US-Iran ten­sion puts emerg­ing mar­ket fore­casts in doubt

The Citizen (KZN) - - Business -

Put those 2020 fore­casts for emerg­ing mar­kets on hold. The goal­posts just moved.

The US as­sas­si­na­tion of Iran’s Gen­eral Qasem Soleimani has sent such a shud­der through risk as­sets, eclips­ing much of the op­ti­mism stem­ming from the im­pend­ing sign­ing of an ini­tial trade deal be­tween the US and China.

Mid­dle Eastern stock mar­kets nose­dived on Sun­day, con­tin­u­ing a sell­off that be­gan at the end of last week as news emerged that Soleimani had died in a drone at­tack or­dered by Pres­i­dent Don­ald Trump, rais­ing US-Iran ten­sion to a new level.

De­vel­op­ing na­tion stocks, cur­ren­cies and bonds re­mained on the back foot yes­ter­day. “The threat of a se­vere re­tal­i­a­tion by Iran will keep in­vestors alert,” ING Group strate­gists, in­clud­ing Lon­don-based Chris Turner, wrote in a re­port. “For now, in­vestors re­main in wait-and-see mode.”

Be­fore Fri­day, ex­pec­ta­tions of a phase-one US-China trade deal on 15 Jan­uary had helped drive emerg­ing mar­ket stocks and cur­ren­cies to the high­est lev­els since June 2018 and av­er­age sov­er­eign yield spreads to their nar­row­est in more than five years rel­a­tive to US Trea­suries.

A Bloomberg sur­vey last month found that the ma­jor­ity of 57 strate­gists and in­vestors polled fore­cast 2020 would be an­other year of pos­i­tive re­turns for de­vel­op­ing-na­tion as­sets. Geopol­i­tics aside, emerg­ing mar­ket in­vestors this week will be watch­ing in­ter­est rate de­ci­sions in Peru, Poland, Ro­ma­nia and Is­rael. Tai­wan has a pres­i­den­tial elec­tion on Satur­day. Eco­nomic data and events

China yes­ter­day re­leased Caixin PMI com­pos­ite and ser­vices mea­sures for De­cem­ber. Both in­dexes were lower than the pre­vi­ous month, but still showed ex­pan­sion. China is due to un­veil con­sumer price and pro­ducer price in­fla­tion data for the same month on Thurs­day.

Brazil may say on Fri­day that con­sumer price in­fla­tion edged higher at the end of the year. In­vestors in Latin Amer­ica’s big­gest econ­omy, whose cur­rency was among the best per­form­ers in emerg­ing mar­kets last month, will also eye Novem­ber in­dus­trial pro­duc­tion data on Thurs­day.

A fi­nal read­ing of Rus­sia’s in­fla­tion data on Fri­day will shed light on De­cem­ber’s sharper-than-ex­pected slow­down

Gold­man Sachs Group ex­pects

For now in­vestors re­main in wait-and­see mode.

Chris Turner

ING Group strate­gist

in­fla­tion to fall to­ward 2.5% by early this year; it sees the cen­tral bank cut­ting rates three times to 5.5% by mid-2020, be­fore low­er­ing the bench­mark fur­ther to 5% in 2021.

Rus­sian Pres­i­dent Vladimir Putin will meet his Turk­ish coun­ter­part, Re­cep Tayyip Er­do­gan, to­mor­row.

In South Africa, a raft of data will pro­vide guid­ance on the tra­jec­tory of the econ­omy be­fore a cen­tral bank pol­icy meet­ing later this month. Most at­ten­tion will be on the man­u­fac­tur­ing PMI for De­cem­ber due to­mor­row, fol­lowed by a mea­sure of busi­ness con­fi­dence on Thurs­day.

– Bloomberg

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