Perspectivas de Mercados Emergentes y de Colombia
See end pages for analyst certification and important disclosures, including investment banking relationships. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making their investment decision.
Emerging Markets Research
October 2016
Luis Oganes Global Head of Emerging Markets Research
(1-212) 834-4326
[email protected]
J.P. Morgan Securities LLC
Agenda
Page Perspectivas de economías emergentes mejoran 1
Las perspectivas de China se ven estables por ahora 11
Las elecciones de EEUU generan riesgo cambiario 16
Colombia: El mayor desafío económico es fiscal 20
Los capitales retornan a mercados emergentes 24
Los mercados emergentes han tenido los mejores resultados en lo que va del año 2016
Returns across asset classes YTD and since September 2nd; as of 10/19/2016 COB, %
0.4%
1.3%
0.9%
-0.2%
-1.0%
-1.2%
-0.4%
0.8%
0.2%
-0.5%
1.0%
0.4%
7.2%
-0.1%
2.5%
1.8%
2.1%
0.6%
-10.7%
-6.5%
-1.1%
2.1%
4.5%
4.9%
5.2%
7.1%
8.4%
8.7%
10.9%
12.2%
12.7%
13.9%
15.0%
16.8%
17.4%
18.0%
-15% -10% -5% 0% 5% 10% 15% 20%
Nikkei 225 Euro Stoxx JPM USD Index MSCI World (DM) Lcl UST S&P 500 Euro HG EM FX Euro HY US HG EM Local Markets (Local Currency) EM Corporates (Hard Currency) JPM Commodities EM Sovereigns (Hard Currency) EM Equities EM Local Markets (USD) US HY EM Frontier Markets
YTD
Since Sept 2nd
Parte de los mayores retornos de mercados emergentes se explica por las tasas de interés negativas en varios países desarrollados…
G-4 central bank balance sheets continue to expand; $tr
Source: J.P. Morgan as of March 2016, $tr
GBI Broad and EMU negative yielding market values ($
bn) vs. Negative GBI Broad and EMU yields (%)
Source: J.P. Morgan
…y parte se explica por la estabilización y recuperación del crecimiento de economías emergentes versus las economías desarrolladas
1.5 2.0 2.5 3.0 3.5 4.0 4.5
01 03 05 07 09 11 13 15
Global real GDP
%oya
Potential growth
Source: J.P. Morgan
-2 0 2 4 6
95 00 05 10 15
Percent diff in oya % change
EM/DM real GDP growth gap
Source: J.P. Morgan
Average 2003-2012
Global real GDP; %oya
Source: J.P. Morgan
Global real GDP
DM/EM real GDP growth gap
2011-13 2014 2015 2016 2017 Potential
Global 2.6 2.8 2.6 2.3 2.6 2.6
DM 1.2 1.7 2.0 1.5 1.6 1.5
US 1.8 2.4 2.4 1.4 1.9 1.4
Euro area 0.1 0.9 1.5 1.6 1.3 1.0
Japan 1.0 -0.1 0.6 0.8 1.1 0.6
EM 5.2 4.4 3.7 3.6 4.2 4.6
EM Asia 6.7 6.4 6.0 5.8 5.6 5.9
China 8 7.3 6.9 6.7 6.4 6.8
India 6.3 7.3 7.5 7.3 7.1 7.0
EM Latam 3.1 0.6 -0.4 -0.6 2.1 2.4
Argentina 1.6 -2.6 2.4 -1.4 3.4 2.5
Brazil 2.3 0.1 -3.8 -3.2 1.4 2.0
Mexico 3.1 2.3 2.5 2.4 2.2 2.5
EMEA EM 2.7 2.6 1.2 1.3 2.4 3.1
Russia 2.7 0.6 -3.7 -0.6 1.1 1.5
Lo peor de la desaceleración de las economias emergentes ya pasó, pero la recuperación del crecimiento será modesta y por debajo de su potencial
EM manufacturing output vs. EM manufacturing PMI
Source for all charts: J.P. Morgan
EM growth forecasts; both scales % oya
Real GDP; %oya except where noted
2.0 3.0 4.0 5.0 6.0
-2 0 2 4 6
2012 2013 2014 2015 2016 2017
EMEA EM
Latam
EM Asia ex. CHN/IND (right axis)
2016 (%q/q, saar)
2015 1Q 2Q 3Q 4Q 2016 2017 Potential
Developed markets 2.1 1.6 1.3 2.3 1.8 1.6 1.8 1.5
Emerging markets 3.7 3.4 3.5 3.9 3.9 3.6 4.2 4.6
EM Asia 6.0 5.7 6.1 5.7 5.4 5.8 5.6 5.9
EMEA EM 1.2 0.7 1.4 1.6 1.9 1.3 2.4 3.1
Latin America -0.4 -0.2 -1.9 0.3 2.1 -0.7 2.1 2.4
46 47 48 49 50 51 52 53
0 1 2 3 4 5 6 7 8
Jan 12 May
12 Sep 12 Jan
13 May 13 Sep
13 Jan 14 May
14 Sep 14 Jan
15 May 15 Sep
15 Jan 16 May
16
EM manufacturing output (LHS)
EM manufacuring PMI (RHS)
El sector manufacturero en economías emergentes ha empezado a recuperarse a pesar de la continua desaceleración de China
EM vs. EM-ex China PMI; index sa
Source: J.P. Morgan
48 50 52 54
2013 2014 2015 2016
EM EM ex. China
Los precios del petróleo parecen haber tocado piso y se espera una recuperación a $55’60/barril en 2017
Global commodities price forecasts for 2016 (quarterly and annual averages)
