17 June 2022
VanEck Blogs | Emerging Markets Debt Daily
Suspenseful Weekend in EM

Colombia’s presidential runoff, Ukraine’s EU candidacy and China’s pro-growth policies will be closely watched over the weekend.

LATAM Politics and Policy Agenda

The Latin America (LATAM) portion of the emerging markets (EM) local bond index (J.P. Morgan’s GBI-EM Global Diversified) held on quite well so far this year (as regards to total return in U.S. dollars – see chart below), so we naturally keep an eye on potential catalysts that can either extend outperformance vs. peers or push it in the opposite direction. The second round of Colombia’s presidential elections on Sunday is one such event. Colombia accounts for 4.6% of the local bond index (=sizable), the elections are too close to call and the market implications can be very different depending on who wins – the leftist candidate Gustavo Petro or the independent candidate Rodolfo Hernandez (he performed surprisingly well in the first round).

Europe’s Ukraine Policy

EM Europe (and Europe at large) will also be on our minds – Ukraine’s EU candidate status was backed by the European Commission earlier today, and it’s now up to the EU leaders’ summit on June 23 to give it a formal approval. This process will be closely watched by holders of Ukraine’s sovereign bond maturing in September – the bond rallied a lot after hitting a bottom soon after Russia’s invasion, but further price advances stalled since mid-May.

China’s Response to Growth Headwinds

Moving to EM Asia, China’s earlier than expected Politburo meeting attracted attention today, against the backdrop of the on-going downgrade of this year’s consensus growth forecast (now at 4.3% vs. the official target of around 5.5%). News reports suggest that the meeting focused specifically on the banking/financial sector. Does this mean more emphasis on regulations as opposed to, say, additional policy rate cuts? The central bank’s decision on Loan Prime rates will be announced over the weekend. The consensus sees no change after the medium-term lending facility rate was kept on hold – but watch this space and stay tuned! 

Chart at a Glance: 10 Years of LATAM Local Debt Performance (% year-to-date)

Chart at a Glance: 10 Years of LATAM Local Debt Performance (% year-to-date)

Source: Bloomberg LP

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Natalia
Natalia Gurushina
Chief Economist, Emerging Markets Fixed Income