Page 65 - BNE_magazine_12_2019 dec19

bne December 2019
Opinion 65
October 30, and perhaps a plan to transfer ZAR250 bn of Eskom’s debt to the central government. Moody’s will likely need some time to react and, as a result, there will
be no rating or outlook decision on November 1. At the same time, Eskom's situation is far from clear. We expect the authorities to release a restructuring plan for the struggling utility company before the MTBPS date. The SARB remains the bright spot. Its credibility is undisputed, and the central bank is committed to a flexible exchange rate, while inflation effectively lies in the middle of the 3-6% target band (Exhibit 4).
Regarding Turkey, the key takeaway is that investors expect no further escalation of tensions with the US. Normalization of geopolitical risks together with a moderately improved growth outlook for 2020 (most expect 2-3% growth in 2020 compared to near zero in 2019) should allow for some capital inflows. Most observers expect that growth concerns will prompt the CBRT to cut interest rates once more on October
24 (100-150bps), despite intensified depreciation pressure on the TRY (which is likely sanctions related).
Little clarity emerged regarding Ukraine’s IMF program.
We still believe that an agreement is possible before the end of the year, and the IMF will visit Kyiv again in November. However, a court decision on PrivatBank has been postponed once again, and the issue represents a key sticking point in the negotiations. Ukraine has enjoyed a surge of non-resident flows in domestically issued debt since the beginning of the year, and its immediate repayment needs are covered for the coming months (Exhibit 6).
We expect moderate capital flows to EM to continue in
the context of accommodative monetary policy, a possible resolution of the trade conflict between the US and China, and yield-seeking behavior from investors. Nevertheless, geopolitical factors will play an increasingly important role for the outlook.
Exhibit 1. Despite lower growth differential, ...
Exhibit 2. ... EM continue to attract capital flows.
Exhibit 3. High rates drive flows in some countries.
Exhibit 4. Inflation remains well within target range
Exhibit 5. Interest rates could fall further in Turkey
Exhibit 6. Investor interest in Ukraine spiked
Source: Haver, IIF
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