Strategy Note /

Frontier-Emerging Equity Monthly, February: Diabolical

  • Diabolical backdrop in February: coronavirus contagion, oil down 13%, gold up 3%, VIX up 130%, US$ appreciated 1.4%.

  • EM propped up by China (up 3%); perhaps more to do with its 10% fall in end-January than deceleration in infections.

  • EM down 3%, FM down 5%, DM down 7%; coronavirus risk is so unquantifiable and universal it should be ignored within EM.

Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
28 February 2020
Published byTellimer Research

Fundamental highlights in FM and small EM:

  • Euro-linked FX rate weakness: eg Iceland, Poland, Romania, Turkey
  • Oil price drag: Colombia, GCC, Nigeria, Russia, (Kazakhstan an exception)
  • China-linked direct disruption: Vietnam, Thailand
  • Debt restructuring uncertainty: Argentina, Lebanon
  • Poor policy: Bangladesh rate cap, Philippines contract revisions
  • Interest rate cut expectations pushed out: Egypt, Pakistan
  • Locusts: Kenya (as well as Ethiopia, Tanzania, Uganda)
  • Government stress: Malaysia coalition ends, Iraq cabinet approval snags
  • Foreign friction: Philippines (US), Qatar (Saudi), Turkey (Russia, EU)
  • Trade friction: India (US), Nigeria (Ecowas), Kenya (AfCFTA)
  • Violence: India (Hindutvadis), Ethiopia (ethnic), Algeria-Mozambique (Islamist)
  • Protests (anti-government): Dominican Republic, Haiti, Lebanon, Kazakhstan
  • Elections: Iran (pre-selected hardliners), Azerbaijan (boycott), Togo (disputed)

Underperformers in FM and small EM (all down over 7%):

  • Commodities: copper (Chile, Peru), oil (Nigeria, Saudi), palm (Indonesia)
  • Euro depreciation: Czech, Poland
  • Tourism: Dubai, Thailand
  • High inflation (rate cuts pushed out): Pakistan

Outperformers (all markets with very low trading liquidity):

  • Georgia: run up prior to strong results from Bank of Georgia
  • Kazakhstan: run up prior to strong results from Halyk Bank
  • Oman: hope for post-succession reform

In this report, there is a hyperlinked catalogue of our strategy and macro notes published this month (p4), updated charts on performance, liquidity, valuation (p5), a screen for FX rate vulnerability (p9) and country snapshots of market, macro, political and social indicators (p11).

Chart: Equity market performance, month-to-date (US$ total return)

Source: Bloomberg (28 February). * local indices, otherwise MSCI.