1、Please refer to important information at the end of this report EMERGING MARKETS:DIFFERENTIATION MATTERS EMERGING MARKETS RESEARCH June 2019 Marcelo Carvalho,Head of Global Emerging Markets Research Luiz Eduardo Peixoto,Emerging Markets Economist BNP Paribas London branch HOW WE ANALYSE EMERGING MAR
2、KETS 2 Transmission channels 3 2 3 1 Agenda BROADER TRENDS:EM IN BETTER SHAPE GLOBAL DRIVERS:GROWTH,RATES,AND USD LOCAL DRIVERS:ELECTIONS AND POLICIES SCENARIO&FORECASTS CHEATSHEET FROM OUR TEAM 4 GLOBAL DRIVERS:GROWTH,RATES AND USD 1 4 Global growth:Slowing advanced economies.5 China:Policy stimulu
3、s plays a role.6 World trade.7 World trade:Slowdown in trade hints of slowing growth.8 World trade:Trade war impacts countries differently.9 BNP Paribas EM trade war exposure index.10 Real interest rates:Key for EMs;11 US rates:Real long-term rates matter for EMs12 Historical US dollar cycles.13 His
4、torical US dollar cycles(2).14 Historical US dollar cycles(3).15 BNPP Sovereign Ratings Index.16 GLOBAL GROWTH:SLOWING ADVANCED ECONOMIES 5 Sources:OECD,Macrobond,BNP Paribas.Dotted lines stand for BNP Paribas forecasts.Advanced economies are slowing Global GDP growth(%y/y growth,3mma)Dotted lines d
5、enote BNP Paribas forecasts.CHINA:POLICY STIMULUS PLAYS A ROLE 6 Sources:PBoC,China NBS,BNP Paribas We expect economic growth to stabilise in China,as extra stimulus yields results Forecasts are provisional and subject to change.Chinese industrial production,service sector and credit stimulus(%y/y g
6、rowth,3mma)Chinese GDP growth and domestic demand(%y/y growth)81216202456789101120122013201420152016201720182019Industrial productionTertiary sectorOutstanding loans,privatesector(RHS)Dotted lines denote BNP Paribas forecasts.481216202013 2014 2015 2016 2017 2018 2019 2020GDP real growthAggregate go
7、ods demand 7 WORLD TRADE Sources:Macrobond,BNP Paribas World trade has been slowing since the start of the year Global trade vs semiconductor sales(%y/y growth,3mma)8 WORLD TRADE:DROP IN TRADE HINTS OF SLOWING GROWTH Our trade monitor suggests EM exports have yet to recover,posing a downside bias fo
8、r economic activity Sources:Macrobond,WTO,BNP Paribas BNPP EM ex-China exports growth tracker vs Chinese imports(%y/y growth,3mma)BNPP EM GDP growth vs exports growth trackers (%q/q s.a.growth)Deceleration in EM quarterly GDP growth of 0.3pp in Q1,according to our tracker -200-150-100-50050100North
9、AmericaEast AsiaRest of AsiaEUSouth AmericaAfricaOthersDue to Chinese tariffsDue to US tariffs9 WORLD TRADE:TRADE DISPUTES IMPACT COUNTRIES DIFFERENTLY Sources:UNCTAD(right-side),WTO,BNP Paribas Differentiation is key as impact could vary across EMs,depending on their export profiles Weight of the U
10、S and China in each countrys total exports(in values):3 3 3 4 5 6 8 8 9 12 12 13 13 14 16 17 21 22 32 78 1 1 1 13 13 2 13 7 9 15 27 12 27 34 15 8 18 6 2 0%20%40%60%80%100%Czech RepublicPolandRomaniaHungaryRussiaTurkeySaudi ArabiaArgentinaSouth AfricaIndonesiaSouth KoreaThailandBrazilChileMalaysiaInd
11、iaChinaVietnamColombiaMexicoWeight,USOthersWeight,ChinaRegional value chain effects(in USD bn)00.250.50.751ArgentinaRomaniaTurkeyPolandColombiaSaudi ArabiaIndiaRussiaCzech RepublicBrazilIndonesiaSouth AfricaHungaryMexicoChileThailandMalaysiaVietnamChina subindex(1)US subindex(2)Global subindex(3)10
12、WORLD TRADE:TRADE WAR EXPOSURE VARIES AMONG COUNTRIES(1):In equal parts,exports to China as a percentage of the countrys GDP and as a percentage of the countrys total exports(2):In equal parts,exports to the US as a percentage of the countrys GDP and as a percentage of the countrys total exports(3):
13、In equal parts,trade as a percentage of the countrys GDP and the estimated percentage of jobs coming from export-oriented industries All numbers have been normalised,with each subindex accounting for a third of the total exposure index,totalling a maximum of 1.Source:OECD,IMF,WTO,BNP Paribas.EM Asia
