Growth clouds send emerging market investors seeking bond cover

Worries about the slowing pace of global economic growth are likely to overshadow emerging markets this week even as the US and China edge closer toward a trade deal.

After an index of developing-nation stocks on Friday rounded off its longest-winning streak since January 2018, evidence of sluggish US wage growth and a probable downgrade by the International Monetary Fund of its global economic outlook will keep investors on the back foot. Most emerging-market fund managers and strategists are backing bonds in the current environment, according to a Bloomberg survey conducted March 20-30.

“We remain overweight emergingmarket debt, but see much better value in hard-currency credit compared to local-currency markets,” said Paul Greer, a London-based money manager at Fidelity International, whose emerging-market debt fund has outperformed 98% of peers this year.

“Our biggest concerns remain the

outlook for the US dollar, the sluggish performance of volatile currencies such as the Turkish lira, weak emerging-market growth, current stretched market positioning and the potential for disappointment on the US-China trade talks.” Investors poured money into developing-nation debt funds in 12 out of the past 13 weeks, favouring hard-currency investments and a diversified geographic focus, according to EPFR Global.

‘Last mile of the marathon’ The US and China will be heading into what White House trade adviser Peter Navarro described as “last mile of the marathon” in trade talks between the world’s two biggest economies

President Donald Trump’s top economic adviser says the US and China are “closer and closer” to a trade deal, and that top-tier officials would be talking again this week via “a lot of teleconferencing”

Despite Larry Kudlow’s optimism, China’s state-run Xinhua news agency said in a separate commentary on Friday that “the remaining issues are all hard nuts to crack”

China’s March trade figures on Friday will be in focus following a drop in exports in February

Data showed that Taiwan’s exports fell less than expected in March as companies continued to re-route sales to the US to avoid higher tariffs on Chinese goods

International Monetary Fund Managing Director Christine Lagarde warned both US and China to avoid the “self-inflicted” wound of a protracted trade conflict

The fund will release its World Economic Outlook with an updated growth forecast today; Lagarde said last week global economy has weakened since the IMF lowered its projection for growth in January

India vote begins

India will kick off its election starting April 11, which will determine whether Prime Minister Narendra Modi wins a second term as leader of the world’s largest democracy. The voting will run in seven phases until May 19 and the counting will take place on May 23

Goldman Sachs Group Inc raised its short-term rupee forecasts as opposition parties struggle to put up a united front in key provinces ahead of India’s election; the currency has outperformed peers in the past month

Economists predict India’s central bank will ease at least once more, possibly as early as June, after delivering its second successive interest rate cut last week as businesses rein in investments amid political uncertainty fuelled by elections

Latin America rates review Traders may get guidance for the path of Latin American interest rates this week as Brazil and Mexico release March inflation data. Mexican swap rates are already pricing in some easing by the end of this year. Tuesday’s consumer price index for March comes after inflation slowed to within Banxico’s target range in February. The bank releases minutes from its last meeting on Thursday

In Brazil, investors will eye both a retail sales report on Tuesday and inflation data for March on Wednesday to gauge the economy’s strength. Swap rates haven’t yet priced in a rate cut, although sluggish growth has fuelled dovish calls.

The major obstacle seems to be on the fiscal side, after the central bank highlighted the need for structural reform to sustain borrowing costs at record lows

Data and decisions

Sri Lanka’s central bank signalled there is room for policy easing going ahead, after maintaining its key interest rates yesterday

Policy makers in Serbia and Peru are also set to keep interest rates unchanged when they meet this week

A Bloomberg currency index that measures carry-trade returns from eight emerging markets funded by short positions in the dollar had its first weekly gain in three ahead of the release of US inflation data and the Federal Reserve minutes of its March meeting this week