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    Emerging markets investors yearn for growth as yield buffer evaporates

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    The winning streak in emerging markets may hinge on whether central banks have finally done enough to bring about an economic turnaround.

    With policy makers in developing economies widely seen as being in the final stages of their easing cycle, the bulls will be hoping data on Friday that showed China’s economy expanded 6% in December is a sign of things to come. Analysts have raised their earnings-per-share estimates for emerging-market companies for the following 12 months by more than 1% compared with the end of June. The International Monetary Fund is due to give updated economic forecasts on Monday.

    Investors are turning their focus to the growth story now the phase-one trade deal has been signed and policy makers become increasingly wary of cutting interest rates as inflation starts to pick up. Central banks in Malaysia, Indonesia and Nigeria are set to keep their benchmark rates unchanged this week, strengthening the view that real yields in emerging markets are evaporating rapidly.

    “The macro narrative heading into 2020 has shifted. We’ve got stabilisation in manufacturing, stabilisation in China and global central banks pre-committing to never raising rates again,” said Jim McCormick, the London-based global head of desk strategy at NatWest Markets. “Emerging markets, in particular currencies and equities, are in a sweet spot.”

    Indexes of stocks and currencies in the developing economies advanced for a seventh week through Friday, the longest winning streak in two years, in the wake of the US-China trade agreement. Local-currency bonds have had their best run since July.
    ‘Tactical pause’

    Bank Negara Malaysia and Bank Indonesia are set to meet on Wednesday and Thursday, with both central banks forecast to keep their benchmark rates unchanged at 3% and 5%, respectively
    “It makes sense for central banks to tactically wait and see where the economic data is headed,” said Frederic Neumann, Hong Kong-based co-head of Asian economics research at HSBC Holdings. “Maybe there’s an argument for tactical pause, but that wouldn’t preempt them from cutting at the subsequent meetings. Those are the two central banks we expect to cut this year”
    Indonesia’s rupiah is the best performer this month among Asian currencies, while Malaysia’s ringgit ranks third after the Chinese yuan
    The Bank of Korea left its seven-day repurchase rate unchanged at 1.25% on Friday, as the governor took a more upbeat view on the economy

    Economic data and events

    China reprices on Monday its one-year loan prime rate, which serves as a benchmark for banks’ corporate lending under a new interest-rate framework that was unveiled in August. The five-year loan prime rate will also be under review
    Taiwan will unveil export orders for December on Monday. Thailand will report trade figures for the same month on Wednesday
    South Korea releases preliminary GDP data for fourth quarter 2019 on Wednesday. Economists in a Bloomberg survey predict growth was at 2% from a year earlier, matching the growth in the previous quarter
    Malaysia releases its December CPI figure on Wednesday, hours before its rate decision
    The Philippines will probably report on Thursday that GDP in the fourth quarter quickened to 6.4% from a year ago, compared with 6.2% in the prior three months, according to a Bloomberg survey of economists. Pent-up budget spending and significant central bank easing probably spurred domestic demand, according to ING Groep
    South Africa’s inflation data due Wednesday may help explain the Reserve Bank’s unexpected decision to cut rates on Thursday. The consumer-price index probably rose 4% in December, from 3.6% the previous month, according to the median estimate of economists in a Bloomberg survey. That’s still below the mid-point of the central bank’s 3% to 6% target range.
    Poland’s statistics office will provide December wages, employment and construction data on Tuesday, followed by last month’s industrial output and PPI print on Wednesday, and retail sales on Thursday. The central bank will add minutes from its January sitting and December money supply (M3) data on Thursday, with the Finance Ministry also holding this month’s second regular bond auction on Friday
    Holders of Argentina’s provincial Buenos Aires debt will have until Wednesday to accept the local government’s plan to push back a $250 million payment, which would be due January 26. The nation will release its November economic-activity index figures and December trade-balance data on Thursday
    Brazilian inflation data for January, to be published on Thursday, is expected to show some deceleration. It will be the last reading before the central bank next meets. The real has underperformed all its Latin American currency peers so far this month
    Mexico’s bi-weekly reading on Thursday will probably show year-on-year inflation accelerated in the first two weeks of January. Unemployment data on Tuesday will probably show a slight decline in December, according to economists surveyed by Bloomberg. The peso was the third best-performing currency in emerging markets so far this year

    © 2020 Bloomberg L.P.

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