Morning Bid: US exceptionalism piles pressure on EM
2024.11.24 17:14
By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets.
Emerging market investors will be hoping the final trading week of November brings more joy than the moves they have seen in recent weeks, but it is becoming increasingly difficult for shafts of light to pierce the thickening gloom.
America’s divergence with the rest of the world – manifested in the strength of the U.S. dollar, the relentless rally on Wall Street and the significant rise in Treasury yields – is becoming more entrenched by the week.
The dollar has risen eight weeks in a row and on Friday hit a two-year high. According to analysts at TD Securities, U.S. funds in the past 13 weeks have captured over 70% of all developed market bond fund inflows and nearly 90% of all DM equity fund inflows.
While that will eventually pose issues for the incoming Trump administration in terms of how a soar-away dollar fits with President-elect Donald Trump’s desire for a weaker currency and lower interest rates, Asian and emerging markets are feeling the heat right now.
Dedicated EM bond and equity funds posted combined outflows for a sixth straight week, according to Barclays (LON:) analysts, a trend they expect to continue in the coming weeks. TD Securities analysts note that more than half of the EM equity outflow last week was from China alone.
In the current environment of heightened geopolitical tensions, any pullback in the dollar will just be seen as a better level to go long, Barclays team reckons.
Sentiment towards EM assets is poor. The MSCI emerging market and Asia ex-Japan indexes have fallen in five of the past seven weeks. Time to buy the dip?
If so, it would surely have happened last week as these two benchmark indexes came off the back of weekly declines of around 4.5%, their steepest losses since June 2022. But they couldn’t rebound more than 0.5%, an indication that investors are in no hurry to get back in.
And looking ahead to next year, strategists at SocGen have cut their emerging market exposure by five percentage points to just 6%, citing the fallout from U.S. onshoring policies as well as relative growth, rates and carry dynamics that all support the US over EM.
Market liquidity next week will be lighter than usual with U.S. markets observing the Thanksgiving holiday later in the week. The local calendar is fairly light on top-tier indicators and events too.
Highlights include rate decisions from the central banks of New Zealand and South Korea, GDP figures from India and Taiwan, and the latest Chinese purchasing managers index data.
All that is later in the week. Monday’s docket includes retail sales and trade figures from New Zealand, inflation from Singapore, and industrial production from Taiwan.
Here are key developments that could provide more direction to markets on Monday:
– New Zealand retail sales,
– Investor reaction to U.S. president-elect Donald Trump’s Treasury Secretary pick
– Bank of England’s Lombardelli, Dhingra speak
