Emerging-Market Stocks Have Longest Rally in a Year

The following is a roundup of emerging-markets news and highlights for the week ending Jan. 20:

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Highlights:

China has offered to go on a six-year buying spree to ramp up imports from the U.S., in a move that would reconfigure the relationship between the world’s two largest economies, according to officials familiar with the negotiationsChina will also cut taxes “on a larger scale” to help support its slowing economy, according to senior economic policy officialsChinese exports slumped in December, fueling concerns about global growthCurrent monetary policy is in line with the economic situation and prices, People’s Bank of China Deputy Governor Zhu Hexin saidTrump administration officials are considering measures to roll back tariffs on Chinese products in order to calm financial markets, the Wall Street Journal reported; the U.S. Treasury Department quickly denied the reportPresident Donald Trump canceled the U.S. delegation’s trip to the global economic summit in Davos, citing the government shutdown, which is now the longest on recordTrump and North Korean leader Kim Jong Un are planning to meet near the end of February in Vietnam for a second summit, despite evidence that the Asian country is advancing its nuclear weapons programFederal authorities in Seattle are investigating Huawei Technologies Co. for allegedly stealing trade secrets from U.S. partner companies, according to people familiar with the matter, which could complicate trade negotiations between the U.S. and ChinaSaudi Arabia and four other Gulf nations will join JPMorgan Chase & Co.’s emerging-market bond indexes this month, potentially paving the way for billions of dollars in inflows into the securitiesThe Russian ruble was among the best performers; the Senate blocked a Democratic bid to force the Treasury Department to keep sanctions on three Russian companies linked to oligarch Oleg Deripaska, as most Republicans backed the Trump administration’s plan to lift the penaltiesTrump warned Turkey of economic devastation if its army attacks Kurds in Syria. Trump and Turkish President Recep Tayyip Erdogan later talked on the phone to sort out disagreements, boosting the liraSouth Africa’s central bank maintained its key interest rate at 6.75 percent, and trimmed inflation expectations at its first meeting of the yearMexico sold its first global bonds under President Andres Manuel Lopez Obrador’s administration, paying a spread of 185 basis points over Treasuries to raise $2 billion with 10-year notes

Asia:

Chinese exports and imports fell in December, showing the impact of the trade war and an economic slowdownThe PBOC has been quietly guiding interbank borrowing costs down without actually cutting official interest rates, with the latest move a record one-day injection of cash into the marketChina’s top lawmaking body has fast-tracked approval of a foreign investment bill, in a sign that President Xi Jinping wants to advance policy moves to support trade negotiations with the U.S.India’s rupee was among the underperformers; The Reserve Bank of India, in consultation with the Indian government, has decided to rationalize the framework for external commercial borrowings and rupee-denominated bonds to improve the ease of doing businessThe trade deficit narrowed in December to $13.1 billion from a $16.7 billion shortfall in November. The median estimate in a Bloomberg survey was $14.5 billionInflation rate came in at 2.19 percent in December, compared with 2.33 percent the previous monthIndonesia’s rupiah was among the worst performers, while the Jakarta Composite Index advanced for a fourth week; Bank Indonesia held its policy rate at 6 percent, as expected in a Bloomberg surveyIndonesia posted a record trade deficit in 2018 after a slump in the rupiah boosted imports and the trade war hurt exports; the shortfall was $1.1 billion in December, bringing the full-year deficit to $8.6 billion, data from the statistics bureau showed Indonesia is prepared to raise taxes on imports again if it fails to boost exports to rein in the country’s ballooning trade deficit, Finance Minister Sri Mulyani Indrawati told the Financial TimesPresidential candidate Prabowo Subianto is proposing deep tax cuts to bolster Southeast Asia’s largest economyPresident Joko Widodo pledged to intensify the fight against corruption through merit-based political appointments in the first presidential debate, while Prabowo mooted higher pay for bureaucrats to tackle the menace seen as hindering the country’s developmentThe baht was among the outperformers; Bank of Thailand said in its report assessing financial-sector stability that the search for yields has led to an under-pricing of risk, a possible source of fragility for parts of the financial sectorThe Philippines Stock Exchange Index advanced for a third week; the central bank sees easing inflation boosting consumption and investment this year, Deputy Governor Diwa Guinigundo saidBangko Sentral ng Pilipinas will consider reducing banks’ reserve-requirement ratios if inflation expectations aren’t “in danger of being dis-anchored,” Guinigundo saidGrowth in overseas remittances came in below estimates in NovemberMalaysia’s government formed a committee that’s expected to reduce fiscal debt and liabilities to a manageable level within the next 18 monthsPrime Minister Mahathir Mohamad considered giving subsidies to industries he wants to promoteMalaysia’s intake of direct taxes rose to a record last yearVietnam won’t devalue the dong to boost exports and the government is seeking to attract more investors, citing a red-hot economy, business-friendly policies and a Communist party led by free-traders

