Skip directly to Accessibility Notice
  • Emerging Markets Debt Daily

    Argentina Reinstates Capital Controls

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    September 03, 2019

    Argentina reintroduced capital controls, responding to capital flight and unsustainable currency interventions. Turkey’s disinflation gathers pace, opening the door for more rate cuts.

    The market continues to digest the reinstatement of capital controls in Argentina over the weekend, which introduce a monthly limit on currency purchases by individuals and require the central bank’s permission to buy U.S. dollars other than for trade and debt payments. The peso’s official exchange rate appreciated after the announcement, albeit the decision is clearly bad news for local currency debt. In theory, however, capital controls should reduce pressure on net reserves and be beneficial for foreign law bonds—the market appears to be treating them this way in the morning trade.

    The pace of disinflation is accelerating in Turkey, supporting the market’s expectation of additional rate cuts. Yearly headline inflation dropped to 15.01%, and core inflation to 13.6% (see chart below), reflecting a combination of a very high base and weak domestic demand. These factors will continue to dominate in the coming months, with some analysts now expecting single-digit inflation in the fall. The central bank is likely to use this opportunity to fully reverse the 625bps rate hike delivered a year ago.  The market agrees, pricing in 218bps of rate cuts in the next three months.

    South Africa’s real gross domestic product (GDP) was back from the dead in Q2. Quarterly growth surprised to the upside, rebounding to 0.9% year-on-year. The mining sector’s strong performance (the end of the strike) was one of the main reasons, but other sectors (business services, finance) and a pickup in the government spending in the run up to the elections contributed as well. Several of these factors were clearly one-offs, which can make it difficult to maintain the pace of recovery without major structural changes, including the restructuring of the state-owned energy giant Eskom.  

    Chart at a Glance: Turkey Disinflation Gathers Pace

    Chart at a Glance: Turkey Disinflation Gathers Pace

    Source: Bloomberg LP


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

    The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change.

    Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

    All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.