14、,Chile,and Mexico are more exposed to the tariffs dispute,but beware of the peculiarities in each country BNPP EM trade exposure index(1=most exposed;0=not exposed at all)11 REAL INTEREST RATES:KEY FOR EMS;WHAT TO EXPECT?Lower natural rates in advanced economies mean less room for additional monetar
15、y tightening even in the longer term Sources:US Federal Reserve,BNP Paribas EM Strategy team Laubach-Williams Natural Rate of Interest vs Real Fed Funds Rate(p.a.)12 US RATES:REAL LONG-TERM RATES MATTER FOR EMs Lower long-term real rates help compress EM spreads Sources:US Federal Reserve,BNP Pariba
16、s EM Strategy team US real rates(in bp)vs EMBIG 10y spreads(RHS)4.55.36.16.97.7-50050100150Jul-12Jul-13Jul-14Jul-15Jul-16Jul-17Jul-185y5y US real rates(in bp)EMBIG 10y yield blended(rhs)Taper tantrum Opec/RMB devaluation Trump;UST steepening 13 HISTORICAL US DOLLAR CYCLES US dollar cycles come in wa
17、ves;we think the USD has peaked Sources:US Federal Reserve,BNP Paribas EM Strategy team USD real effective exchange rate,CPI deflator(3mma,1980=100)1985:Plaza accord 2000:Tech crash 2007:America first policy 1991:Tech crash 14 HISTORICAL US DOLLAR CYCLES A weaker dollar tends to translate into stron
18、ger EM FX Sources:US Federal Reserve,Macrobond,BNP Paribas Stronger currency Weaker currency EM FX(1990=100)vs USD index(RHS,1990=100)15 HISTORICAL US DOLLAR CYCLES With a lower,more stable and less risky macro backdrop,spreads in EMs remain tighter despite a stronger USD Sources:US Federal Reserve,
19、Macrobond,BNP Paribas Lower commodity prices,stronger USD Broad commodity index (3mma,2000=100,inv.)vs USD index(RHS,2000=100)708090100110120130199619982000200220042006200820102012201420162018BNPP EM sovereign ratings index(3-month moving average)EM FX(CPI adjusted)BBBBBBBBBBB+BBBBBB-Investment grad
20、e16 BNPP SOVEREIGN RATINGS INDEX Sources:S&P,BNP Paribas Emerging markets sovereign ratings have broadly shown a steady improvement BNPP EM sovereign ratings index (3mma)vs EM FX index(RHS)17 LOCAL DRIVERS:ELECTIONS AND POLICY 2 Emerging markets:External and fiscal outlook.18 FDI:distinguishing real
21、 inflows.19 Hard currency debt by sector.20 Sovereign ratings.21 Monetary policy matters.22 Monetary policy matters(2)23 Elections:Argentinas uncertain outcome24 Argentina Brazil Chile Colombia Mexico Venezuela Czech Rep.Hungary Poland Turkey Ukraine China Malaysia Indonesia India Philippines South
22、Korea South Africa-5-3-1135701234Current account balance,in%of GDP(2019 forecast)Reserve coverage ratio(international reserves/short-term external debt+current account deficit)18 EMERGING MARKETS:EXTERNAL AND FISCAL OUTLOOK Some countries are on an adjustment path,with drastic reductions in their ex
23、ternal and budget shortfalls Sources:IIF,IMF,Bloomberg,BNP Paribas Argentina Brazil Chile Colombia Mexico Czech Rep.Hungary Poland Russia Turkey Ukraine China Malaysia Indonesia India Philippines South Korea Thailand Saudi Arabia South Africa UAE-2050204060801005-year expected change,government gros
24、s debt/GDP Gross public debt,%of GDP External vulnerabilities Fiscal vulnerabilities 19 FDI INFLOWS:DISTINGUISHING REAL FLOWS“Real”flows might be a better measure of foreign investment resilience Sources:IIF,BNP Paribas Non-resident foreign direct investment,average 2015-18(in%of GDP)Non-resident po
25、rtfolio inflow vs Non-resident FDI“real”inflow (in%of GDP,average 2015-8)012345HungaryChileColombiaCzech Rep.BrazilMalaysiaMexicoUAEPhilippinesPolandEgyptThailandIndiaIndonesiaChinaTurkeyArgentinaRussiaSouth AfricaSouth KoreaNigeriaSaudi ArabiaReinvested earningsReal flowTotalHungary Chile Colombia