EMEA:

The Turkish lira rallied after the nation’s central bank left interest rates unchanged and reaffirmed its stance on inflationPrivate-sector money fled Russia at the fastest pace since 2014 last year as fresh U.S. sanctions and the threat of more to come dented confidence. More than $67 billion left the country in 2018, just under half the volume of outflows four years ago, when falling oil prices and Western sanctions over Russia’s annexation of Crimea battered the rubleNovember trade surplus was larger than expectedJitters over Romania’s tax on bank assets continued to cause volatility for banking stocks. Romanian lenders are pushing for exemptions to a proposed tax on assets after the Finance Ministry frustrated their hopes of a lower rate, according to people with knowledge of the matterThe Hungarian central bank gave its clearest indication yet that the unwinding of monetary policy stimulus is imminent, sparking a rally in the forint Poland’s industrial output fell more than expected in December, while employment rose in line with economists’ forecastSaudi Arabian Oil Co. could tap the bond market for about $10 billion to help fund the acquisition of petrochemicals giant Saudi Basic Industries Corp., according to the country’s Energy Minister Khalid Al-FalihLebanon’s dollar bonds recovered from their plunge to a record low after top officials said the nation was discussing how to reduce the budget deficit and implement fiscal reforms — but would not restructure its debt The caretaker economy minister said the country is hopeful of getting outside financial support, but couldn’t confirm that Qatar is prepared to deposit $1 billion with the central bankEgypt plans to issue between $3 billion and $7 billion worth of international bonds in the first quarter of the year, Finance Minister Mohamed Maait said, amid an outflow of foreign capital from local debt markets that could test its ability to meet budget deficit reduction targetsIsraeli Prime Minister Benjamin Netanyahu ratcheted up his campaign to discredit Israeli journalists and his left-wing opponents, as a decision on his possible indictment nears.

Latin America:

Mexico reopened most fuel pipelines after closures that caused gasoline shortages in several statesBank of America Merrill Lynch cut its forecast for Mexico’s economic growth in 2019 to 1 percent from 2 percent Brazil’s Ibovespa rallied for a fourth week; President Jair Bolsonaro is expected to give the green light to a pension reform bill before Jan. 28, his chief of staff said Bolsonaro signed a decree loosening gun regulations and hinted at further measures to arm citizens facing rampant crimeThe central bank’s outgoing chief Ilan Goldfajn said emerging markets face a growing risk from the economic slowdown rather than from further rate hikes by the Federal ReserveArgentina’s currency returned to the central bank’s targeted range after trading below the lower limit for several daysConsumer prices rose less than forecast month-on-month in December, with inflation easing for a third month in response to the central bank’s aggressive monetary policyArgentina and Brazil agreed to review the common external tariffs set by the Mercosur trade bloc and improve access to marketsUruguay tapped international debt markets by selling $850 million of 12-year bonds and has agreed to buy back notes due 2024 and 2027 under a cash tender offer

–With assistance from Netty Ismail, Colleen Goko, Philip Sanders and Andrew Janes.

The Vanguard FTSE Emerging Markets ETF (VWO) closed at $40.55 on Friday, up $0.21 (+0.52%). Year-to-date, VWO has declined -11.50%, versus a 0.25% rise in the benchmark S&P 500 index during the same period.

VWO currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #7 of 93 ETFs in the Emerging Markets Equities ETFs category.

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