Ukraine, Egypt explore preferential trade deal: Zelenskyy    Egypt, Russia's Rosatom review grid readiness for El-Dabaa nuclear plant    Mastercard Unveils AI-Powered Card Fraud Prevention Service in EEMEA Region, Starting from Egypt    Global tour for Korean 'K-Comics' launches in Cairo with 'Hellbound' exhibition    China's factory output expands in June '25    Egyptian pound climbs against dollar at Wednesday's close    New accords on trade, security strengthen Egypt-Oman Relations    Egypt launches public-private partnership to curb c-sections, improve maternal, child health    Gaza under Israeli siege as death toll mounts, famine looms    EMRA, Elsewedy sign partnership to explore, develop phosphate reserves in Sebaiya    Philip Morris Misr announces new price list effective 1 July    Egypt Post discusses enhanced cooperation with Ivorian counterpart    Egypt's Environment Minister calls for stronger action on desertification, climate resilience in Africa    Egypt in diplomatic push for Gaza truce, Iran-Israel de-escalation    Egypt teams up with private sector to boost university rankings    Egypt reveals heritage e-training portal    Three ancient rock-cut tombs discovered in Aswan    Egypt condemns deadly terrorist attack in Niger    Egypt, Tunisia discuss boosting healthcare cooperation        Egypt's EHA, Schneider Electric sign MoU on sustainable infrastructure    Sisi launches new support initiative for families of war, terrorism victims    Grand Egyptian Museum opening delayed to Q4    Egypt expands e-ticketing to 110 heritage sites, adds self-service kiosks at Saqqara    Egypt's Irrigation Minister urges scientific cooperation to tackle water scarcity    Egypt discovers three New Kingdom tombs in Luxor's Dra' Abu El-Naga    Palm Hills Squash Open debuts with 48 international stars, $250,000 prize pool    Egypt's Democratic Generation Party Evaluates 84 Candidates Ahead of Parliamentary Vote    On Sport to broadcast Pan Arab Golf Championship for Juniors and Ladies in Egypt    Golf Festival in Cairo to mark Arab Golf Federation's 50th anniversary    Germany among EU's priciest labour markets – official data    Cabinet approves establishment of national medical tourism council to boost healthcare sector    Egypt's PM follows up on Julius Nyerere dam project in Tanzania    Egypt's FM inspects Julius Nyerere Dam project in Tanzania    Paris Olympic gold '24 medals hit record value    A minute of silence for Egyptian sports    Russia says it's in sync with US, China, Pakistan on Taliban    It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game    Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights    Sudan says countries must cooperate on vaccines    Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19    Egypt to tax bloggers, YouTubers    Egypt's FM asserts importance of stability in Libya, holding elections as scheduled    We mustn't lose touch: Muller after Bayern win in Bundesliga    Egypt records 36 new deaths from Covid-19, highest since mid June    Egypt sells $3 bln US-dollar dominated eurobonds    Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go    Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



Argentina's latest market shock doesn't greatly affect other emerging markets: Analysis
Published in Amwal Al Ghad on 19 - 08 - 2019

Argentina's latest financial market shock has failed to swamp other emerging markets in the way its previous plunges have done – in part due to the increasing isolation of the country's credit and investments from the rest of the pool.
Argentina's economy and banking system are probably too small to cause significant ripple effects by themselves. And while emerging economies are clearly under pressure from global trade and recession fears, they have not yet been materially infected by Argentina's latest shock.
An estimated $3.4 billion has exited emerging markets outside Latin America so far this week, Institute of International Finance data shows, but analysts say only a part of that outflow is likely due to fallout from Argentine President Mauricio Macri's heavy defeat in Sunday's primary election – a result that's seen the peso lose more than a third of its value in just three days.
Argentina's currency plunge has echoes of its previous traumatic episode in 2018 which contributed to billions of dollars being pulled from emerging markets around the world.
This week's jolt initially sparked some debt and equity selling in South Africa, Indonesia and Thailand and currency losses for Turkey, Mexico, Brazil and South Africa.
However, the shockwaves have been less severe so far this time and by the end of the week the contagion beyond Argentina began to fade. Analysts cited the country's idiosyncratic situation and likened its string of recent crises — in 2001, 2014 and 2018, as well as 2019 — to a diminishing echo.
"The direct fallout from Argentina's crisis on the rest of the emerging world should be limited, since Argentina's economic footprint has diminished and it is a relatively closed economy," said Stéphanie de Torquat, macro strategist at Lombard Odier.
The MSCI Emerging Markets Index for stocks is down 1.4% for the week, less than the 2.2% dip in its global all-country equivalent. Argentina accounts for an aggregate weight of only 0.26% within the index, significantly smaller than the weight of the largest five countries. Neighboring Brazil's weighting is 8.1%.
Bond markets have also rebounded, with the Bloomberg Barclays Emerging Markets USD Aggregate Index back in positive territory for the month, reversing a 1% slide in the wake of the election outcome.
"Argentina isn't the largest (debt) issuer in emerging markets, it is just 2% or 2.5% in the indices, so it's fairly manageable from a broader contagion perspective," said Shamaila Khan, director of emerging market debt at AllianceBernstein in New York. "In a year like this when emerging markets has had very strong returns I do not think that the price movement in Argentina is going to derail the appetite for emerging markets."
Argentina's economy, South America's second largest, has been mired in recession since last year, while assets in its banking system, which has so far held up relatively well, account for around 20% of GDP.
Brazil, one of its main trading partners, is most vulnerable to direct contagion, but Argentina's trade with other emerging markets is more limited beyond China, Chile and Vietnam.
"Argentina's event can amplify any negative news on the global front," said Magdalena Polan, global emerging markets economist at Legal & General Investment Management.
Some of the bond and equity outflows from non-Latin American emerging markets this week might be due to foreign investors offloading other holdings as they're unable to liquidate loss positions in Argentina.
"The main impact to emerging markets is not through direct economic or financial linkages but rather portfolio VaR [Value-at-Risk] shocks that could necessitate reducing risk, or hedging exposure, in other high beta, high yield fixed income exposures," said Jason Daw, Societe Generale's head of emerging market strategy.
VaR shocks can happen when a spike in losses in one market can force portfolio managers to sell other parts of their portfolio to bolster cash holdings in their funds.
Third quarter outflows from non-Chinese emerging markets were around $11 billion so far, short of the $15 billion offloaded in 2018, according to Robin Brooks, chief economist at IIF. Then financial crises in Argentina and Turkey, as well as China and U.S. trade tensions, spread to South Africa, Indonesia and Brazil.
The 2018 sell-off was larger than during 2013's taper-tantrum, when investors dumped emerging market assets after the Federal Reserve hinted at a reduction in stimulus, IIF data shows.
Still, unlike last year when emerging markets faced added pressure from rising interest rates, this time a more dovish monetary policy stance from the Fed and other leading central banks appear to be offering a softer landing even if the more bullish hopes of a big 2019 recovery have been dashed again.
source: Reuters


Clic here to read the story from its source.