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Emerging Markets Daily - March 1
"Bondfire" Hits Emerging Markets, Hang Seng Index Expands, Shares Climb in India, Indonesia, Philippines Amid Bond Storm, Pakistan Airlines, China Bonds: Safe Haven?
The Top 5 Emerging Markets Stories - March 1
“Bondfire” Hits Emerging Markets
“Just when developing economies were ready to bask in the post-COVID rebound in global growth, in sweeps a bond market blaze to scorch them again. Most major investment banks were predicting a stellar 2021 for emerging market assets as long as one crucial snag - global borrowing costs rising too fast - was avoided. Well guess what, they are on a tear.”
“February saw their steepest monthly gain since Donald Trump’s shock 2016 U.S. presidential election win and, though the move comes from record low levels, for emerging markets now carrying nearly $80 trillion worth of debt it has been painful few weeks.”
“The widely-tracked JPMorgan Emerging Market Bond Index (EMBI) is having its worst start to a year for a quarter of a century, currencies have recoiled and MSCI’s EM stocks index has just suffered its biggest weekly drop since peak COVID panic last March.”
“The carnage has been described as a bond bonfire by ING analysts and prompted some of those bullish investment banks like JPMorgan and Morgan Stanley to curtail their bets.” Reuters reports.
Hong Kong Benchmark Index to Expand from 55 to 100 Constituents
“Hang Seng Indexes, which compiles Hong Kong’s benchmark index, said on Monday that the number of constituent stocks of the Hang Seng Index will rise to 80 by mid 2022, before ultimately rising to 100.”
“The overhaul, the biggest in the index’s 52-year history, reflects the changes in Hong Kong’s role as a financial centre. The reforms follow the conclusion of a consultation period in January, which showed strong support for an increase in the number of constituent stocks, as this will improve the benchmark Hang Seng Index’s overall coverage and achieve a more reasonable representation for each industry.” South China Morning Post reports
Indonesia, Philippines, India Shares Climb 1% as Bond Markets Calm
“Indonesia, Singapore and Philippine stocks climbed about 1% on Monday as bond markets ended last week on a calmer note and regional manufacturing activity indicated that a gradual recovery was still on track.”
“In Mumbai, shares climbed 1.2% after India's economy returned to growth in the December quarter and the country kicked off an expanded COVID-19 vaccination drive, with investors betting on a faster economic recovery.”
“A slew of data on Monday showed manufacturing activity in Indonesia and the Philippines was still in expansion territory while Japan figures showed the fastest growth in over two years. Factory activity in China, though, missed forecasts in February as a spike in COVID-19 cases led to lockdowns in parts of the country.” Reuters reports
Pakistan Set to Get Three New Airlines
“Three new airlines have sought regulatory approval from Pakistan’s Civil Aviation Authority (CAA) to launch operations.”
“The scrutiny of two airlines – Q-Airlines and Fly Jinnah – has been completed while Jet Green Airlines is still going through the process.”
“Following the approvals of the three carriers, this will take the number of private carriers operating in the country to six, catering to a 217 million population.”
“It is mandatory for new carriers to operate domestic flights for at least one year with three aircraft before they are allowed to launch international operations.” Khaleej Times reports
China Bonds a Safe Haven Amid Fixed Income Rout?
“As investors fled almost every fixed-income asset from the safest government bonds to the highest-yielding securities last week, one market stood out as a haven. Funds poured $671 million into exchange-traded funds tracking yuan bonds last week, taking inflows so far this year to $2.2 billion, data compiled by Bloomberg show. In contrast, they offloaded almost $600 million of emerging-market notes last week.”
“China’s bonds have largely escaped the tumult in global debt markets, with yields on the benchmark holding firm on Thursday while that on Treasuries soared more than 20 basis points. Chinese sovereign notes were the third-best performer globally in February, according to data from indexes compiled by Bloomberg and Barclays Plc.”
“‘China bonds are likely to be a safe haven now -- stable policy and growth make them less volatile compared to global peers, while yields are also more attractive,’ said Xing Zhaopeng, a senior China strategist at Australia & New Zealand Banking Group Ltd. in Shanghai. ‘The notes’ relative performance this year will be better than bonds sold by other major economies.’” Bloomberg reports.