In September this year, Moody’s Investors Service launched its inaugural ‘Global Emerging Markets Chartbook’ covering 101 areas and 1,500 rated entities, underlining the growing enthusiasm for this sector. The timing is of interest, cynics among us linking market peaks with scrutiny from media behemoths. China-related indices peaked in January this year as President Trump’s trade policies were fleshed out, subsequently causing most Asian ones to peak in the first quarter of 2018. Stock market rallies in the Americas have been stalling in stages since late 2017, the exception being US ones which peaked this September and October.
We’ll look at four of these today, trying to tease out underlying themes from currency effects. We start in South Africa where last week the Joint Constitutional Review Committee gave the go-ahead to consider amending the Constitution because president Cyril Ramaphosa wants to be able to expropriate land without compensation. Sad echoes of Zimbabwe almost 20 years ago, and unlikely to come into effect before May’s election, but very worrying. Johannesburg’s All-Share index has an unusual chart pattern with echoes of a false break and double top around 60,000. We’d expect a drop towards 46,000 very soon. Add to that the rand which is off 13 per cent against the US dollar over the last 11 months.
On Tuesday Moody’s said that the Reserve Bank of India’s decision to extend by a year the deadline by which banks must increase capital buffers to comply with Basel 3 is credit negative for state-run banks. The government of prime minister Narendra Modi and the Reserve Bank of India do not see eye to eye, MPs keen to curry favour by increasing bank lending ahead of May’s election. Government appointees fill the board of the central bank causing the governor and his deputy to warn of the "potentially catastrophic" consequences of their meddling. Mumbai’s Sensex index of top shares suddenly slumped in September after a stellar run, but is still up 4 per cent on the year; the trouble is, the Indian rupee has simultaneously lost 12 per cent against the US dollar.
In Mexico, incoming left-leaning president Andrés Manuel López-Obrador – AMLO among friends – starts work on the 1 December. His landslide victory is the biggest political jolt in decades, and he plans public consultations this weekend on 10 key policy proposals. Topping activity in the shape of a head and shoulders has been building since 2016 on the IPC index of key shares. An especially sharp October slump pushed it below the neckline this month and back to where it was two years ago. A conservative measured target would be 40,000, although 37,000 cannot be ruled out, caused in part by a currency that has devalued by a mere 4 per cent against that of its troublesome northern neighbour.
Controversial right-wing firebrand Jair Messias (messiah) Bolsonaro takes up the presidential reins in Brazil on the 1 January. The real has lost 15 per cent of its international buying power this year, not surprising as the nation saw its worst ever recession up until very recently. The devaluation has helped the Bovespa index inch to a new record high this month with the strong rally since June kick-started by the incomer’s perceived business-friendly policies and choice of cabinet ministers. We’ll see whether bullish momentum holds up.