Source: J.P. Morgan
Current
Oct 13 4Q16 1Q17 2Q17 3Q17 4Q17 2016 2017
Energy
WTI Crude
US$/bbl 50.44 48.00 50.00 52.00 55.00 58.00 43.05 53.75
Brent Crude
US$/bbl 52.03 50.00 52.00 54.00 57.00 60.00 44.81 55.75
Natural Gas
US$/MMBtu 3.34 3.00 3.52 3.15 3.00 3.05 2.43 3.18
European Thermal Coal (API2)
US$/mt 75.05 60.00 53.72 57.00
Newcastle Spot Thermal Coal
US$/mt 88.00 60.00 57.13 57.00
Precious Metals
Gold
US$/t oz. 1,255 1,400 1,450 1,400 1,390 1,450 1,295 1,423
Silver
US$/t oz. 17.46 21.21 22.04 20.90 20.44 22.04 18.14 21.35
Platinum
US$/t oz. 929 1,150 1,175 1,200 1,300 1,400 1,042 1,269
Palladium
US$/t oz. 637 650 675 700 750 800 606 731
Rhodium
US$/t oz. 665 775 800 850 900 1,000 699 888
Base Metals
Aluminum
US$/mt 1,689 1,485 1,460 1,495 1,440 1,465 1,548 1,465
Copper
US$/mt 4,692 4,500 4,300 4,400 4,000 4,100 4,673 4,200
Nickel
US$/mt 10,387 8,200 7,700 7,500 6,600 6,900 8,950 7,175
Zinc
US$/mt 2,227 2,100 1,950 2,000 2,100 2,200 1,988 2,063
Agriculture
Wheat
USc/bu 416 415 425 430 450 470 439 444
Corn
USc/bu 350 325 345 360 375 380 353 365
Soybeans
USc/bu 956 970 990 1,030 1,050 1,030 980 1,025
Sugar (ICE #11)
USc/bu 22.92 22.00 23.00 23.50 22.00 21.00 18.44 22.38
Déficits de cuenta corriente de países incluidos en los “fragile 5” en 2013 se han reducido, pero se han incrementado en otros como Colombia y México
Current account balances; % of GDP
Source for both charts: Bloomberg, J.P. Morgan
-10 -8 -6 -4 -2 0 2
2011 2012 2013 2014 2015 2016F 2017F
South Africa Turkey Indonesia India Brazil
Current account balances of EM oil exporters and importers; % of GDP vs. Oil price; $
35 50 65 80 95 110 125
-4 -2 0 2 4 6 8 10
2011 2012 2013 2014 2015 2016F 2017F
EM oil exporters CA (LHS)
EM oil importers CA (LHS)
Oil price (RHS)
La desaceleración del crecimiento nominal del PIB ha sido más rápida que la del crédito bancario, por lo que los ratios de crédito/PIB han subido
Nominal GDP vs. Private sector bank credit; % oya
Source: J.P. Morgan
0 5 10 15 20 25 30
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Nominal GDP Private sector bank credit
El endeudamiento del sector privado en economías emergentes ha crecido desde la crisis financiera y ahora más que duplica a la deuda pública
EM and EM ex China general government gross debt/GDP; %
Source for all charts: BIS, IMF, J.P. Morgan
EM private sector debt vs. EM general government debt; % of GDP
52.4
47.1
30 35 40 45 50 55
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F
EM total EM total (ex. China)
98.6 102.6 220.4
25 75 125 175 225 275
00Q1 00Q1 01Q1 02Q1 03Q1 04Q1 05Q1 05Q1 06Q1 07Q1 08Q1 09Q1 10Q1 10Q1 11Q1 12Q1 13Q1 14Q1 15Q1
US Euro area Japan
Broad nonfinancial private credit; % of GDP both scales
US, Euro area and Japan general government gross debt/GDP; %
55 70 85 100 115 130 145
140 155 170 185 200 215
00 02 04 06 08 10 12 14 16
EM (dashed is ex. China)
DM
119.9
51.6
30 40 50 60 70 80 90 100 110 120 130
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
EM Private Sector Debt (% of GDP)
EM General Government Debt (% of GDP)
Agenda
Page
Las perspectivas de China se ven estables por ahora 11 Perspectivas de economías emergentes mejoran 1
Las elecciones de EEUU generan riesgo cambiario 16
Colombia: El mayor desafío económico es fiscal 20
Los capitales retornan a mercados emergentes 24
Lo que sucede con la economía de China afecta al mundo entero, particularmente a economías emergentes
Impact of China growth shock on real GDP, VAR analysis; %pt cumulative
Source: J.P. Morgan; Sample 1Q100 to 2Q15
Impact of growth shock on real GDP, VAR analysis; %pt cumulative impact after 4qtrs from 1%pt real GDP impulse
Source: J.P. Morgan; Sample 1Q100 to 2Q15. The spillover impact is the effect on GDP in the group excluding the impulse country. The global impact includes the direct impact of the country experiencing the shock (it is equal to its GDP- wgt multiplied by 1 plus the spillover effect multiplied by its weight).
