EM tone strong ahead of U.S. election results; South Africa outperforms; Turkey tightens

By Christine Van Dusen

Atlanta, Nov. 8 – Emerging markets assets put in a solid session on Tuesday, even as investors bit their nails and worried over what was likely to happen on election day in the United States.

“Very solid tone overall, a touch reminiscent of Brexit, where the market is 87% positioned for a benign and market-friendly result,” a trader said. “Technicals are supportive.”

Said a London-based analyst, “Market sentiment remains solid as U.S. citizens are going to cast their vote in today’s presidential and congressional elections. Final polls give Hillary Clinton a lead, but markets remain nervous, with actual votes having defied pollsters on previous occurrences.”

While global politics set the tone, “local politics continue to make the difference in [emerging markets],” he said.

He pointed to South Africa, which remained an outperformer on Tuesday, with the rand strengthening and sovereign five-year credit default swaps spreads tightening by as much as 15 basis points over the week.

Looking to Turkey, the sovereign remained under political and market scrutiny, following the arrests of oppositional journalists and politicians, he said.

As a result of all of this, Turkey was an underperformer on Tuesday morning, with CDS opening about 4 bps wider amid muted flows, the analyst said.

Even against this backdrop, though, Turkish bonds managed to tighten 10 bps to 12 bps as the day went on.

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