South Africa : A Cross Asset Overview of an EM Benchmark Country

Headwinds and Opportunities in South Africa

South Africa: Investors Still Too Complacent About Future Policy Direction (Part 3 of 8)

Emerging Markets Cross-Asset Strategist, Emvest Partners

Guillaume Coutant

Emerging Markets Cross-Asset Strategist

Thematic (Sector/Industry)

<h2>1.    Macro analysis :</h2><ul><li>Long term outlook is globally improving, but short-term indicators have deteriorated over the past months (inflation, industrial activity, domestic demand, exports prospects).</li><li>In the meantime, the Bank of Mexico conducted a deep hiking cycle until June 2017, raising its reference rate at 7.00% to contain inflation and follow the FED policy.</li><li>This situation will not be sustainable in the coming months, and will lead to a stabilizing currency, higher yields and a potential steepening curve.</li></ul><h2>2.    Trend analysis :</h2><ul><li>Signs of exhaustion on Mexican assets.</li><li>Peso is in a cloudy area, but has done most of its appreciation. Therefore, a complex configuration might take place.</li><li>The rate curve experienced a steepening shock that is not over.</li></ul><h2>3.    Mitigating factors :</h2><ul><li>The Peso remains well oriented with attractive carry and valuation for long term investors.</li><li>Global economy remains resilient, and any positive outcome on Mexico/US relationship will be positive and lead to lift the risks weighing on Mexico.</li></ul>

1.    Macro analysis :Long term outlook is globally improving, but short-term indicators have deteriorated over the past months (inflation, industrial activity, domestic demand, exports prospects).In the meantime, the Bank of Mexico conducted a deep hiking cycle until June 2017, raising its reference rate at 7.00% to contain inflation and follow the FED policy.This situation will not be sustainable in the coming months, and will lead to a stabilizing currency, higher yields and a potential steepening curve.2.    Trend analysis :Signs of exhaustion on Mexican assets.Peso is in a cloudy area, but has done most of its appreciation. Therefore, a complex configuration might take place.The rate curve experienced a steepening shock that is not over.3.    Mitigating factors :The Peso remains well oriented with attractive carry and valuation for long term investors.Global economy remains resilient, and any positive outcome on Mexico/US relationship will be positive and lead to lift the risks weighing on Mexico.

Rally Exhaustion on Mexican Peso and MXN Swaps