China's commodity consumption as a % of global demand
2007 2009 2011 2013E 2014F
Crude Steel 34 47 45 45 87
Aluminum 26 36 36 44 44 84
Copper 26 37 39 41 44 121
Zinc 31 40 42 44 44 109
Nickel 25 34 41 46 48 101
Iron ore 43 55 55 59 59 79
Source: J.P. Morgan global commodity research
Product % of global demand % net increase in
global demand 2007 - 2013
El mundo está sintiendo el golpe de la desaceleración de China
China’s commodity consumption as a % of global demand
Source for both charts: J.P. Morgan, Official sources.
China’s major commodity importers (% share of total imports)
Crude oil Iron ore Coal Copper
Saudi Arabia (19.9%) Australia (45.3%) Indonesia (39.0%) Japan (7.6%)
Angola (13.6%) Brazil (21.5%) Australia (19.5%) US (6.5%)
Iran (9.5%) India (7.4%) Mongolia (9.0%) Korea (4.9%)
Russia (8.2%) Iran (2.4%) Vietnam (8.4%) Australia (4.8%)
Oman (7.2%) Russia (2.0%) Russia (6.5%) India (4.0%)
Source: J.P. Morgan
China crece a dos velocidades mientras que su economía se rebalancea para depender más del consumo y menos de inversión
Source for all charts: NBS, J.P. Morgan
But “rebalancing” is more simply a sharp slowdown in goods, insufficient offset from services
Not just a slow-down, but also a rebalancing to services from goods
In nominal terms, China’s goods sector stopped growing in mid-2015
The risk is that the service sector, driven by financials,
stumbles next
El mayor riesgo de China es la acumulación de deuda privada, que está deteriorando la calidad de la cartera de los bancos
Source for both charts: J.P. Morgan
China total social finance as % of GDP vs. PBoC lending rate
Broad credit to the private sector as % of GDP
Note: Red line represents the PBcC lending rate and the blue line represents China total social financing
Agenda
Page
Las elecciones de EEUU generan riesgo cambiario 16 Perspectivas de economías emergentes mejoran 1
Las perspectivas de China se ven estables por ahora 11
Colombia: El mayor desafío económico es fiscal 20
Los capitales retornan a mercados emergentes 24
A R K E T O V E R V I E W : R E D U C E E M E X P O S U R E A H E A D O F 4 Q E V E N T R I S K S B U T L O O K T O A D D O N A N Y B A C K U P
Propuestas de reescribir acuerdos comerciales hechos durante la campaña electoral en EEUU generan riesgos para varios países emergentes
EM trade linkages with the US
Note: All data refer to 2015, regional aggregates include smaller countries not shown in this table Source: IMF, J.P. Morgan
Exports to the US Exports Exports to the US Trade balance
with US Total trade
balance GDP
(% of total exports) (% of GDP) (% of total US imports) (% of GDP) (USDbn)
Mexico 81.1 33.3 13.1 9.0 -4.7 1,144
Ecuador 39.5 18.6 0.3 1.5 -3.0 99
Colombia 27.5 12.2 0.6 -2.0 -6.3 293
Venezuela 26.6 22.2 0.7 2.8 5.5 240
Peru 15.2 17.3 0.2 -1.8 -4.4 192
Chile 13.2 25.9 0.4 -1.5 -0.1 240
Brazil 12.7 10.8 1.2 -0.1 1.1 1,773
Argentina 6.0 9.7 0.2 -0.7 -0.5 586
Latam 31.0 18.1 17.9 1.1 -2.4 4,978
Israel 27.4 22.3 1.1 3.4 1.4 296
Saudi Arabia 9.6 31.9 1.0 -0.2 5.8 653
Iraq 7.8 30.1 0.2 1.1 3.3 169
Angola 7.7 32.2 0.1 1.2 14.3 103
Kuwait 7.6 46.6 0.2 1.0 20.5 121
South Africa 7.3 28.4 0.3 0.0 -3.0 313
Egypt 5.1 6.4 0.1 -0.9 -14.7 331
Morocco 4.3 20.5 0.0 -1.4 -15.4 103
Nigeria 3.1 11.6 0.1 -0.4 -0.3 490
Qatar 1.5 34.1 0.1 -1.4 17.0 185
UAE 1.0 63.2 0.1 -6.7 -12.0 345
MEA 7.5 28.8 3.4 -0.6 -0.4 3,357
17
K E T O V E R V I E W : R E D U C E E M E X P O S U R E A H E A D O F 4 Q E V E N T R I S K S B U T L O O K T O A D D O N A N Y B A C K U P
Propuestas de reescribir acuerdos comerciales hechos durante la campaña electoral en EEUU generan riesgos para varios países emergentes (cont.)
