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  • Emerging Markets Debt Daily

    China: The Structural Reform Beat Goes On

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    September 10, 2019

    China scrapped limits on foreign investments in local bond and equity markets. J.P. Morgan placed Argentina under review for exclusion from its benchmark local bond index.  

    China’s structural reform drumbeat continued overnight, with the State Administration of Foreign Exchange (SAFE) removing limits on foreign investments in local bond and stock markets. Even though the move is largely symbolic at this stage—the existing quotas were not fully used—the ongoing push to open up China’s financial markets is encouraging. China’s current account surpluses are getting smaller, and as time goes by, the country would have to rely more on capital inflows to deal with this issue.

    The Argentine rally is taking a pause, as the market is looking for more clarity on the International Monetary Fund disbursement issue and J.P. Morgan decided to place the country under review for exclusion from its Government Bond Index-Emerging Markets (GBI-EM) local bond benchmark. J.P. Morgan’s move is not very surprising given the recent imposition of capital controls. The final decision is expected to be made on November 29.

    A small upside surprise in South Africa’s manufacturing production failed to excite. The sector remained in contraction in July (-1.1% year-on-year), and the latest industry surveys look grim. The Absa manufacturing PMI (Purchasing Managers' Index) slipped back into contraction zone in August (45.7), and the decline was broadly-based (eight out of nine indices). The major issue here is the government’s failure to address operational issues at the state utility, Eskom. Until this happens, recurring energy supply issues make it very difficult to expect major improvements on the growth front.


    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.

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