Emerging Markets: What Changed – April 6

Reserve Bank of India cut its inflation forecast for the first half of FY2018/19 to 4.7-5.1%.

Former South Korean President Park was sentenced to 24 years in prison.

Malaysia Prime Minister Razak has called for early elections.

Bahrain discovered its biggest oil field since it started producing crude in 1932.

Local press reports Turkey’s Deputy Prime Minister Simsek tendered his resignation.

Brazilian Supreme Court rejected former President Lula’s plea to remain free while appealing his 12-year prison sentence for corruption.

Brazil Finance Minister Meirelles joined the ruling PMDB.

The US has reportedly softened a key NAFTA demand requiring greater North American content in auto manufacturing.

In the EM equity space as measured by MSCI, Colombia (+5.3%), Peru (+3.7%), and Mexico (+3.3%) have outperformed this week, while Brazil (-3.2%), Egypt (-3.1%), and Thailand (-1.6%) have underperformed. To put this in better context, MSCI EM fell -0.7% this week while MSCI DM was flat.

In the EM local currency bond space, India (10-year yield -19 bp), Mexico (-12 bp), and Poland (-11 bp) have outperformed this week, while Brazil (10-year yield +29 bp), Hungary (+11 bp), and Argentina (+10 bp) have underperformed. To put this in better context, the 10-year UST yield fell 1 bp to 2.77%.

In the EM FX space, PHP (+0.3% vs. USD), PLN (+0.3% vs. EUR), and INR (+0.3% vs. USD) have outperformed this week, while TRY (-2.5% vs. USD), BRL (-2.0% vs. USD), and ZAR (-1.8% vs. USD) have underperformed. To put this in better context, MSCI EM FX fell -0.4% this week.

Reserve Bank of India cut its inflation forecast for the first half of FY2018/19 to 4.7-5.1% from 5.1-5.6% previously. It kept rates steady, as expected. There was one dissenter in favor of a hike. CPI rose 4.4% y/y in February, which is in the top half of the 2-6% target range. The RBI is likely to remain on hold for now, and markets are not pricing in a hike until 2019.