EM trade linkages with the US (continued)
Source: IMF, J.P. Morgan
Exports to the US Exports Exports to the US Trade balance
with US Total trade
balance GDP
(% of total exports) (% of GDP) (% of total US imports) (% of GDP) (USDbn)
Turkey 4.5 19.6 0.3 -0.6 -8.6 734
Russia 2.8 25.9 0.7 -0.2 12.2 1,325
Hungary 2.8 81.7 0.3 0.8 5.0 121
Czech Rep. 2.4 87.1 0.2 0.9 9.7 182
Poland 2.3 41.7 0.2 0.2 0.9 475
Kazakhstan 2.1 20.4 0.0 0.1 -0.3 173
Romania 1.9 34.2 0.1 0.2 -5.2 177
Ukraine 1.3 42.1 0.0 -1.1 0.7 91
EM Europe 2.9 32.8 2.0 -0.1 3.1 3,362
Vietnam 21.1 85.4 1.7 14.0 -26.7 191
China 18.0 20.8 21.5 2.4 6.2 10,983
India 15.2 12.7 2.0 0.9 -6.6 2,091
Philippines 15.0 20.1 0.5 0.3 -5.0 292
Korea 13.3 38.3 3.2 1.9 6.6 1,377
Pakistan 13.1 9.5 0.2 0.5 -14.4 270
Taiwan 12.1 54.5 1.8 1.0 9.2 524
Thailand 11.2 53.4 1.3 2.5 2.3 395
Indonesia 10.8 17.5 0.9 1.0 0.9 859
Hong Kong 9.5 150.2 0.3 5.5 -18.4 310
Malaysia 9.4 67.5 1.5 1.6 8.1 296
Singapore 6.9 120.1 0.8 -3.2 18.6 293
EM Asia 16.2 27.0 35.7 2.2 3.2 17,974
EM total 16.2 26.4 59.0 1.5 1.8 29,671
EM total (ex. China) 5.8 11.5 37.5 -1.8 -0.3 18,689
A R K E T O V E R V I E W : R E D U C E E M E X P O S U R E A H E A D O F 4 Q E V E N T R I S K S B U T L O O K T O A D D O N A N Y B A C K U P
China es el origen principal de las importaciones de EEUU, pero es el destino de sólo 8% de sus exportaciones
% of total US imports by main trade partners
Source: J.P. Morgan
Japan EU 6%
19%
Canada 13%
China 22%
Mexico
13% Latam (ex.
Mexico) 5%
EMEA EM 5%
EM Asia (ex.
China) 14%
Other 3%
EM (ex.
China and Mexico) 27%
% of total US exports by main trade partners
Japan 4%
18% EU Canada
19%
China 8%
Mexico
16% Latam (ex.
Mexico) 9%
EMEA EM EM Asia (ex. 7%
China) Other 14%
5%
EM (ex.
China and Mexico) 35%
19
Agenda
Page
Colombia: El mayor desafío económico es fiscal 20 Perspectivas de economías emergentes mejoran 1
Las perspectivas de China se ven estables por ahora 11
Las elecciones de EEUU generan riesgo cambiario 16
Los capitales retornan a mercados emergentes 24
Q2 2016 growth confirmed an orderly slowdown in growth to 2.0%
oya, from 2.5% in 1Q16 and 3.1% for full-year 2015. The domestic demand adjustment to the tighter policy stance and new external backdrop is becoming more notable, while net exports cushioned the slowdown in 2Q.
We revised down our full-year 2016 growth call to 1.8%. We see consumption expanding at 2.4%, led by still sturdy household
spending. The government’s belt-tightening should also weigh on the outlook, especially in 2017. We see the mining sector continuing to struggle amid lower commodity prices as FDI is slowing and capex at Ecopetrol is constrained, which could still weigh on investment. We expect construction to soften as a driver of growth, though the 4G projects could support the sector. We also revised down our 2017 growth outlook to 2.8% from 3.0% before.
Aided by the slowdown in activity, the current account deficit (CAD) narrowed to a still-high 4.8% of GDP, posting the lowest quarterly print ($2.8bn) since 2Q13, down from the 6.5% figure for full-year 2015. The 4-quarter trailing sum of CAD was $15.7bn, down from
$18.8bn for full-2015.
The trade deficit continues to drive the CAD but is tracking narrower at $14.7bn as of July vs. $15.9bn at end-2015. Exports continue to be hit by low oil prices, while imports are contracting at the expense of activity.
