India Glows as Emerging Markets Take New Heart From Trade Talks

LAGOS (Capital Markets in Africa) – However worried investors may be about IMF Managing Director Christine Lagarde’s warning on the global economic outlook, there was little sign of it in today’s emerging markets, which were clearly taking their cue from a report that the U.S.-China trade dispute may be closer to ending and a stronger-than-forecast China services PMI.

There were few losers in the currency markets, average dollar-bond spreads were a touch narrower and a firmly green equity complex drove the benchmark MSCI index to its highest level in eight months.

Priced-In Rate Cut
India was enjoying gains across the board, with the rupee close to its strongest level since August, the Sensex extending an advance that has lifted it to an all-time high and domestic-currency bonds on the rise. The moves suggest a 25 basis-point cut by the Reserve Bank tomorrow is all but priced in. And this at a time when there’s growing skepticism about how long oil — a key Indian import — can keep rallying.

Political Risk
One of the impediments to markets this year has been the gradual rise in political risk around the world. Interestingly, as Bloomberg’s emerging-markets editor Srinivasan Sivabalan has observed, the increase in the GeoQuant gauge has been led by India and China. India, of course, has an election looming, while China has been mired in the trade dispute with the U.S. The removal of those two speed-bumps in coming weeks could yet provide a significant tailwind for emerging markets.

Only Loser
Turkey’s lira quickly gave up some early gains, extending yesterday’s 2.2 percent retreat to stand out as the only loser today. The country’s March inflation reading came in roughly in line with expectations, at just under 20 percent. But as Bloomberg’s Istanbul-based reporter Cagan Koc reported today, the central bank may be much less concerned by price pressures than the lira’s current turbulence. To get a sense of how investors judge the impact of the lira’s latest swoon on debt sustainability, Turkey’s five-year credit-default swaps are now at similar levels to those of Pakistan and Kenya.

Source: Bloomberg Business News