EM likely to remain in a sweet spot – Deutsche Bank

Analysts at Deutsche Bank suggest that one of their core theses for Q4 is that EM will remain in a sweet spot between robust growth and controlled inflation.

Key Quotes

“In Asia, low inflation is providing some central banks with room to cut rates further, while others are likely delay rate hikes until 2018. We expect South Africa, Brazil, Chile, Colombia and Russia to cut rates as a result of inflation dynamics.”

“We expect EM assets to continue to benefit from the country specific growth-inflation mix, as long as DM inflation remains low – even if core central banks continue to move toward balance sheet reduction. EM central banks are also likely to remain patient, especially in Asia, and accelerate cuts in LatAm and some EMEA.” 

“We downgraded our inflation expectations for 2017 in 11 out of 26 countries of coverage, with respect to our own expectations, and we lowered our inflation projections for 2018 in 15 countries.” 

“In Asia, low inflation is providing some central banks with room to cut rates further, while others are likely to delay rate hikes until 2018. We expect South Africa, Brazil, Chile, Colombian and Russia to cut rates as a result of inflation dynamics.”

“We have seen important upward revisions from our EM economists estimates for 2017 only in Hong Kong, Argentina and Turkey, while India, Korea, South Africa, and Peru saw small upward revisions. On the other hand, we have revised our estimates downward for Singapore, Sri Lanka, Israel, Russia, and Chile, and to a lesser extent Indonesia, Malaysia, Taiwan, Thailand, Czech Republic, Colombia. That is, we have downgraded our inflation expectations in 11 out of 26 countries of coverage, with respect to our own expectations.”

“Regarding projections for 2018, our EM economists see average yearly inflation in Argentina, Hong Kong, Malaysia, Philippines and Chile higher than previously anticipated. While we have imprinted important downward revisions in Singapore, Sri Lanka, Vietnam, Russia, Mexico, Israel, Colombia and Taiwan, to a lesser extent, we have also downgraded our inflation expectations in Korea, Thailand, Brazil, Indonesia, Poland, and South Africa. Hence, we saw downward revisions in 2018 projections in 15 countries out of our 26-country coverage.”