Emerging Market View: What Our Analysts Are Reading

EM View

This week, the Russian ruble slid while Russia and the Ukraine reached a gas deal. The ruble plunged a day after the currency’s biggest gain since 2003, and according to Bloomberg Businessweek, central bankers opted to raise the key interest rate instead of changing currency policy. FSG’s Head of EMEA Research, Martina Bozadzhieva, says this is not likely to help.

“The interest rate hike is unlikely to significantly strengthen the ruble, but will further dampen growth. MNCs should be prepared for more ruble depreciation and should ensure local partners maintain access to affordable credit given the already-high cost of credit in the market.”  – Martina Bozadzhieva

Moscow and Kiev signed the Russia/Ukraine gas deal after 30 hours of negotiations in Brussels, according to the Financial Times, and while this is good news for Europe, it is far from the end of political tensions.

“The gas deal is good news for Ukraine and all of Europe. However, political tensions between Russia and Ukraine may still rise given Ukraine’s newly elected, pro-EU government and elections in rebel-held regions on Sunday, Nov 2nd,” says Martina Bozadzhieva.

In Latin America, Mexico’s state-owned oil giant PEMEX is counting on a future in deepwater production, but, according to the New York Times, has yet to produce any oil from deep water after eight years of exploratory drilling.

“For Mexico’s energy reforms to fulfill their potential over the next decade, PEMEX will have to be fundamentally reformed. The difficulty of doing so is one of the main challenges facing Mexico’s economy as it looks to become a growth leader among emerging markets over the next few years,” says FSG’s Associate Practice Leader for Latin America, Antonio Martinez.

In emerging markets across the globe, capital outflows have reached $79 billion, or around 0.35% of gross domestic product, since last year, according to a new report by the IMF cited in the International Business Times. However, capital outflows from the Gulf states are totaling much less than those of other emerging markets–around $780m since May last year–and FSG’s Associate Practice Leader for Global Analytics, Sam Osborn, says this matches FSG’s Frontier Markets Sentiment Index projections.

“Echoing a projection made by FSG’s Frontier Markets Sentiments Index in conjunction with the WSJ, GCC countries have been considerably more resilient to capital outflows compared with other emerging markets,” says Sam Osborn.


Check back next week for more analyst commentary on the latest emerging markets headlines.

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