We now foresee the CAD finishing 2016 at $13.2bn, down from
$15bn before, or an estimated 4.8% of full-year GDP (revised down from 5.5%). For 2017, we are tentatively penciling a more modest improvement to 4.3% of GDP.. Our call would imply a trade deficit of
$12.0bn in 2016, according to DANE’s methodology. BanRep sees a 5.3% and 4.3% of GDP deficit in 2016 and 2017, respectively.
Country-specific outlook & economic forecasts
Colombia: Economic indicators
Source: DANE and J.P. Morgan
Average
2009-13 2014 2015f 2016f 2017f
Real GDP, % change 4.2 4.4 3.1 1.8 2.8
Consumption¹ 3.5 3.5 3.2 2.0 1.5
Investment¹ 2.0 3.3 1.1 -0.8 1.4
Net trade¹ -1.2 -2.4 -1.2 0.6 -0.1
Consumer prices, %oya 3.0 2.9 5.0 7.6 4.2
% Dec/Dec 2.7 3.7 6.8 5.8 3.8
Producer prices, %oya 2.7 2.9 3.9 6.0 3.0
Government balance, % of GDP -1.6 -1.8 -3.0 -3.9 -3.3 Merchandise trade balance (US$ bn) 3.7 -4.7 -14.1 -9.9 -8.7
Exports 50.9 57.0 38.1 32.6 36.9
Imports 47.1 61.7 52.2 42.6 45.6
Current account balance -9.4 -19.8 -18.8 -13.2 -12.1
% of GDP -2.9 -5.2 -6.4 -4.8 -4.3
International reserves, (US$ bn) 32.6 46.4 46.8 46.8 46.8 Total external debt, (US$ bn) 75.7 113.8 121.8 124.6 126.1
Short term² 8.9 14.3 14.3 14.3 14.3
Total external debt, % of GDP 22.0 28.0 40.4 44.7 44.9 Total external debt, % of exports³ 110.6 145.1 210.2 240.8 225.2 Interest payments, % of exports³ 5.3 5.6 7.6 9.8 8.1 1. Contribution to growth of GDP.
2. Debt with original maturity of less than one year.
3. Exports of goods, services, and net transfers.
56
Colombia: La desaceleración del crecimiento está ayudando a reducir el déficit de cuenta corriente
21
Colombia’s fiscal rule mandates that the central government’s (CG) structural deficit (based on parameters for growth and energy prices defined by an independent committee)
progressively diminish to 1.8% of GDP by 2018 and 1% by 2022.
The headline fiscal deficit is expected to widen from 3% of GDP to an expected 3.9% of GDP after being revised up from 3.6%, but the “cyclical” component of these deficits (0.7% and 1.7%, respectively) leave the structural balance in compliance with the fiscal rule at 2.2% and 2.1% of GDP, respectively.
The 2017 fiscal deficit is seen at 3.3% as the government will actually outperform the fiscal rule in 2017-18 since low oil prices and slow growth actually grant them more "cyclical" space than will be used.
The focus in 4Q will be on the government's ability to submit and gain approval of the promised "structural" tax reform.
The Santos administration submitted the tax reform proposal on October 19, with a projected revenue increase of 2.7% of GDP from the measures. The proposal includes a 3pp VAT hike, and changes to the personal and corporate tax regimes.. In the context of the plebiscite, gaining approval of the reform could face a steeper uphill political battle and risks are titled towards passage of a more watered down reform than envisioned.
S&P and Fitch have put negative outlooks on Colombia's BBB ratings in February and July, respectively. Both agencies signaled concerns over Colombia's large twin deficits. A sufficiently robust fiscal reform (to improve government debt dynamics) will be key to avoiding a downgrade. While Moody’s maintains a stable outlook, it signaled that the failure of the plebiscite vote was “credit negative”
Source: Finance Ministry and J.P. Morgan
… and achieve a gradual return to the structural deficit target
untry-specific outlook & economic forecasts
13 14 15 16 17 18 19 20
2010 2012 2014 2016 2018 2020 2022 2024 2026 2015 long term 2016 brent
2016 long term
Expenditures
Revenues Unidentified
Revenues 2.4%
% of GDP
Fiscal reform necessary to replace central government revenues
-4.5 -4 -3.5 -3 -2.5 -2 -1.5 -1 -0.5 0
2013 2015 2017 2019 2021 2023 2025
Structural deficit path
Permitted by Fiscal Rule Official deficit
target
% of GDP
Colombia: El resultado adverso del referendum ha generado dudas en el
mercado respecto a la aprobación de la reforma fiscal
Inflation peaked at close to 9% well above the 3% +/-100bp target range in July related to FX pass-through but was also strongly impacted by El Niño—both for fresh food and
gas/electricity prices. A June/ July truckers’ strike extended the march upwards in food prices. A stronger-than-anticipated correction in food prices in August and September enabled inflation to drop to 7.3%.
