported Sunday local time.

China reports official February PMI readings late Friday after North American markets have closed. Manufacturing PMI is seen plunging to 47.4 from 50.0 in January, while non-manufacturing PMI is seen falling to 50.0 from 54.1 in January. Policymakers are trying to get the economy going again but we think weakness is likely to persist well into Q4. Stimulus is in the pipeline but it won’t be enough to totally offset the growing impact of the virus.

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Win Thin is the Global Head of Emerging Markets Strategy and has over 25 years of investment experience. He has a broad international background with a special interest in developing markets. Prior to joining BBH in June 2007, he founded Mandalay Advisors, an independent research firm that provided sovereign emerging market analysis to institutional investors. Prior to that, Win was a vice president and international economist, covering major emerging markets in Asia and Latin America for Alliance Capital Management

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