JPMorgan cuts emerging markets local currency debt to ‘underweight’ as Russia-Ukraine Troubles Bite

© . FILE PHOTO: A sign outside the JP Morgan Chase & Co headquarters in New York, Sept. 19, 2013. REUTERS/Mike Segar By Jorgelina do Rosario LONDON () – JPMorgan (NYSE:) analysts have a sale or ‘underweight,’” recommendation on emerging market local currency sovereign debt as a result of the global impact of the crisis between Russia and Ukraine. Emerging market fixed income assets have lost 6-9% of their value since Russia invaded its neighbor a month ago, JPMorgan estimates, with nervousness over the war and its impact on global energy and food prices adding to existing pressures. A number of leading emerging market central banks are signaling that interest rates will now have to rise faster than previously thought, fueling concerns about economically debilitating periods of “stagflation” – where high inflation and rate hikes hold back growth. “A month of war has accelerated existing trends and exposed vulnerabilities,” JPMorgan analysts said in a note released late Thursday. With the US Federal Reserve and emerging-market central banks raising interest rates, JPMorgan also said it “made sense to take advantage of the recent pullback” in local-currency Treasury yields against US Treasuries to achieve a” underweight’ position in emerging markets. market assets. The US investment bank said major metal-exporting countries such as South Africa, Chile and Peru could still do well, but warned that emerging market fixed income more broadly now faces a more “stagflationary” trajectory. What Moscow has called a “special military operation” in Ukraine has also exacerbated an already slow start to the year for the sale of emerging market government bonds. The cumulative year-to-date issuance is one of the lowest on record and JPMorgan predicts that bond issuance across emerging markets will now be significantly lower than previous years, at just $142 billion by 2022. “This risk-free environment has also raised costs for those countries trying to issue hard currency bonds,” the banking analyst added. Some countries most vulnerable to higher energy and food prices also need to use “crisis-lite” scenarios. This was seen this week with Egypt’s 15% devaluation of its currency, as the International Monetary Fund was asked for additional support. Sri Lanka has also overcome long-held opposition to IMF aid and Tunisia is in talks. “The medium-term investment outlook for these countries therefore looks more challenging,” said JPMorgan. Disclaimer: Fusion Media would like to remind you that the data on this website is not necessarily real-time or accurate. All CFDs (Stocks, Indices, Futures) and Forex prices are not provided by exchanges but rather by market makers, and therefore prices may not be accurate and may differ from the actual market price meaning prices are indicative and not suitable for trading purposes . Therefore, Fusion Media does not bear any responsibility for any trading losses that you may incur as a result of using this data. Fusion Media or anyone associated with Fusion Media accepts no liability for any loss or damage resulting from reliance on any information, including data, quotes, charts and buy/sell signals on this website. Be fully informed about the risks and costs associated with trading the financial markets, it is one of the riskiest forms of investment possible.

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