22 February 2021
VanEck Blogs | Emerging Markets Debt Daily
EM - New Hurdles or Normal Consolidation?

EM assets were caught in the global risk-off sentiment, but some selloffs were “home-made”, like in Brazil. Fitch upgraded Turkey’s outlook to “stable”, citing the improved policy mix. 

The “T” word (tantrum) was mentioned on more than one occasion this morning, and emerging markets (EM) assets sold off in sympathy with other risk assets. Market pullbacks do happen in the rising yield environment, but what happens when the rate selloff stops is also important. EM growth is recovering and the global macro backdrop for EM is not bad at all―including higher commodity prices (see chart below). One obvious risk is that EM might look worse than developed markets (DM) on the vaccination front―developments in EM majors like South Africa, Mexico, Brazil and Turkey will be key in this regard.

The pain experienced by Brazilian markets this morning was mostly “home-made”. President Jair Bolsonaro’s surprising decision to replace the CEO of the state-owned oil giant Petrobras (and appoint a retired army general in his stead) sent the stock market into a tailspin (the Bovespa indexwas down by 523bps at 9:40am ET, according to Bloomberg LP). The appointment raised a lot of questions about broader implications for the economy―including the return of government interference in the face of political pressures and state-owned enterprises’ (SOE) pricing policies/asset sales―which explains the knock-down effect on the currency and bonds.

Turkey’s policy U-turn finally got the nod of approval from a rating agency. Fitch raised the sovereign outlook to “stable” citing the return to “a more consistent and orthodox policy mix” that helped to reduce near-term external risks. The renewal of the central bank’s commitment for a floating exchange rate and inflation targeting were also duly noted. Turkish assets were caught in the global risk-off sentiment this morning, but the fundamental outlook is undeniably brighter these days.

Charts at a Glance: Higher Commodity Prices Are EM-Positive


Source: Bloomberg LP

1Bovespa Index ― best known as Ibovespa, is the benchmark index of about 70 stocks that are traded on the Brazil Stock Exchange and Over-the-Counter Market, which account for the majority of trading and market capitalization in the Brazilian stock market.


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Natalia Gurushina
Chief Economist, Emerging Markets Fixed Income Strategy