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Monday, 12 September 2022

Are we looking at a rebound in EM bonds as the IMF pushes ahead with bailouts?

IMF backing is good for emerging markets (who’d a thunk it?): Recent IMF bailouts are helping to restore investor confidence in emerging-markets following a year of historic losses for the asset class, analysts tell Bloomberg. Egypt, Sri Lanka, Pakistan, Zambia and Chile have all either agreed new programs with the Fund or are close to agreeing terms, reversing the narrative from ‘default-adjacent’ to ‘turnaround’ and inspiring investors to cautiously return to local bonds.

“We’ve seen a rebound in emerging-market USD bonds as the IMF appears to be turning increasingly responsive to the difficulties faced by frontier emerging markets,” Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management in Singapore said. “This is helping some investors turn more neutral on emerging markets from a very bearish view.”

But the IMF’s got competition: Fresh data shows that China has made over USD 30 bn in discreet “emergency loans” in recent years to crisis-hit countries, leading the Financial Times to pronounce Beijing “a formidable competitor” of the IMF. Data by AidData, a research lab at US-based public research university William & Mary, named Pakistan, Sri Lanka and Argentina among the largest recipients of the Chinese aid, borrowing USD 32.8 bn between them since 2017.

Egypt has also taken funding from China: Egypt, along with Kenya, Venezuela, Ecuador, Angola, Laos, Suriname, Belarus, Mongolia and Ukraine, have taken emergency loans from the Chinese, AidData said, without disclosing details for any of those countries.

Unlike the IMF, there are no strings attached: “Beijing has tried to keep these countries afloat by providing emergency loan after emergency loan without asking its borrowers to restore economic policy discipline or pursue debt relief through a co-ordinated restructuring process with all major creditors,” said Bradley Parks, executive director of AidData.


Eyeing a bitter European winter, investors back out of equities: European stock funds have seen USD 83 bn in outflows over the past six months — some USD 3.4 bn of that during the last week alone, Bloomberg reports, citing market tracking data acquired by Deutsche Bank. This comes as the region struggles with its harshest energy crisis in decades after Moscow all but turned off the gas taps amid war in Ukraine, further pressuring European markets already struggling with rising inflation, a strengthening USD, and fears of a global recession.

Europe’s main index is down only 14% YTD, outperforming global counterparts — but big investors think it has a long way to fall. “We’ve expected a recession in Europe for months given the energy crunch, but we don’t think equities have fully priced this in,” Wie Li, BlackRock’s global chief investment strategist, tells the business newswire.

Up

EGX30

10,356

+0.9% (YTD: -13.3%)

Up

USD (CBE)

Buy 19.28

Sell 19.39

Up

USD at CIB

Buy 19.31

Sell 19.37

None

Interest rates CBE

11.25% deposit

12.25% lending

Up

Tadawul

11,940

+0.9% (YTD: +5.8%)

Up

ADX

9,796

+0.1% (YTD: +15.4%)

None

DFM

3,361

0.0% (YTD: +5.2%)

Up

S&P 500

4,067

+1.5% (YTD: -14.7%)

Up

FTSE 100

7,351

+1.2% (YTD: -0.5%)

Up

Euro Stoxx 50

3,570

+1.6% (YTD: -17.0%)

Up

Brent crude

USD 92.84

+4.1%

Up

Natural gas (Nymex)

USD 8.00

+1.0%

Up

Gold

USD 1,728.90

+0.5%

Down

BTC

USD 21,517

-0.3% (YTD: -53.0%)

THE CLOSING BELL-

The EGX30 rose 0.9% at yesterday’s close on turnover of EGP 1.18 bn (22.7% above the 90-day average). Local investors were net buyers. The index is down 13.3% YTD.

In the green: Orascom Construction (+3.6%), Elsewedy Electric (+3.6%) and Sidi Kerir Petrochemicals (+3.3%).

In the red: MOPCO (-2.3%), Juhayna (-2.1%) and Egyptian Kuwaiti Holding-EGP (-1.7%).

It’s green as far as the eye can see this morning, with major indexes in Asia all looking good. Futures suggest shares in Western Europe, the US and Canada will all start the trading week in the green at the opening bell.

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