Dubai: It’s a measure of how the climate has changed so quickly for emerging markets that this week’s interest-rate decision in Turkey, an event that would have had traders on tenterhooks six months ago, is being anticipated with a virtual shrug.
Far from encapsulating the vulnerability of the developing economies as it did last year, the lira’s torrid start to 2019 — it has lost 4.2 per cent already this year — is doing little to take the sheen off the growing sense of recovery seeping through emerging markets.
True, the next development in the trade talks or a flurry of negative economic indicators from China could change everything, as Monday’s declines clearly illustrate. But for now the Federal Reserve’s more dovish tone — and central bank largesse in general — combined with falling volatility, relatively low valuations and rising commodity prices are keeping most investors positive.
Monday’s price action aside, emerging-market spreads have been narrowing, while stocks and currencies have been celebrating their biggest weekly rally since early November.
And a Bloomberg foreign-exchange index that measures carry-trade returns from eight emerging markets, funded by short positions in the dollar, just climbed for a fourth week, its longest winning streak in almost a year.
“The US dollar has now peaked, Fed policy has turned and China is responding to slower growth momentum with monetary and fiscal stimulus,” said Paul Greer, a London-based money manager at Fidelity International, who is overweight developing-nation credit, currencies and local bonds.
“All of these factors, coupled with cheap valuations and a recovering oil price, should be supportive for EM risk-asset performance.”
By the way, with Turkey’s economy sliding toward a recession, most economists expect the central bank to keep interest rates on hold Wednesday. The South African Reserve Bank and Bank Indonesia will likely do the same the following day.
