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EM: Signs of stabilisation

China leads the way as EM data improves – local currencies set to be early beneficiaries of a positive sentiment shift.

Emerging market (EM) assets bounced this week as a benign US inflation report and signs of green shoots in both Chinese and European data helped to boost sentiment. 

In China, fixed asset investment continued to recover, while in Europe, industrial production numbers showed some signs of improvement. 

In the commodity space, oil prices continued to rally as Saudi Arabia encouraged fellow producers in the OPEC+ coalition to persevere with supply cuts.

Market review

  • In China, Premier Li Keqiang (at the closing of the NPC) said China will cut the value-added tax effective 1 April, adding to the range of easing measures the government has undertaken recently.
  • The Philippine peso was the week’s main underperformer as central bank governor Benjamin Diokno spoke about the scope to ease monetary policy ahead of a central bank meeting this week.
  • The week’s top-performing currency was the Argentine peso as the central bank lessened the pace of increase in the non-intervention zone. It also extended the target of no growth in the monetary base until the end of the year. The Treasury will also be able to sell USD9.6bn from its IMF package between April and December of this year and can sell up to USD60m a day.
  • Turkey’s GDP shrank 2.4% on the quarter, sending the economy into recession and raising the likelihood of the central bank cutting rates in the coming months.
  • In Mexico, there was much confusion as President AMLO confirmed that the Pemex refinery project would be going ahead as planned, contradicting comments made by Deputy Minister Herrera, who claimed that the project would be delayed and funds would be diverted to upstream capex. AMLO’s decision is likely to pressure Pemex’s credit ratings.


The outlook remains finely balanced between dovish central banks, benign inflation and a weak global growth environment, but the balance of risks is becoming more positive, in our view, as there are growing signs of stabilisation in both Chinese and European data.

In the near term, the Federal Reserve (Fed) meeting will be important for risk markets as consensus has built around a relatively dovish outcome with the dot plot set to move lower to at least partially validate market pricing; the Fed may also provide more clarity around the end date for the balance sheet run-off. 

With very little inflationary pressure, we would expect core rates to remain anchored, which should continue to support the EM hard currency markets. 

We are, however, increasingly looking towards EM local currency as the market with the most upside, should the recent stabilisation in global growth begin to build into a more solid recovery.