The collapse of Silicon Valley Bank and events surrounding the UBS takeover of Credit Suisse made for a volatile month as investors digested the potential implications of both. Against this backdrop, EM fixed income and currency markets held up well, with all sub-asset classes posting positive returns.
The IMF executive board approved a new US$5 billion flexible credit line for Morocco. Ghana’s government passed the key tax bills required to get its IMF deal finalised. Elsewhere, Angola’s economy finally put its five-year long recession behind it – growing by 3.0% in 2022.
The theme of strong service sector activity (boosted by China reopening) and a more subdued manufacturing sector continued. Positive surprises included lower-than-expected inflation in the region and improving data on China’s property market - new home sales returned to pre-COVID levels.
Inflation continued to fall in much of the region. In Brazil, President Lula’s fiscal framework was more conservative than expected, allaying market fears. Political risk continued to abate in Peru, but increased uncertainty sparked a sell-off in Ecuador, as a greater possibility of impeachment increased the likelihood of President Lasso calling early elections, dissolving Congress and ruling by decree.
Central and Eastern Europe
While hard economic growth data across the region has generally disappointed, soft data (e.g., consumer and business confidence) continued to recover. Inflation has generally fallen, albeit not always in-line with expectations. Markets welcomed news that Montenegro’s president (incumbent for 30 years) lost the election to a pro-EU former investment banker.
Rest of Europe, Middle East and Africa (EMEA)
Ahead of the May election and facing a stronger opposition, Turkey’s President Erdogan gave more fiscal handouts. Turkey’s external position remains fragile given the large current account deficit and falling usable foreign exchange reserves. In Ukraine, the IMF reached a staff-level agreement for a US$16 billion credit facility. Governance and political risk continued to weigh on Israeli assets.
EM corporate debt highlights
Global macro headlines overshadowed EM corporate developments and drove market moves, but against this backdrop the asset class held up well. While the risk-off shift in sentiment and fears of banking sector contagion caused spreads to widen meaningfully across both high-yield and investment-grade issuers, the rally in US Treasuries helped to offset this.
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