Current investor behaviour supports EM bonds, based on SC FIRST data on EM flows and positioning
• Foreign holdings recovered in January after dipping in December; structural demand for EM continues
• Indonesia stood out as the big positive story ...
Fed will be patient but EM investors are not; outflows are channelling through more liquid bond markets
• While overall flows reflect the Fed story, relative flows show the lower oil story still captures mindshare
• Stressed markets care about e...
We met with clients across the US last week to discuss opportunities heading into 2015
• Post-OPEC, the focus was heavily on oil; moves in trade-weighted FX had less focus
• Risk addition is likely to be light into year-end; currency wars will rem...
Direction signal now neutral from negative as foreign flows to EM debt, especially oil importers, improve
• Spread signal turns positive on flows to high-yielding oil importers (INR, ZAR, TRY, IDR) plus Brazil
• October fund allocations reflect ...
Direction signal stays negative on weak demand for EM debt; EM FX weakness puts pressure on EM bonds
• Structural investors continue to favour Asia bonds; hard data supports Korea and Indonesia
• Flow rotation continues from Russia, Turkey and So...
Indonesia has been attracting unusually high inflows on a strong local story relative to valuations
• Funds moved overweight during July and August, but positioning is only a risk if fundamentals change
• EM-21 reserve build over May-July leaned a...
In the budget, the finance minister mentioned making Indian debt eligible for international settlement
• Such a move would substantially ease operational issues faced by foreigners in accessing local debt
• For international settlement to be effe...
• New allocations charts show ongoing short-covering that will continue to support Thai bonds and FX
• Direction signal back to positive: add new long 5Y THB bonds vs pay 5Y swaps
• Spread signal shifts down to neutral, supporting low-yield bonds ...
Strong marginal buying in early May slowed as global rates fell and some countries’ risk rose
• Reflecting the slowdown, the SC FIRST directional signal turns to neutral from positive
• Given dovish ECB decision, flow signals underplay the posit...
Direction and spread signals stay positive for the third consecutive month
• These signals support our view that EM yields will fall and high-yielders will outperform
• Relative-value signals support our positive Thai 5Y bonds and Overweight COP F...
• Direction and spread signals are both positive for the second consecutive month
• Stay Positive on South Africa, but stay Neutral on Indonesia, due to valuations and fundamentals
• Colombia should receive hefty bond inflows in the months to co...
South African bonds are well placed to benefit from the new and strongly positive EM bond signals
• Our directional signal has now turned positive: investors in aggregate are now buying, not selling
• Our spread signal has now turned positive, s...
Our directional signal for EM bonds has turned neutral for the first time since October 2013
• Foreign holdings of EM bonds are stabilising; EM bond funds redemptions/outflows remain negative
• Our EM/DM spread signal is neutral; foreign investors...
Foreign mutual funds are selling EM bonds, but foreign structural investors are still buying
• Mexican and Indian markets are being bought: we maintain our Positive local bond outlook on INR bonds
• We now track local and foreign positions in Nige...
Foreigners are sellers of THB, TRY, ZAR and KRW bonds; buyers of IDR and MXN bonds
• Our carry-sensitivity indicator reaches new lows; EM/DM bond spreads to remain wide
• Foreign holdings of EM bonds are flat, suggesting that sovereign investors ...
Our directional signal for EM bonds has turned negative for the first time since July
• Outflows from EM funds are accelerating, hurting risk appetite and triggering EM bond selling
• Fundamentally, we are neutral on EM bonds, as we expect Fed QE ...
• We previously analysed aggregate foreign positioning in local currency in SC FIRST, assessed our own data sources for a more accurate fund-flow analysis, and generated insights on foreign-investor heterogeneity
• We can now generate insights on d...
• SC FIRST signals little active risk appetite on debt-ceiling worries
• Relative-value signal turns positive for ZAR bonds; we have raised our ZAR duration outlook to Overweight
• Direction signal is neutral for EM bonds for the third month, supp...
To paraphrase Mark Twain, the reports of the death of EM bond markets have been greatly exaggerated. Increased global allocations to local EM bond markets have been not cyclical but primarily structural in nature, reflecting these markets’ rising ec...
Client conversations indicate that access issues for Indian bonds extend beyond capital controls, although index eligibility criteria appear to stipulate capital controls as the sole reason for exclusion
• We review these issues and compare India w...
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