EMEA Weekly: Week 15

This morning the Bank of Japan announced unprecedented measures to revive the Japanese economy and to end 15 years of deflation. The action by the Bank of Japan is likely to have a positive impact on global growth and, equally important, global risk appetite is likely to get a boost from today’s action by the Bank of Japan. In our view, this is quite supportive of the EMEA markets (and emerging markets in general).

Recently renewed worries about the European situation have done a lot to dent the sentiment in EMEA markets but we believe these fears will largely be ‘offset’ by the Bank of Japan’s more aggressive monetary policy stance. Hence, Both the Federal Reserve and the Bank of Japan are increasingly acting as effective backstops to contain the European crisis. As consequence, we are now less worried about the prospects for the EMEA markets than was the case a week ago.

Maybe paradoxically we think the Hungarian forint could stand to gain the most from the actions of the Bank of Japan, as the HUF has taken a substantial beating recently. So, while we still are not comfortable with the actions of the Hungarian government and central bank, the HUF is nonetheless trading at a level that we consider to be cheap and, furthermore, the HUF still offers attractive carry.

NBP On Hold But Should Cut
Next week the Polish central bank’s monetary policy council (RPP) is due to meet. We expect the Council to decide to keep its key policy rate on hold. Fundamentally, we think there is ample room for monetary easing and given the relatively sharp slowdown in Polish growth and subdued inflationary pressure, monetary easing is indeed warranted. However, at the latest RPP meeting the Council clearly signalled that it was now in wait-and-see mode. This makes a rate cut unlikely next week. This said, we would expect the Polish central bank to restart rate cuts.

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