We now expect a rapid disinflation to kick in aided by a favorable base effect and as these supply-side shocks to inflation fade, though lingering FX pass-through and some second-order indexation effects should keep headline inflation above the target range through end-2016. We now see inflation finish 2016 at 5.8% and 3.8% in 2017.
With inflation expectations well above the target range, BanRep has been forced to hike 325bp so far since September. With the stabilization in inflation expectations after July's upward
surprise, along slower 2Q growth, BanRep ended its tightening cycle at 7.75% in its August meeting.
We had thought confirmation of slower growth, a gradually closing CAD, and disinflation starting in 4Q would provide BanRep an opportunity to cut later in the year. At the same time, we had acknowledged that a risk to our call could be disappointment on the fiscal reform front, the chances of which have risen in light of the plebiscite result. We still pencil in the first 25bp cut for December and see the policy rate at 7.5% by end-year and 5.75% by June, but we will continues to watch how the dust settles post-peace surprise.
Source: DANE, BanRep and J.P. Morgan
Source: BanRep and J.P. Morgan
Inflation finally peaked in July
Inflation expectations stabilizing above target
Country-specific outlook & economic forecasts
0 1 2 3 4 5 6 7 8 9
08 09 10 11 12 13 14 15 16 17
%oya
Upper bound
Lower bound
Headline inflation
4.23
2.5 3 3.5 4 4.5 5
09 10 12 14 16
%oya, 12m ahead
Colombia: BanRep terminó su ciclo de subida de tasas pero las perspectivas
de que empiece a cortarlas dependerá de la reforma fiscal
Agenda
Page
Los capitales retornan a mercados emergentes 24 Perspectivas de economías emergentes mejoran 1
Las perspectivas de China se ven estables por ahora 11
Las elecciones de EEUU generan riesgo cambiario 16
Colombia: El mayor desafío económico es fiscal 20
Los flujos de capitales han regresado a mercados emergentes en 2016 y se espera que lleguen a $60bn en renta fija en todo el año
Source for all data: J.P. Morgan, EPFR Global
Annual bond flows by currency exposures; $ bn Annual cumulative EM bond flows; $ bn
Monthly flows into retail hard and local currency debt; $bn Annual bond flows by fund classification; $ bn
97.5
5.7 11.0 -14.6 54.7
-40 -20 0 20 40 60 80 100 120
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2012 2013 2014 2015 2016
-40 -20 0 20 40 60 80 100 120
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Hard Local
-50 0 50 100 150
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US/European Mutual Funds Japanese Investment Trusts
Strategic Mandates
Considerando a renta fija y renta variable, los flujos a mercados emergentes llega a $72.1bn en lo que va del año
Source: Bloomberg, J.P. Morgan, EPFR Global, AMG/Lipper
Inflows into fixed income asset classes since the start of July, YTD and 2015 FY
US$bn Inflows Since Start of July YTD 2015 FY
EM Fixed Income 42.9 54.7 -14.6
EM Hard Ccy 28.3 42.4 -5.8
EM Local Ccy 14.7 12.3 -8.8
EM FI ETFs 9.7 16.0 1.2
EM Equities 29.2 17.0 -64.0
ETFs 18.9 26.2 -16.7
US HG 47.7 118.2 54.8
US HY 8.3 11.2 -16.4
Munis 16.7 50.9 11.0
Mortgages 2.9 13.7 11.4
US Equities -23.6 -111.2 -150.6
Global Equities -7.2 -20.4 164.7
A pesar de los altos retornos acumulados en renta fija de mercados emergente este año, las valorizaciones siguen siendo relativamente atractivas
4.5 year range of spreads
Source for both charts: J.P. Morgan
4.5 year range of yields
Range since Jan 2012 Current
19-Oct 31-Dec %tile
2016 2015 Tight Wide v s. range
EMBIGD CEEMEA 339 457 235 494 40%
EMBIGD Quasi 365 549 226 583 39%
EMBIGD 336 472 236 507 37%
EMBIGD Sov 329 452 238 487 36%
EMBIGD LatAm 385 570 268 608 34%
EMBIGD Asia 204 281 150 315 33%
CEMBI LatAm 440 722 294 779 30%
JULI 159 219 122 251 29%
US HY 532 851 393 920 26%
Euro HY 584 616 312 1431 24%
NEXGEM 469 663 389 758 22%
MBS 90 96 70 183 18%
CEMBI 319 501 274 532 17%
Euro IG 56 57 41 211 9%
CEMBI CEEMEA 314 516 280 690 8%
CEMBI Asia 194 277 181 458 5%
31-Dec-15 19-Oct-16
Range since Jan 2013 Current
19-Oct 31-Dec percentile
2016 2015 Low High v s. range
GBI-EM 6.24 7.15 5.16 7.27 51%
EMBIGD CEEMEA 4.99 6.40 3.98 6.50 40%
EMBIGD Quasi 5.30 7.32 4.02 7.42 38%
MBS 2.15 2.54 1.29 3.58 38%
CEMBI IG - JULI 1.17 2.27 0.55 2.33 35%
EMBIGD 5.12 6.70 4.29 6.78 33%
CEMBI LatAm 6.07 9.06 4.57 9.26 32%
