Dubai: With China rediscovering its appetite for stimulus, the Federal Reserve promising to be patient on rates and optimism surrounding trade talks, emerging markets have good reason to start shaking off February’s lethargy.
Investors looking for the next risk-on trigger will be watching China’s annual National People’s Congress starting Tuesday, as the country’s growth target is likely to signal how much the economy has been affected by the trade war.
Friday’s US payrolls report will be key too, though it would only take a much higher-than-forecast reading to convince traders that Fed interest-rate increases this year are back in the cards, some economists say.
“The biggest concern for EM at the moment remains any sharp rebound in US data, which would likely cause the dollar to rally and US rates to rise,” said Paul Greer, a London-based money manager at Fidelity International who is overweight emerging-market currencies, local bonds and credit. “This would be a headwind for EM assets in the short term.”
A Bloomberg index that measures carry-trade returns from eight developing-nation currencies, funded by short positions in the dollar, snapped a three-month rally in February, a sign that a dollar revival could undermine bullish emerging-market bets. Mitigating that risk could be renewed criticism from US President Donald Trump of the Federal Reserve and comments over the weekend that the dollar was too strong.