Research & Insight

Local currency emerging market debt continues to be in demand internationally with flows strong and impressive performance. Asia led the way in July with strong returns across all four benchmark countries. Foreign exchange appreciation continues to be the dominant driver of these returns.

July was the calm before the August storm. The MSCI EM fell by just 0.38%. Most markets actually fell more than that average – declines of 3 or 4% were quite common, but the average was boosted by positive returns from Thailand (+11.6%), Peru (+8.4%) and Indonesia (+7.3%).

MSCI Asia ex Japan rose 1.15% during July, but this was the calm before the storm in August. Our markets continued to take their cue from developed markets, namely Congress’ impasse over the extension of the US debt ceiling and the debacle in Europe spreading to Italy and Spain. It is not surprising therefore that the outperformers were once again the smaller, more insulated Asean markets of Thailand (11.6% buoyed by a decisive election outcome), Indonesia (7.2%) and the Philippines (6.7%).

The diaspora of the Korea chapter of the wider publicly listed equity investment world, indexed and otherwise, may have been eagerly hanging on the June 21st announcement from MSCI Barra on global and regional country index component changes – involved and detached chapter observers have been treated to an annual, protracted and stylised will-they won’t-they promotion ritual for several yawning years now… A fully emerged groundhog, or one that is perceptibly emerging… but with a healthily reduced or even removed weighting to telcos in the index. Hark the Korea Herald! It is still emerging! Hold your index and the business page. Now that is news for you… isn’t it?

But the rest of Korea has other significant dates on their minds.

Against the odds, former Prime Minister, Thaksin Shinawatra’s party regained power over the Democrat Party at the July 3rd Thai general elections. The Pheu Thai Party (PTP) won by simple majority, taking 265 out of 500 seats. The PTP is likely to be led by Thaksin’s sister, Yingluck Shinawatra, with Mr Thaksin still living in exile from Thailand.