Taper Tantrum scorecard, Argentina-IMF negotiations, South Africa budget

  • In Focus: Taper Tantrum scorecard – The most vulnerable countries
  • Other highlights: Nigeria exits recession; Pakistan's forgotten reform story; Kenya's IMF programme; Ecuador election
  • Chart of the week: Emerging market asset returns
Taper Tantrum scorecard, Argentina-IMF negotiations, South Africa budget

In Focus: Taper Tantrum scorecard — The most vulnerable countries

  • Concerns of a second Taper Tantrum are likely overblown, with EM assets holding up well amid rising US bond yields

  • External imbalances have moderated in systemic EM, with the 'Fragile Five' looking less vulnerable

  • New 'Fragile Frontiers' include Jamaica, Tunisia, Ecuador, Sri Lanka, Belarus, Ethiopia, Laos, Bahrain and Oman

Read the full report here.

Recap of the week’s key credit research

Argentina: IMF negotiations to drag on despite looming official debt repayments

  • Little progress in IMF negotiations amid reports government may seek a delay until after October's mid-terms

  • Argentina's lack of urgency comes as official sector debt repayments loom, for which Argentina will need IMF help

  • We don't expect an IMF agreement until towards the end of the year; maintain Hold on the sovereign bonds

Read the full report here.

South African budget surprises positively but lacks substance

  • Strong revenue collection causes Treasury to revise deficit and debt estimates down relative to October MTBPS

  • Spending characterised by wage cuts and capex increases, but risks are tilted to downside amid union opposition

  • Slippage likely as positive headline surprises watered down by lack of concrete reform, keeping risk premium elevated

Read the full report here.

Pakistan: The reform story foreigners forget

  • Economics: Restart of IMF programme (US$4.6b, c30% of FX reserves, yet to be released) instils confidence in hard reforms

  • Politics: Senate election in March should reinforce ruling party PTI's grip, of course, with tacit military support

  • Valuation: Equities are cheap, Banks dividend yield more than government bonds, FX near fair value, Hold eurobonds

Read the full report here.

Kenya: IMF programme boosts prospects

  • The IMF has reached a staff-level agreement with Kenya for a US$2.4bn EFF/ECF programme

  • Fiscal slippage and reserve drawdown has continued, and we think the IMF programme is essential to restoring balance

  • But fiscal-slippage history makes it hard to turn constructive without tangible reforms; retain Hold on Kenyan eurobonds

Read the full report here.

Ecuador election: Lasso will face Arauz in April run-off

  • Election authorities confirm conservative banker Guillermo Lasso in second place, ahead of indigenous candidate Yaku Perez

  • Perez looks set to contest the result

  • Leftist Andres Arauz likely to defeat Lasso in the run-off, policy uncertainty to weigh on bonds; retain Sell

Read the full report here.

Nigeria's surprise exit from recession doesn't mean its problems are over

  • Nigeria recorded a surprise exit from recession in Q4 20 with a 0.11% yoy growth in the quarter

  • But the oil sector is still in recession, with oil production even below Niger-Delta militant era in 2016/17

  • We retain our bearish view on Nigeria’s economic outlook considering FX challenges and ongoing Covid risks

Read the full report here.

Chart of the week: Emerging market asset returns

Summary of credit recommendations

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This report is independent investment research as contemplated by COBS 12.2 of the FCA Handbook and is a research recommendation under COBS 12.4 of the FCA Handbook. Where it is not technically a res...

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