EM investors are still not entirely convinced with the recent rebound in government bonds so far into the second half of the year, Matt Wirz writes for the Wall Street Journal. That is despite the fact that debt mutual funds in emerging markets saw inflows of some USD 100 mn last week from individual investors and that USD-denominated bond prices are rising, “showing the appeal of high-yielding bonds issued by nations including Argentina, Egypt and Brazil,” he says.

The concerns are still the same: A strengthening USD, rising US interest rates and yields, and a potential trade war between the US and China, which raises questions “about debt sustainability and economic resilience in countries whose debt-servicing capacity stands to decline as local currencies depreciate.”

Ranks of EM Nostradamii grow in tandem with debt default fears: Default rates on emerging market debt are expected to climb next year as the ending of a decade of easy money by central banks hits weaker companies the most, said Abdel Kadir Hussain, the head of fixed income at Arqaam Capital. He even goes so far as to compare it to the 1997 Asian crisis. “Given the relatively loose liquidity in the market over the last five years, you’ve had a lot of [transactions] financed that maybe in more disciplined markets would not have been financed,” said Hussain. “In 2019 and probably into 2020, you’re going to see default rates pick up in emerging markets, particularly in the weaker part of the spectrum.”

How big is the hole? Governments and companies in developing nations sold USD 1.1 tn of bonds so far this year, after raising a record of almost USD 2 tn in all of 2017, according to data compiled by Bloomberg.

How have EMs dealt with the dilemma of oil prices? Calling all oil analysts. Bloomberg has a survey of analysts out comparing the policies different emerging markets have taken to adapt to higher oil prices in the midst of a strengthening USD. And it all boils down to this one dilemma: Subsidize the purchase of increasingly expensive fuel, or allow consumption to be eroded and accept the accompanying economic and political risk.

For Egypt, “the decision to further reduce energy subsidies is “bearish for fuels demand,” says BMI analyst Richard Taylor.The move has led to lower-income, marginal fuel consumers being priced out, particularly with higher inflation ensuring consumers prioritize essential goods, he added.

Great MbS purge is Saudi’s loss and our gain: Wealthy Saudi families are hesitant about investing in the kingdom and are instead looking to move their assets abroad after the kingdom’s “anti-corruption purge,” the Financial Times says. Many are sitting on their wealth as money transactions are being closely monitored by the government, while others are trying to find ways to circumvent the system.

So, where are they putting their cash? Investments in Egypt, among other “friendly third countries.” In the meantime, the kingdom is hopeful that foreign investors will spur economic growth that has been sluggish as a result of “a prolonged period of low oil prices” and the uncertainty caused by the corruption purge.