26、Czech Rep.Brazil Malaysia Mexico UAE Poland Thailand India Egypt China Turkey Argentina Russia South Africa South Korea Saudi Arabia Indonesia-2-101234-2-101234Non-resident portfolio inflow(%of GDP)Non-resident FDI“real”inflow(%of GDP)Too much“hot money”Too little FDI 20 HARD CURRENCY DEBT BY SECTOR
27、 Turkeys debt is mainly held by corporates,while Argentinas debt is mostly held by the government Sources:Bloomberg,BIS,IIF,BNP Paribas 01530456075TurkeyHungaryArgentinaPolandChileS.KoreaIsraelMalaysiaCzechColombiaS.AfricaMexicoBrazilRussiaIndonesiaS.ArabiaThailandIndiaChinaHouseholdsFinancial secto
28、rGovernmentNon-financial corporatesHard currency debt breakdown(in%of GDP)21 SOVEREIGN RATINGS Credit default swaps,sovereign 5yr(30d avg)Sovereign credit ratings,Standard&Poors Sources:S&P,Bloomberg,BNP Paribas Broad correlation between rating and market premia South Korea Slovenia Czech Rep.Thaila
29、nd Slovakia Letonia Chile China Poland Israel Latvia Lithuania Qatar Panama Philippines Peru India Malaysia Romania Uruguay Hungary Cyprus Indonesia Bulgaria Mexico Colombia Morocco South Africa Vietnam Brazil Croatia Kazakhstan Bahrain Egypt Greece Rwanda Turkey Nigeria Pakistan Kenya 0100200300400
30、246810121416AA+AA-A BBB+BBB-BB B+B-22 MONETARY POLICY MATTERS Countries with more transparent central banks fare better in anchoring inflation expectations Brazil Chile Colombia Mexico Peru Canada Australia Czech Rep.Hungary India Indonesia South Korea New Zealand Norway Philippines Poland Romania R
31、ussia Thailand UK USA 0510152025300.00.20.40.60.81.0Frequency of monetary policy surprises (2010-18,%of total decisions)Absolute deviation of 2yr ahead inflation expectations from central bank target (2010-17)Sources:IMF(Oct 2018),BNP Paribas Less anchored More anchored Inflation expectations More L
32、ess Policy rate surprises 23 MONETARY POLICY MATTERS Shocks tend to sway expectations less in countries with more solid monetary frameworks Sources:IMF(2018),BNP Paribas 0.00.10.20.30.40.5Sensitivity of long-term forecasts to inflation surprises(2004-17)Stronger currency Less anchored More anchored
33、Inflation expectations Very good 10%Good 15%Mediocre 16%Bad 16%Very bad 43%Vulnerability analysis 24 ELECTIONS:ARGENTINAS UNCERTAIN OUTCOME Sources:UTDT,BNP Paribas Deviation from the Emerging Markets average,BNPP vulnerability indicator Argentina Overall,Vulnerabilities index:32%External Financing
34、Vulnerability subindex:43%Domestic Financial Vulnerability subindex:12%Policy Vulnerablity subindex:40%Primaries:8 Aug Elections:27 Oct Recession and high inflation create a challenging environment for Mauricio Macris re-election pledge.but his opponents still have to prove they can gain enough popu
35、larity or reduce rejection Sources:Synopsis,BNP Paribas How would you rate Macris government?(Apr 2019)Rejection rates(“I would never vote for”,Mar 2019)0204060MacriKirchnerSources:Elypsis,BNP Paribas 25 BROADER TRENDS:EM IN BETTER SHAPE TO WITHSTAND HEADWINDS 3 Economic crises in EM.26 Inflation di
36、stribution:EM.27 Inflation:Historical trends.28 Exchange rate regimes.29 BNPP Sovereign Ratings Index.30 EM Sovereign Ratings Map.31 Corporate default rates.32 EM fiscal benchmarks have improved.33 Poverty:Sharp reduction since the 1980s.34 Ease of Doing Business:EM Ranking.35 26 ECONOMIC CRISES IN
37、EM Number of emerging market crisis,by type 0246810121416181970197519801985199019952000200520102015Sovereign DebtCurrencyBankingSources:Carmen Reinhart,IMF,BNP Paribas Crises in emerging economies have become scarcer,with improved frameworks 27 INFLATION DISTRIBUTION:EM 01020304050607080901001970198
38、0199020002010201810 percent5-10 percent2-5 percent0-2 percent0 percentInflation distribution,emerging and developing countries(%)Sources:IMF,BNP Paribas Inflation has decreased consistently in most EMs since the 1980s and 1990s hyperinflation cases 28 INFLATION:HISTORICAL TRENDS Sources:IMF,OECDstat
