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Rating Agencies Not Keen on Emerging Markets

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Emerging Markets
  • Rating Agencies Not Keen on Emerging Markets

A number of global fund managers say they are buying emerging market assets for 2017 after the beating the sector has taken since the United States election in November, even though credit rating agencies have a less positive outlook, according to a Reuters report.

Since the election of Donald Trump as the US president, emerging market stocks are down nearly seven per cent, based on the Morgan Stanley Capital Index, and the yield spread of emerging market bonds over benchmark US Treasuries is wider by 10 basis points, reversing some of the gains seen earlier in the year.

On November 8, the date of the US election, the EMBI Global year-to-date total return was 14.04 per cent, and a week later, on November 14, it had halved to 7.60 per cent, Reuters reported.

Currencies such as Mexican peso and the Turkish lira have tumbled 10 per cent or more in the wake of the election.

The US President-elect, Trump, has pledged to impose protectionist trade policies and restrict immigration which would likely damage most emerging market economies.

A Washington DC lobbying group, the Institute for International Finance, reported this week that $23bn had flowed out of emerging market funds since October 4, with $18bn of that taking flight since November 9.

“The magnitude of outflows has diminished significantly in recent weeks, but the direction has remained persistently negative,” an IIF research analyst, Scott Farnham, said.

BlackRock, the world’s largest asset manager, is expecting to reap solid gains from all emerging market asset classes, especially bonds, according to the firm’s chief fixed income strategist, Jeff Rosenberg, during the company’s recent global outlook summit.

Other global fund managers also see a rebound on the horizon.

The Head of Emerging Markets Debt at Baring Asset Management Limited, Ricardo Adrogué, said analysts, including ratings agencies, were confusing structural versus cyclical problems when evaluating the sector.

“Our assessment of emerging markets is actually strengthening at the time that developed market institutional framework is weakening,” he said.

Similarly, the Head of Portfolio Strategy at Makena Capital Management LLC, Michel Del Buono, who oversees $18bn across asset classes, also has a bullish outlook.

“If you’re exposed in the right way and you have a long-term perspective you should keep a significant weighting to emerging markets,” he said.

Del Buono said he favoured investments in things like healthcare, retail and for-profit education in places like Nigeria, Indonesia and the United Arab Emirates.

If prices keep dropping, Del Buono and Adrogué said they would keep adding to their positions, echoing what other investors told Reuters.

Morgan Harting, lead portfolio manager for multi-asset income strategies at AllianceBernstein said he is especially bullish on the energy sector and is investing in countries like Russia and Brazil as well as companies like Hungarian oil and gas group, Mol Group.

“As we get more economic data to validate that the underlying fundamentals in these economies continue to firm then people are going to get more aggressive in investing in emerging markets,” Harting said.

However, credit ratings agencies S&P Global, Moody’s Investors Service and Fitch Ratings have recently lowered positive credit outlooks and written even more negative outlooks for emerging markets. Moody’s even highlighted the risk of capital flight and potential weakness in the banking sector.

The Managing Director of Global Fixed Income Research at S&P Global, Diane Vazza, noted that worries about geopolitical risk and energy companies not being able to adjust to a longer-term trend of lower prices for oil and gas.

“About a third of (emerging market) corporates have negative outlooks,” Vazza told Reuters, adding that, “So, we expect additional downward pressure across emerging markets.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

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Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.

The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.

According to Michael McCarthy, the Chief Market Strategies, CMC Markets, the surged in gold price is a result of the projected drop in dollar value or uncertainty.

He said, “The key factor appears to be the (U.S.) currency.”

As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.

Also, the effectiveness of the vaccines can not be ascertained until wider rollout.

Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.

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Crude Oil

Crude Oil Holds Steady Above $55 Per Barrel on Tuesday

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Oil

Crude Oil Holds Steady Above $55 Per Barrel on Tuesday

Brent Crude oil, against which Nigerian crude oil is priced, rose from $54.46 per barrel on Monday to $55.27 per barrel as of 9:03 am Nigerian time on Tuesday.

Last week, Brent crude oil rose to 11 months high of $57.38 per barrel before pulling back on rising COVID-19 cases and lockdowns in key global economies like the United Kingdom, Euro-Area, China, etc.

While OPEC has left 2021 oil demand unchanged and President-elect Joe Biden has announced a $1.9 trillion stimulus package, experts are saying the rising number of new cases of COVID-19 amid poor vaccine distribution could drag on growth and demand for oil in 2021.

On Friday, Dan Yergin, vice-chairman at IHS Markit, said in addition to the stimulus package “There are two other things that are going with it … one is of course, vaccinations — in the sense that eventually this crisis is going to end, and maybe by the spring, lockdowns will be over.”

“The other thing is what Saudi Arabia did. This is the third time Saudi Arabia has made a sudden change in policy in less than a year, and this one was to announce (the) 1 million barrel a day cut — partly because they are worried about the impact of the surge in virus that’s occurring,” he said.

Also, the stimulus being injected into the United States economy could spur huge Shale production and disrupt OPEC and allies’ efforts at balancing the global oil market in 2021.

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Crude Oil

Crude Oil Pulled Back Despite Joe Biden Stimulus

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Oil 1

Crude Oil Pulled Back Despite Joe Biden Stimulus

Crude oil pulled back on Friday despite the $1.9 trillion stimulus package announced by U.S President-elect, Joe Biden.

Brent crude oil, against which Nigeria’s oil is priced, pulled back from $57.38 per barrel on Wednesday to $55.52 per barrel on Friday in spite of the huge stimulus package announced on Thursday.

On Thursday, OPEC, in its latest outlook for the year, said uncertainties remain high in 2021 with the number of COVID-19 new cases on the rise.

OPEC said, “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”

“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.”

Governments across Europe have announced tighter and longer coronavirus lockdowns, with vaccinations not expected to have a significant impact for the next few months.

The complex remains in pause mode, a development that should not be surprising given the magnitude of the oil price gains that have been developing for some 2-1/2 months,” Jim Ritterbusch, president of Ritterbusch and Associates, said.

Still, OPEC left its crude oil projections unchanged for the year. The oil cartel expected global oil demand to increase by 5.9 million barrels per day year on year to an average of 95.9 million per day in 2020.

But also OPEC expects a recent rally and stimulus to boost U.S. Shale crude oil production in the year, a projection Investors King experts expect to hurt OPEC strategy in 2021.

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