Emerging Market View: What Our Analysts Are Reading

EM View

Despite the cost of the Ebola outbreak currently ravaging West Africa (a potential $33 billion by the World Bank’s estimation) and growing concern over the continent’s growth prospects, Africa’s sovereign debt market is booming. According to the New York Times, investors are eager for African sovereign debt, despite the many risks, and FSG’s Alexa Lion says that this interest is both a cause and symptom of Africa’s development.

“Yields are falling on bonds issued by SSA countries, underscoring investor confidence in each market’s potential. Many of the proceeds are going towards infrastructure projects. The infrastructure gap was rated by EMEA executives as the single biggest risk in SSA – above corruption and Ebola. The appetite for African sovereign debt is both symptom and cause for development on the continent,” says Sub-Saharan Africa analyst, Alexa Lion.

In Chile, even as the copper price weakens, Codelco has planned more than $23 billon of investments in mining projects between now and 2018, according to the Financial Times. Additionally, the Chilean government under second term president Michelle Bachelet has authorized a $4 billion injection of capital into the state-owned company.

“The Chilean government’s US$4 billion injection of capital into Codelco may come at a surprise given declining global copper prices. However, as Codelco represents around 15% of state income, investment in the state-owned company is critical to ensuring a strong performance of the Chilean economy in the future,” says senior analyst for Latin America, Gabriela Mallory.

In India, oil prices are near a four-year low, and Reserve Bank of India Governor Raghuram Rajan has called on Prime Minister Modi to “seize this moment” and deregulate diesel prices, particularly while inflation is at a three-year low and refiners are selling at a profit for the first time in a long time, according to Bloomberg.

“Head of India’s Central Bank is probably right, there has not been a better time in recent history to remove the politically sensitive diesel subsidies. With global oil prices falling, India’s inflation falling below the usual 8% mark, and the BJP holding a strong majority – this is the time to cut unnecessary subsidies and devote those funds to infrastructure upgrades and positive RoI programs,” says senior analyst for Asia Pacific, Shishir Sinha.

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