The IMF’s Fall Annual Meeting offered little surprises to seasoned investors. If anything, it lent support to our view that emerging market fundamentals were improving, whilst developed markets continued to pose the main source of uncertainty to global markets. Discussions ranged from the obvious near-term (Brexit and US elections), to long-term topics such as how to make future growth more inclusive, and how to respond to growing popular discontent over the perceived rise in inequality coupled with louder calls for protectionism. The below is a short summary of our impressions from an emerging market debt perspective and a few key country views.
Main Country Views:
China – Benchmarked against prior IMF conferences, China seems to have faded to the background as an investor focal risk. Conversations with investors, however, suggest this is not evidence of complacency, but rather of a consensus view that still includes ongoing monitoring.
India – Indian authorities and independent speakers’ views hint that after excessive optimism and subsequent let down, India is now in a phase of delivering realistic reform objectives, anchoring its positive outlook vs peers.
Argentina – The Argentine delegation presented incipient evidence of economic stabilization but, in contrast with the enthusiastic reception back in the Spring Meetings, also faced some investor push back on the extent of its fiscal adjustment.
Brazil – Finance Minister Meirelles detailed how President Temer’s focus is now on fiscal consolidation; while the ultimate success of this effort can be debated, its initial progress proved enough for the much awaited easing cycle start this month.
Mexico – The impression from meetings is that Mexican assets may be poised for some bounce, if concerns for U.S. Presidential candidate Trump fall, but also that fiscal progress and politics need monitoring going forward.
Russia – Finance Ministry’s Oreshkin underscored the conservative bias of fiscal policy but it seems that the investors’ focus should be on the funding strategy ahead, reflecting recent revisions of fiscal targets.
South Africa – Finance Minister Gordhan indicated that growth is bottoming out but investors’ attention was more on benchmarking if a downgrade can still be prevented.
Turkey – Deputy Prime Minister Simsek tried to focus attention away from politics and convey a sense that the pre-coup attempt macro framework remains intact.
Saudi Arabia – Speakers seemed to point to policy continuity but investors seemed to push-back on this view, especially regarding exchange rate policy.
In sum, the discussions lent support to our constructive outlook for EM debt. Fundamentals will likely further improve and we expect technicals to continue to drive the market and valuations. And whilst the market should continue to be beta supportive, our focus will increasingly turn towards more alpha opportunities going forward. We therefore will stay nimble in the face of potential market jitters but we expect the environment to remain conducive for further EM debt outperformance.