EMTA 2017 Annual Meeting in NYC - Dec. 7

Attendance is complimentary for EMTA Members. The registration fee for non-members is US$1,000.

EMTA Annual Meeting Speakers Detail Generally Positive View of 2018

EMTA’s Annual Meeting took place in New York City on Thursday, December 7, 2018. The event was hosted once again by Citi, with over 250 EM market participants in attendance. Speakers espoused generally positive outlooks for the EM asset class, with few major concerns.

Citi’s David Lubin, in his introductory remarks to the event’s Buy-Side panel, summarized that dollar depreciation had been a central theme for EM in 2017, and had led to inflows into the asset class. Jim Barrineau (Schroders Investment Management) agreed that the dollar’s strength or weakness always plays a major role in EM flows, and expected a stable to weaker dollar throughout 2018. Loomis Sayles’ Dave Rolley argued that the acceleration of world economic growth, which had been boosted by a weak dollar—and stabilized oil prices—should also be taken into account when characterizing 2017.

Lubin observed that the market had adopted a more sanguine view of Chinese economic prospects, and pondered if there was now too much complacency. In Barrineau’s view, China could always be listed as a risk to EM performance, “but I think over bearishness is wrong, they are skillfully decelerating growth.” Pablo Goldberg of BlackRock acknowledged China had been more of a concern in 2017 than currently, adding that, “we should welcome a slowdown in China rather than fear it.” He cautioned investors to monitor the Chinese property sector. Rolley’s concerns were more long-term; previously China’s goals “had a mercantilist dimension that implied a stronger RMB; but with the move to electric cars, they will have no need for oil or German engines.”

EM elections in 2018 were addressed. Barrineau believed that the Mexican election posed less of a risk than the Brazilian vote, “because people are over-estimating AMLO as a radical; he is actually garnering some private sector support….He won’t roll back laws, he will work on corruption and keep technocrats in place.” Speaking three months before the surprise defeat of President Zuma, NWI Management’s Hariharan argued that the greatest EM election risk was in South Africa, “and one of the most critical issues is what Zuma plans to do regarding nuclear power.” He disagreed with Barrineau on Mexico, arguing that a victory by AMLO combined with failure of NAFTA talks, “could be a bad combo.” Rolley stated that, with the lack of clarity of the potential candidates in Brazil, “it’s too early for us to have a coherent view.” Goldberg voiced concern that the Brazilian elections could lead to greater fragmentation in the government at a time when action was required. “The status quo in Mexico is fine; the status quo in Brazil would be a disaster.”

Moderating the event’s Sell-Side panel for the 21st consecutive year, Joyce Chang (JPMorgan) underscored that 2017 had been a year of record inflows into EM, and record EM sovereign issuance. She led the panel through 2018 forecasts, including a review of 2018 EM elections.

David Woo (Bank of America Merrill Lynch) discussed the impact of US tax cuts on EM debt in 2018. Woo expected US growth to increase to 3%, while the fiscal deficit would widen. In his view, the USD would both rise in the 1Q (with a USD – EUR range of 1.15 to 1.25 in 2018) and EM would weaken. Alberto Ramos (Goldman Sachs) maintained a 2.5% US growth estimate for 2018, and a call for an aggressive Fed hiking rates four times each in 2018 and 2019. Drausio Giacomelli (Deutsche Bank) expected US growth at 2.3%, more synchronized growth across the EM world in 2018, and no major moves in the USD. Moderator Chang noted her own firm’s house view of 2.5% US growth in 2018.

“Even my grandmother knows China is delveraging,” joked Woo, in a discussion of the Chinese economy. President Xi would continue to move against the shadow banking industry, and would possibly accelerate its deleveraging policy. Chang acknowledged that JPMorgan’s growth forecast of 6% was at the bearish end of Street forecasts.

Chang led the panel through a review of the election cycle in EM. Ramos suggested that, “because of the economic forces involved,” there were paths to avoid a US withdrawal from NAFTA. However, President Trump could announce plans to leave the trade agreement, which could subsequently increase the odds of an AMLO victory in Mexico.

Giacomelli’s base case was for a centrist candidate to win the Brazilian election. He criticized the current Brazilian government for “not doing any fiscal adjustment whatsoever.” Ramos saw “significant” political risk in Brazil, and underscored the need for a reformist in the next administration. He expressed concern that even President Temer, “with his great economic team and his political skills, could not get a better fiscal adjustment.” Why, he pondered, should the market expect a better result under a new administration?

Barclays’ Andreas Kolbe addressed the South African elections. “We are quite concerned about South Africa; the main message from the budget seems to be ‘we’ve given up on fiscal consolidation.’” He predicted a credit downgrade by Moodys in Q1. Kolbe suggested that the government had not even recognized the economic challenges it faces. He also commented on Turkey, seeing some political risk, including the possibility that Ankara could move away from Europe, and closer to Russian and Iran.