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27.03.2022 12:44 AM
JPMorgan advises to sell: Western analysts on Russia and other emerging markets

On Friday, JPMorgan analysts turned to Wall Street traders, focusing on recommendations to sell or "underestimate" the sovereign debt of emerging markets in national currency in connection with the global consequences of the Russian-Ukrainian crisis.

JPMorgan advises selling: Western analysts on Russia and other emerging markets

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JPMorgan estimates that fixed income assets in emerging markets have lost 6-9% of their value since the Russian-Ukrainian conflict began a month ago. Nervousness about the war and its impact on world energy and food prices is not in vain, adding to the overall negative situation.

Now a number of leading central banks in developing countries are signaling that interest rates should rise faster than previously expected. And they are growing. However, this in turn increases concerns about the almost inevitable stagflation in this case, when high inflation and rising interest rates undermine economic growth on both sides.

"A month of war accelerated the existing trends and revealed vulnerabilities," JPMorgan analysts said in a note published on Thursday.

Analysts also spoke about other countries. They noted the increase in rates by the US Federal Reserve and central banks of developing countries: JPMorgan in this regard stated that "it makes sense to take advantage of the recent decline" in the yield of government bonds in national currency compared to US treasury bonds to enter a "lower weight" position in developing countries.

According to experts, major metal exporting countries such as South Africa, Chile and Peru may still do well, but fixed income assets in emerging markets as a whole are now facing a more "stagflationary" trajectory.

What Moscow called a "special military operation" in Ukraine also exacerbated an already slow start to the year for the sale of sovereign bonds of developing countries.

Total issuance since the beginning of the year is one of the lowest ever, so JPMorgan predicts that bond issuance in emerging markets will now be significantly lower than in previous years, and will amount to only $142 billion in 2022.

"This risk-averse environment has also increased the cost for those countries that are trying to issue hard currency bonds," the bank's analysts added.

Some countries that are most vulnerable to rising energy and food prices also have to apply "crisis" scenarios, which hinders the growth of consumption within these countries, forcing them to restrict imports from developing countries.

This was evident this week when Egypt devalued its currency by 15%, turning to the International Monetary Fund for additional support. Sri Lanka has also overcome long-standing resistance to IMF aid, and Tunisia is negotiating.

"As a result, the medium-term investment prospects for these countries look more challenging," JPMorgan said.

It seems that the dollar has also benefited from the global geopolitical situation this time, but this is not so good considering the growth of imports in the US trade balance.

Egor Danilov,
Pakar analisis InstaForex
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