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  • Emerging Markets Debt Daily

    MSCI Expands China Weight

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    March 01, 2019
    MSCI Inc. announced that it will increase China’s weight in its emerging markets index. Brazil’s President Jair Bolsonaro disappointed with his remarks about pension reform concessions.

    China’s newsflow looked much better this morning
    , with MSCI announcing that it will increase the weight of A-shares in its emerging markets index to 3.3% (in several installments) and the Caixin manufacturing Purchasing Managers' Index (PMI) rebounding more than expected in February. There were several other notable upside surprises in emerging markets activity surveys. Hungary surged to 55.7 (time for a rate hike!). Brazil rebounded nicely to 53.4. India and Indonesia also edged higher. “Les Miserables” included Turkey (meager 46.6, more pressure to ease), South Africa (down to 46.2), Czech Republic (48.6, questioning the rationale for more hikes), and Poland (47.6). 

    It’s déjà vu all over again in Brazil’s pension reform, with President Bolsonaro indicating that he is ready to make concessions on the government’s ambitious draft, which may include lowering the minimum age for women to 60 years. What was really surprising is not the government’s willingness to negotiate (this is quite normal), but the fact that it was mentioned so early in the process. Many observers are concerned that this may lead to more dilutions than previously expected

    The U.S. macro narrative got another dent this morning, as the Institute for Supply Management (ISM) survey was significantly weaker than expected in February (especially the employment, new orders, and prices paid components) and the University of Michigan survey was revised lower. Even though both surveys are still in expansion territory, the trend is clearly down—in line with the the Federal Reserve’s “pivot” and the market expectations for the policy rate. 



    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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