EMBIGD Sov 5.08 6.54 4.36 6.61 32%
EMBIGD LatAm 5.72 7.78 4.84 7.87 29%
US HY 6.48 10.0 5.03 10.4 27%
Munis 1.65 1.75 1.24 2.97 24%
10y UST 1.75 2.04 1.36 3.00 24%
NEXGEM 6.36 8.55 5.60 9.05 22%
CEMBI 4.74 6.77 4.19 6.88 20%
10y Gilts 1.08 1.71 0.61 3.07 19%
EMBIGD Asia 3.82 4.82 3.39 5.63 19%
10y JGB -0.06 0.21 -0.31 1.05 18%
JULI 3.42 4.26 3.26 4.48 13%
10y Bunds 0.03 0.48 -0.18 2.05 10%
CEMBI CEEMEA 4.56 6.83 4.18 8.52 9%
CEMBI Asia 3.40 4.43 3.17 5.99 8%
Euro IG 0.62 1.16 0.46 3.89 5%
Euro HY 4.07 6.55 3.84 9.84 4%
31-Dec-15 19-Oct-16
La posibilidad de más cortes de tasas de interés en muchas economías emergentes genera interés en bonos en moneda local…
Local bond support from policy rate cuts is more selective after the recent rally; bp
Source for both charts : J.P. Morgan
EM local bond yields have lagged the recent collapse in DM bond yields
1.2 1.4 1.6 1.8 2 2.2 2.4 2.6
5.7 5.9 6.1 6.3 6.5 6.7 6.9 7.1 7.3
Jan-15 May-15 Sep-15 Jan-16 May-16
GBI-EM (yield, %) UST 10y (yield %, right)
-25 -25 -25 -25 -25 0
0
-56 0
0 0 0 0 0
-100 -50
0 0 25
-120 -100 -80 -60 -40 -20 0 20 40
IDR THB MYR CNY INR PHP KRW TRY RON ILS HUF ZAR RUB PLN BRL COP PEN CLP MXN
bp
Policy change until Dec-2016
EM Asia EMEA EM LATAM
…aunque el riesgo cambiario reduce el atractivo de los bonos en moneda local
GBI-EM GD FX-Hedged Yield; %
Source: J.P. Morgan
Disclosures
Disclosures
Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention.
Other Disclosure: A contributor to this report has a household member who is a senior portfolio manager of and investor in certain emerging markets mutual funds, which may invest in instruments discussed in this report.
Important Disclosures
Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477- 0406 or e-mail [email protected].
Explanation of Emerging Markets Sovereign Research Ratings System and Valuation & Methodology:
Ratings System: J.P. Morgan uses the following issuer portfolio weightings for Emerging Markets sovereign credit strategy: Overweight (over the next three months, the recommended risk position is expected to outperform the relevant index, sector, or benchmark credit returns); Marketweight (over the next three months, the recommended risk position is expected to perform in line with the relevant index, sector, or benchmark credit returns); and Underweight (over the next three months, the recommended risk position is expected to underperform the relevant index, sector, or benchmark credit returns). NR is Not Rated. In this case, J.P. Morgan has removed the rating for this security because of either legal, regulatory or policy reasons or because of lack of a sufficient fundamental basis. The previous rating no longer should be relied upon. An NR designation is not a recommendation or a rating. NC is Not Covered. An NC designation is not a rating or a recommendation. Recommendations will be at the issuer level, and an issuer
recommendation applies to all of the index-eligible bonds at the same level for the issuer. When we change the issuer-level rating, we are changing the rating for all of the issues covered, unless otherwise specified. Ratings for quasi-sovereign issuers in the EMBIG may differ from the ratings provided in EM corporate coverage.
Valuation & Methodology: For J.P. Morgan's Emerging Markets Sovereign Credit Strategy, we assign a rating to each sovereign issuer (Overweight, Marketweight or Underweight) based on our view of whether the combination of the issuer’s fundamentals, market technicals, and the relative value of its securities will cause it to outperform, perform in line with, or underperform the credit returns of the EMBIGD index over the next three months. Our view of an issuer’s fundamentals includes our opinion of whether the issuer is becoming more or less able to service its debt obligations when they become due and payable, as well as whether its willingness to service debt obligations is increasing or decreasing.
Disclosures
J.P. Morgan Sovereign Research Ratings Distribution, as of Oct 03, 2016
Note: The Sovereign Research Rating Distribution is at the issuer level. Please note that issuers with an NR or an NC designation are not included in the table above.
*Percentage of investment banking clients in each rating category.
Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.
Other Disclosures
J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries.
Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf
Legal Entities Disclosures
U.S.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC. U.K.: JPMorgan Chase N.A., London Branch, is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from J.P. Morgan on request. J.P. Morgan Securities plc (JPMS plc) is a member of the London Stock Exchange and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England & Wales No. 2711006. Registered Office 25 Bank Street, London, E14 5JP. South Africa: J.P. Morgan Equities South Africa Proprietary Limited is a member of the Johannesburg Securities Exchange and is regulated by the Financial Services Board. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong and/or J.P.
Morgan Broking (Hong Kong) Limited (CE number AAB027) is regulated by the Securities and Futures Commission in Hong Kong. Korea: This material is issued and distributed in Korea by or through J.P. Morgan Securities (Far East) Limited, Seoul Branch, which is a member of the Korea Exchange(KRX) and is regulated by the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS). Australia: J.P. Morgan Australia Limited (JPMAL) (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated by ASIC and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited (Corporate Identity Number - U67120MH1992FTC068724), having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz - East, Mumbai – 400098, is registered with Securities and Exchange Board of India (SEBI) as a ‘Research Analyst’ having registration number INH000001873. J.P. Morgan India Private Limited is also registered with SEBI as a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/INE 230675231) and Bombay Stock Exchange Limited (SEBI Registration Number - INB 010675237/INF 010675237). Telephone: 91-22-6157 3000, Facsimile: 91-22-6157 3990 and Website: www.jpmipl.com. For non local research reports, this material is not distributed in India by J.P. Morgan India Private Limited. Thailand: This material is issued and distributed in Thailand by JPMorgan Securities (Thailand) Ltd., which is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission and its registered address is 3rd Floor, 20 North Sathorn Road, Silom, Bangrak, Bangkok 10500. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the OJK a.k.a. BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities Clearing Corporation of the Philippines and the Securities Investor Protection Fund. It is regulated by the Securities and Exchange Commission. Brazil:
Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by or through J.P. Morgan Securities Singapore Private Limited (JPMSS) [MCI (P) 193/03/2016 and Co. Reg. No.: 199405335R], which is a member of the Singapore Exchange
Overweight Marketweight Underweight
Global Sovereign Research Universe 18% 71% 11%
IB clients* 38% 41% 60%
Disclosures
Securities Trading Limited and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore), both of which are regulated by the Monetary Authority of Singapore. This material is issued and distributed in Singapore only to accredited investors, expert investors and institutional investors, as defined in Section 4A of the Securities and Futures Act, Cap. 289 (SFA). This material is not intended to be issued or distributed to any retail investors or any other investors that do not fall into the classes of “accredited investors,” “expert investors” or “institutional investors,” as defined under Section 4A of the SFA. Recipients of this document are to contact JPMSS or JPMCB Singapore in respect of any matters arising from, or in connection with, the document. Japan: JPMorgan Securities Japan Co., Ltd. and JPMorgan Chase Bank, N.A., Tokyo Branch are regulated by the Financial Services Agency in Japan. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia.
Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.
Country and Region Specific Disclosures
U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMS plc. Investment research issued by JPMS plc has been prepared in accordance with JPMS plc's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. Further information about J.P. Morgan's conflict of interest policy and a description of the effective internal organisations and administrative arrangements set up for the prevention and avoidance of conflicts of interest is set out at the following link https://www.jpmorgan.com/jpmpdf/1320678075935.pdf. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction.
Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. This material does not take into account the specific investment objectives, financial situation or particular needs of the recipient. The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the term "wholesale client" has the meaning given in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities plc, Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website:
http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan, Type II Financial Instruments Firms Association and Japan Investment Advisers Association. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Limited, Seoul Branch. Singapore: As at the date of this report, JPMSS is a designated market maker for certain structured warrants listed on the Singapore Exchange where the underlying securities may be the securities discussed in this report. Arising from its role as designated market maker for such structured warrants, JPMSS may conduct hedging activities in respect of such underlying securities and hold or have an interest in such underlying securities as a result. The updated list of structured warrants for which JPMSS acts as designated market maker may be found on the website of the Singapore Exchange Limited: http://www.sgx.com.sg. In addition, JPMSS and/or its affiliates may also have an interest or holding in any of the securities discussed in this report – please see the Important Disclosures section above. For securities where the holding is 1% or greater, the holding may be found in the Important Disclosures section above. For all other securities mentioned in this report, JPMSS and/or its affiliates may have a holding of less than 1% in such securities and may trade them in ways different from those discussed in this report. Employees of JPMSS and/or its affiliates not involved in the preparation of this report may have investments in the securities (or derivatives of such securities) mentioned in this report and may trade them in ways different from those discussed in this report. Taiwan: This material is issued and distributed in Taiwan by J.P. Morgan Securities (Taiwan) Limited. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978.
The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant
Disclosures
province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules. Brazil: Ombudsman J.P. Morgan: 0800-7700847 / [email protected].
General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S.
research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.
"Other Disclosures" last revised July 9, 2016.
Copyright 2016 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P