MUFG: EM sovereign debt 2021 outlook

MUFG: EM sovereign debt 2021 outlook

25 januari 2021

Obligaties
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EM sovereign debt 2021 outlook: EMEA leading from the front

Macro focus
Emerging market (EM) debt witnessed a rapid accumulation in 2020 as economic activity came to a sudden pause on the back of the pandemic with EM sovereigns navigating acute fiscal shocks. We envisage the EM debt supply to be not much different in 2021. We model global EM sovereign USD debt issuance for 2021, based on our expectation for fiscal funding requirements, risk sentiment, idiosyncratic considerations alongside a residual adjustment. Whilst we recognise that standard errors around our estimates need to be taken factored in, our bottom-up country-by-country estimates point to EM gross sovereign issuance remaining elevated this year, at ~USD140bn, with EM EMEA set to remain the dominant force with an anticipated USD83bn of external debt. Honing in on the EM EMEA region, GCC sovereigns are set to keep the supply calendar packed in 2021 with a total of USD37bn of supply. Meanwhile, we envisage more CEE issuance, led by Poland (though could be a net payer, as the Ministry of Finance is expected to moderately reduce its share of FX debt), and African issuances will likely continue to grow in 2021, with the continent becoming a net supplier this year after being a net payer in 2020.

FX views
EM FX: Performance has become more mixed as bull run loses momentum

Week in review
Vaccine trade: EM spread headwinds fading with the vaccine trade back on a firmer footing
Turkey: CBRT keeps rates on hold in line with our expectations
South Africa: SARB stays on hold in line with our expectations, and strikes an upbeat tone
South Africa: inflation edges lower in December and we revise up 2021 estimate higher
Ukraine: NBU keeps rates on hold, but hawkish pivot signals tightening bias

Week ahead and calendar
Saudi Arabia: SAMA monetary statistics to display a pickup in FX reserves
Turkey: CBRT to publish its inflation report with year-end levels in focus
Rate decisions: Nigeria, Hungary and Kenya to remain on hold

Forecasts at a glance
Economic growth, fiscal balance and current account balance
Inflation, interest rates and FX

Core indicators
Bond yields, equity markets, FX and CDS spreads
Capital flows

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