Emerging Market Debt Indicator May 2021

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The fast view

Market Background

• The JP Morgan GBI-EM Global Diversified Unhedged Index produced a total return of 2.5% in US dollar terms, while the JP Morgan EM Bond Index returned 1.1%.
• Investors were more cautious in response to a sharp rise in US inflation data during the month.

Africa

• PMI’s across the region ticked higher, with Zambia’s PMI moving into expansionary territory for the first time in two years.
• Inflation fell across many of the region’s markets, with Egypt’s inflation dropping to 4.1% in April on the back of falling food prices.

Asia

• The slow pace of vaccine rollouts meant even relatively small increases in COVID cases prompted lockdowns in the region which weighed on domestic demand.
• However, external dynamics remain robust, and the reopening of the global economy is giving a significant boost to the region’s exports.

Latin America

• The region’s COVID vaccination drive shifted up a gear with solid progress being made in Chile and Uruguay, although the latter is in the midst of a severe second wave.
• Political uncertainty and protests remained a feature in some countries. In contrast, highlights included Argentina (positive dynamics re. repayment agreements with the Paris Club) and Mexico (benefiting from US fiscal stimulus and strong remittances).

CEE

• The region’s COVID situation is much improved thanks to relatively tough lockdowns and a pick-up in the rate of vaccinations, allowing economies to reopen.
• An intensification of inflationary pressures, partly due to a strong rebound in economic activity, prompted several of the region’s central banks to shift to a more hawkish stance.

Rest of EMEA

• Russian assets benefited from improving geopolitical news flow as the country’s foreign minister met the US Secretary of State, with both committing to a normalisation of relations.
• In Turkey the central bank continues to try to appear prudent and dispel concerns that it will cut rates too quickly, but the sacking of a deputy governor underscores risks around monetary policy, as did the early June comments from Erdogan on the need for rate cuts.