Cit­i­group joins UBS to pre­dict agony for emerg­ing mar­kets

Gulf Times Business - - BUSINESS -

Gains in emerg­ing mar­kets since the start of the year failed to make UBS Group AG and Cit­i­group Inc any less bear­ish as they saw new risks aris­ing and weak­en­ing the chance of 2016- or 2009-style re­bound.

The MSCI Emerg­ing Mar­kets In­dex, the eq­uity bench­mark, fell on Tues­day after post­ing the big­gest two-day gain in two months. The cur­ren­cies gauge re­treated from the high­est level since July. A mea­sure of dol­lar debt rose for a sev­enth day Mon­day, and its lo­cal­cur­rency coun­ter­part climbed to an eight-month high. While the rally was sup­ported by China’s move to re­lease more cash into the fi­nan­cial sys­tem and by spec­u­la­tion that the Fed­eral Re­serve may pause in­ter­est-rate in­creases this year, UBS said the key risks for emerg­ing economies lay else­where. Po­ten­tial de­clines in trade as well as eco­nomic growth could out­weigh Fed and dol­lar moves, it said.

UBS was not alone. Com­merzbank AG said signs of stress were ris­ing in the usu­ally more re­silient emerg­ing mar­kets: For in­stance, Poland was see­ing greater uncer­tainty over the fu­ture of Cen­tral Bank Gover­nor Adam Glap­in­ski. Ned­bank an­a­lysts said volatil­ity in the South Africa’s rand will in­ten­sify in 2019 due to slow­down in global growth.

Not all banks are bear­ish on emerg­ing mar­kets. Mor­gan Stan­ley turned bullish on emerg­ing-mar­ket sov­er­eign debt due to at­trac­tive val­u­a­tions, strate­gists Si­mon Waever and Jaiparan S Khurana wrote in note. Re­cent dips in emerg­ing­mar­ket cur­ren­cies are an op­por­tu­nity to add risk, Mor­gan Stan­ley strate­gist An­dres Jaime said in a re­port. “Lead­ing in­di­ca­tors point unan­i­mously to a com­ing con­trac­tion in global trade, one that may pos­si­bly be­gin in Q1 2019,” UBS strate­gists in­clud­ing Bhanu Baweja wrote in an emailed note last week. “If global trade goes into re­ces­sion, as we ex­pect, emerg­ing- mar­ket cur­ren­cies will see an­other round of de­pre­ci­a­tion.” Cit­i­group strate­gists are “now bear­ish” on emerg­ing-mar­ket sov­er­eign credit “as a whole” be­cause of debt-ser­vice pres­sure. New sov­er­eign is­suances may strain the bond mar­kets that are al­ready un­der pres­sure from volatil­ity in US and global stock mar­kets, they said. “One of the monthly peaks in debt­ser­vice pay­ments hap­pens in March, with $10.9bn in the sov­er­eign space and $7.7bn on the cor­po­rate-credit front,” strate­gists in­clud­ing Luis Costa wrote in their note. “That may be par­tic­u­larly trou­ble­some in Jan­uary, given the ex­pected pipe­line of new is­suances on the sov­er­eign front.”

A dis­play of a com­mem­o­ra­tive South African 100 rand ban­knote in Pre­to­ria (file). Ned­bank an­a­lysts have said volatil­ity in the rand will in­ten­sify in 2019 due to slow­down in global growth.

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