IMF Spring Meeting: Emerging Markets – What’s next?

IMF hosts numerous events for emerging markets investors as part of its annual meetings. Opinion leaders, decisionmakers, pollsters, and analysts from politics, think tanks, business, and academia hold presentations and/or discussions with investors. The meeting also provides a good opportunity of exchanging ideas with colleagues in finance.

My key takeaways:

While the sentiment of investors in the emerging markets remains positive, it does so with an increasingly cautious bias. Clear opportunities to take risky positions are becoming rarer, and selectivity is on the rise.

The macroeconomic data from China are improving. The majority of observers expect a US-China trade deal for the coming weeks or months. Both sides want an agreement, with the wording of the execution mechanisms representing the biggest hurdle. We do not yet expect the deal to be fully comprehensive though.

Argentina:

Despite the existing uncertainties, experts opine that incumbent President Macri has the best chances in the presidential elections in October – probably in a run-off ballot against Christina Kirchner. The achievement of objectives of the current IMPF programme is encouraging. The drought and its negative impact on the current account have been overcome. The roll-over rate of maturities in the sovereign segment is 100%. By the end of 2020, Argentina should not need any issues on the international bond markets anymore. The country is broadly supported by the IMF and other creditors.

Brazil:

Brazil is the investors’ darling. Experts put the probability of the country implementing its pension reform in the second half of 2019% at 50%. The economic team around the new Minister of Finance, Paulo Guedes, enjoys high levels of trust (“Brazilian Avengers“).

Mexico:

The country’s economy is expected to grow by about 1-1.5% in 2019, which puts it in the bottom segment of the emerging markets universe. While there is confidence in a cautious fiscal policy by the government of the left president, Andrés Manuel López Obrador, some fear the weakening of institutions, which would increase the risk of a rating downgrade. The governmental promises made so far in support of the highly indebted state-owned oil company PEMEX have been deemed insufficiently detailed. USMCA, the successor of the trilateral trade agreement NAFTA, should be signed in 2019, but is not high up on the risk of priorities, neither in the US nor the Mexican Congress.

Russia:

The discussion focused on the possibility of further US economic sanctions. Two new austerity packages are ready to be passed by Congress. This may happen at any time, with President Trump acting as perceived chock block. We cannot rule out the expansion of the sanctions on the issue of new Russian bonds. Since the USA does not depend on oil imports anymore due to sufficient domestic production, oil could also be used as strategic tool. There is apparently no dialogue between Russia and the USA at the moment.

Turkey:

The Minister of Finance and the central bank president were trying hard to come across relaxed while portraying their plans of significant structural reforms. The double-act was not convincing. There was little clarity on the sources of funds for servicing the significant level of short-term debt in foreign currency (especially in the private sector). However, Minister Albayrak surmised that the liabilities of the private sector were largely in the form of inter-company loans, as a result of which the refinancing risk was much lower than assumed. We did not see any rapprochement to the IMF.

Venezuela:

Government debt was estimated at 920% in terms of GDP for 2019. While the shadow government under Guaido is taking shape, its statements regarding the imminent overthrow of President Maduro seem more like wishful thinking than reality. So far, the attempts made to convince the military to turn against Maduro have been unsuccessful. Under his cabinet, the GDP has suffered to an extent that is almost unseen in economic history. The unavoidable restructuring of foreign debt will be the “mother of all restructurings” and will involve a massive haircut to be borne by the creditors. The US sanctions are likely to be stepped up.

US President Trump: in an ad-hoc survey among the 800 attending investors, his re-election in 2020 was seen as 70% likely.

 

^{Legal note:
Prognoses are no reliable indicator for future performance.}

 

This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. The language of communication of the sales offices is German and the languages of communication of the Management Company also include English.

The prospectus for UCITS funds (including any amendments) is prepared and published in accordance with the provisions of the InvFG 2011 as amended. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in conjunction with the InvFG 2011.

The currently valid versions of the prospectus, the Information for Investors pursuant to § 21 AIFMG, and the key information document can be found on the website www.erste-am.com under “Mandatory publications” and can be obtained free of charge by interested investors at the offices of the Management Company and at the offices of the depositary bank. The exact date of the most recent publication of the prospectus, the languages in which the key information document is available, and any other locations where the documents can be obtained are indicated on the website www.erste-am.com. A summary of the investor rights is available in German and English on the website www.erste-am.com/investor-rights and can also be obtained from the Management Company.

The Management Company can decide to suspend the provisions it has taken for the sale of unit certificates in other countries in accordance with the regulatory requirements.

Note: You are about to purchase a product that may be difficult to understand. We recommend that you read the indicated fund documents before making an investment decision. In addition to the locations listed above, you can obtain these documents free of charge at the offices of the referring Sparkassen bank and the offices of Erste Bank der oesterreichischen Sparkassen AG. You can also access these documents electronically at www.erste-am.com.

N.B.: The performance scenarios listed in the key information document are based on a calculation method that is specified in an EU regulation. The future market development cannot be accurately predicted. The depicted performance scenarios merely present potential earnings, but are based on the earnings in the recent past. The actual earnings may be lower than indicated. Our analyses and conclusions are general in nature and do not take into account the individual characteristics of our investors in terms of earnings, taxation, experience and knowledge, investment objective, financial position, capacity for loss, and risk tolerance.

Please note: Past performance is not a reliable indicator of the future performance of a fund. Investments in securities entail risks in addition to the opportunities presented here. The value of units and their earnings can rise and fall. Changes in exchange rates can also have a positive or negative effect on the value of an investment. For this reason, you may receive less than your originally invested amount when you redeem your units. Persons who are interested in purchasing units in investment funds are advised to read the current fund prospectus(es) and the Information for Investors pursuant to § 21 AIFMG, especially the risk notices they contain, before making an investment decision. If the fund currency is different than the investor’s home currency, changes in the relevant exchange rate can positively or negatively influence the value of the investment and the amount of the costs associated with the fund in the home currency.

We are not permitted to directly or indirectly offer, sell, transfer, or deliver this financial product to natural or legal persons whose place of residence or domicile is located in a country where this is legally prohibited. In this case, we may not provide any product information, either.

Please consult the corresponding information in the fund prospectus and the Information for Investors pursuant to § 21 AIFMG for restrictions on the sale of the fund to American or Russian citizens.

It is expressly noted that this communication does not provide any investment recommendations, but only expresses our current market assessment. Thus, this communication is not a substitute for investment advice, does not take into account the legal regulations aimed at promoting the independence of financial analyses, and is not subject to a prohibition on trading following the distribution of financial analyses.

This document does not represent a sales activity of the Management Company and therefore may not be construed as an offer for the purchase or sale of financial or investment instruments.

Erste Asset Management GmbH is affiliated with the referring Sparkassen banks and Erste Bank.

Please also read the “Information about us and our securities services” published by your bank.

Subject to misprints and errors.