39、,Haver Analytics,BNP Paribas Median year-on-year consumer price inflation for 29 advanced economies and 123 EMs(including 28 low-income countries).Inflation has decreased consistently in most EMs since the 1980s and 1990s hyperinflation cases(same as previous slide)0510151970197519801985199019952000
40、200520102017Advanced economiesEmerging economiesHeadline inflation,median%y/y-0.10.00.10.20.3FullPost-1998FullPost-1998Advanced economiesEmerging marketsInterquartile rangeMedianAverage FX pass-through to inflation 29 EXCHANGE RATE REGIMES Sources:IMF Annual Report on Exchange Arrangements and Restr
41、ictions(2018,2015),BNP Paribas Since the 1980s,many EMs have transitioned from peg to floating currency arrangements Emerging markets:currency regimes over time 0%10%20%30%40%50%60%70%80%90%100%19801985199019952000200520102015Hard currencyConventional pegHorizontal bandCrawling peg/bandManaged float
42、Independent float0%10%20%30%40%50%60%70%80%90%100%19801985199019952000200520102015Hard pegPegFloat or managed float 30 BNPP SOVEREIGN RATINGS INDEX BNP Paribas sovereign rating index is an average of sovereign rating scores composed of 58 different emerging and advanced economies(includes Chile,Turk
43、ey,Denmark,Spain,Hungary,Iceland,Poland,Ecuador,Netherlands,Sweden,Slovenia,Qatar,South Africa,Czech Republic,Hong Kong,China,Brazil,Indonesia,Ukraine,Italy,Mexico,Argentina,Singapore,Saudi Arabia,Serbia,Australia,Finland,Portugal,Colombia,Costa Rica,Latvia,Ireland,Uruguay,Belgium,Switzerland,Norway
44、,Israel,Germany,Taiwan,France,Slovakia,Croatia,South Korea,the US,India,Bolivia,the UK,Austria,Japan,Thailand,Russia,Egypt,Paraguay,Peru,Canada,New Zealand,and Luxembourg).Sources:S&P,BNP Paribas Several EM countries were granted investment grade sovereign ratings in the past and most have retained
45、it 2.504.005.507.008.5019901994199820022006201020142018Advanced markets sovereign rating index A+A+AAA BB BBB+Emerging markets sovereign rating index-5-4-31990199319961999200220052008201120142017Spread(EM sovereign index AE sovereign index)Investment grade BNPPs sovereign rating indexes:comparing de
46、veloped and emerging economies EM SOVEREIGN RATINGS MAP 31 Mexico BBB+Colombia BBB-Brazil BB-Argentina B Poland A-Romania BBB-Turkey B+Russia BBB-South Korea AA Indonesia BBB-India BBB-South Africa BB Egypt B Sources:S&P,BNP Paribas Chile A+Malaysia A-China A+Peru BBB+Nigeria B Saudi Arabia A-More r
47、isky sovereign Less risky sovereign Hungary BBB Sovereign ratings map(colored according to S&Ps assessment of hard-currency sovereign)32 CORPORATE DEFAULT RATES Non-financial corporate bond default rate(%of outstanding issuance)0510151999200220052008201120142017Advanced economiesEmerging economiesSo
48、urces:FT,Moodys,BNP Paribas Default rates in EM corporate bonds have decreased sharply from that seen in the 1990s,now at par or below rates in AEs 33 EM FISCAL BENCHMARKS HAVE IMPROVED Emerging and low income countries with fiscal rules(%of total)83 81 43 16 Debt ruleBudgetbalance ruleExpenditureru
49、leRevenueruleSources:IMF(2017),BNP Paribas Several emerging countries have adhered to fiscal rules,improving their policy-making control and accountability 83%:Debt rule 81%Budget balance rule 43%:Expenditure rule 16%:Revenue rule Only less than 20%of EMs and LICs do not have any sort of formal fisc
50、al rule 34 POVERTY:SHARP REDUCTION SINCE THE 1980S Sources:World Bank,BNP Paribas Poverty has declined across EMs 010203040506070198119851989199319972001200520092013Upper middle incomeLower middle incomeLow income%of population living with less than USD1.10 per day 35557595115135Subsaharan AfricaLat
