(Bloomberg) — Even with this month’s retreat in Treasury yields, investors could be forgiven for taking a cautious view of emerging markets.The renewed surge in Covid-19 infections from India to Argentina and political risks in Turkey and Peru have made investors more selective. Citigroup Inc. said in a report that the recent plunge in Indian assets is a reminder that the global fight against Covid-19 isn’t over yet for many developing economies, even though an environment of stabilizing U.S. yields would bode well for emerging-market currencies and bonds.With the Federal Reserve set to maintain its dovish stance at this week’s policy meeting, investors are looking to snap up assets pummeled by the first-quarter Treasury-market selloff and the global pandemic. Morgan Stanley is touting emerging-market local bonds, which gained for a third week in the five days through Friday after underperforming other risk assets this year. Barings U.K. finds value in corporate bonds in Brazil and Turkey after their spreads widened along with sovereign debt.“At this stage, we think that rotation from emerging-market outperformers to underperformers will help drive markets,” said Jon Harrison, a London-based managing director for emerging-market macro strategy at TS Lombard. He expects U.S. growth to drive Mexican stocks, while China’s market lags behind peers as President Xi Jinping targets the nation’s tech giants.Economic data will serve as a guide on the progress of the global recovery. Mexico, South Korea and Taiwan will unveil gross domestic product data, while China is due to report April purchasing manager indexes on Friday.Turkey will also continue to capture the market’s attention after the lira overtook the Argentine peso as this year’s worst-performer among peers.Lira Bears WakeTurkey rejected President Joe Biden’s recognition of the mass killing of Armenians in 1915 as a genocide, saying the U.S. had opened “a deep wound that undermines our mutual trust and friendship”The lira had its worst week in the five days through Friday since President Recep Tayyip Erdogan’s shock dismissal of the nation’s central bank chief after he raised interest rates in March. Concerns that Turkey’s relations with the U.S. could fray and that the government may again dip into its foreign-exchange reserves weighed on the currencyThe new governor, Sahap Kavcioglu — a newspaper columnist and critic of high interest rates — is due on Thursday to hold his first press conference on the inflation outlookBloomberg Economics expects the central bank to increase its year-end forecast for price gains because of higher oil prices and a weaker liraRate DecisionsColombia’s central bank is expected to leave its key interest rate on hold Friday while reiterating that policy makers are monitoring new developments, keeping the door open for potential changes going forward.Investors will also monitor any updates on tax-reform plansThe Colombian peso was one of the worst performers in emerging markets last weekEgypt’s central bank is likely to leave the world’s highest real interest rate unchanged on Thursday, keeping global investors drawn to its debtWhat Else to WatchSouth Korea will publish first-quarter gross domestic product numbers on Tuesday, while Taiwan will release GDP data on Friday. The two economies are among those leading Asia’s recovery from the pandemic.“We expect South Korea’s GDP growth to continue to recover and see upside risks on the back of strong exports and investment activities,” Citigroup Inc. economists including Johanna Chua in Hong Kong wrote in a note. “However, we think uncertainties around the virus and vaccine distribution cannot be ignored, and thus private consumption is likely to remain weak with only a small and uneven recovery across different sectors”Taiwan’s economy is expected to remain strong due to resilient exports and normalizing local activities, Citigroup said. The bank forecasts annual growth of 1.2% for South Korea and 6.1% for TaiwanWhile the U.S. dollar has strengthened against most of its Asian peers this year, Taiwan’s currency has held firm, appreciating almost 1%. South Korea’s won has dropped 2.8%.China is due to report April manufacturing and non-manufacturing PMI on Friday“China’s PMIs are likely to show the economy sustaining momentum into the second quarter, with the industrial and services sectors picking up,” Bloomberg Economics analysts including Chang Shu in Hong Kong wrote in a noteMalaysia will publish trade data for March on Wednesday, and Thailand will release its own report on FridayThe Malaysian ringgit and Thai baht are among the biggest losers in emerging Asia this yearIn Mexico, a reading of February economic activity on Monday is expected to flag a recovery while lingering below pre-pandemic levelsOn Friday, preliminary first-quarter gross domestic product figures will probably show a year-over-year decline as the recovery continues with less momentumThe Mexican peso is the top performer in emerging markets in the past monthTraders will monitor political tension in Brazil amid a senate probe into the government’s response to the pandemicA reading of the nation’s bi-weekly CPI data, scheduled for Tuesday, will also be watched ahead of a May 5 central bank meetingBrazil will also post current account data on Monday, as well as primary budget balance and unemployment figures on FridayInvestors will weigh prospects for Chile’s third round of early pension withdrawals, which is driving tension among the nation’s politiciansChilean unemployment and retail sales data for March will be released on Friday, alongside copper-production and manufacturing figuresFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
