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Many emerging markets are still in flux from the strengthening US dollar, which we foresee continuing.  Emerging and frontier market local currency debt is more affected than respective hard currency paper.

Pakistan let the rupee devalue by another 6% this week, taking the cumulative devaluation over the last 8 months to 19%. The next hurdle for Pakistan is elections on 25 July, which could perhaps cause another small post-election currency devaluation. More importantly, we expect much-needed conversations between Pakistan and the IMF to commence soon thereafter, as long as any post-election unrest that might occur is contained However if violence does occur, investors will continue to stay away.

The Trump – Putin meeting did not do the Russian market any favours at all. Russian shares dropped almost 4% this week, making it the second worst performing equity market in the world behind Venezuela. Year to date, Russian equities are one of the few markets still in positive territory (+7%) but we do not see this continuing without government support. Sanctioned Russian money that is trapped in the country with limited places to be spent other than on Russian securities is providing a further boost.

Tit-for-tat US trade warfare, affecting China in particular, will continue to keep most Asian markets quiet however we expect to see a slowdown in the frequency of fresh tariff announcements.  Many US manufacturers are already feeling the pinch of the increased price of raw materials which has resulted in lost business, price increases or lay-offs. These impact negatively on Trump’s approval ratings: unfortunately it is the most vulnerable American worker who suffers as a result, instead of benefitting as intended.

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(Reporting by Harold Warren, Global Head of Emerging Markets)