June 2023 marked the 25th Anniversary of Gramercy! Thank you to our valued investors, trusted business partners and team members without whom this milestone could not have been reached. We are excited for the opportunities we see ahead, and look forward to continuing to deliver upon our mission to have a positive impact on the well-being of our clients, portfolio investments (and their communities) and our team members.


Market Overview

Macro Review

Amid a relatively quiet week, global markets finished a turbulent February on a slightly calmer note as the January PCE inflation report, the Fed’s favorite metric to measure price pressures in the U.S. economy alongside German and French CPI, all printed in line with expectations. The 10Y UST yield dropped to the lowest in two weeks and the USD retreated, dragging the DXY back below 104. Oil had a good week with Brent prices pushing toward the mid-80s. On the macro data front, U.S. real GDP grew strongly by 3.2% YoY rate in Q4 2023, mostly driven by robust consumer spending. However, softer activity data as shown by weaker ISM survey results this week signaled that the U.S. economy might be weaker than the headline GDP growth figures suggest, adding to the “data conundrum” for Fed policymakers and markets. In Europe, on balance investors continued to scale back their ECB monetary policy easing expectations after relatively dovish comments by ECB President Christine Lagarde were offset by hawkish comments from several other ECB officials. In China, the macro data released this week continues to paint a mixed picture, with strength in services, counterbalanced by uncertainty in trade. Across EM, notable developments this week included Egypt securing an unprecedented and front-loaded $35bn FDI from the UAE and Nigeria Central Bank’s aggressive 400bps rate hike amid onshore currency volatility and elevated inflation.

EM Credit Update

Emerging markets hard currency sovereign credit (cash bonds) gained 0.4%, with spreads 5bps tighter. Corporate credit was 0.1% stronger at the index level with spreads 1bp wider. Sovereign outperformers over the week were Zambia, Tunisia, and Egypt, while Mongolia, Senegal, and Ghana underperformed. EM local debt gained 0.3% this week.

The Week Ahead

Next week will be an important one in the U.S. as Fed Chair Jerome Powell testifies before Congress and February’s jobs report will be released. In the eurozone, a small uptick in retail sales is expected in February. Elsewhere in DM, the Bank of Canada is expected to hold rates at 5%. In China, the government will hold its annual Two Sessions meetings; market participants will focus on the annual growth targets and the overall policy direction for the year, in particular, if any adjustments to the “proactive fiscal policy” and “prudent monetary policy” approach will be signaled. In Turkey, headline CPI for February is projected to come at around 65% and the actual print will be important for accessing the monetary policy outlook for the Central Bank of Turkey after its “hawkish hold” at 45% during February’s policy rate-setting meeting.

Highlights from emerging markets discussed below: Egypt secures unprecedented and front-loaded $35bn FDI from UAE; Nigeria’s Central Bank (CBN) delivers aggressive 400bps hike, further policy tightening is in the pipeline; The National Bank of Hungary (NBH) accelerated easing.

Fixed Income

Source for data tables: Bloomberg, JPMorgan, Gramercy. EM Fixed Income is represented by the following JPMorgan Indicies: EMBI Global, GBI-EM Global Diversified, CEMBI Broad Diversified and CEMBI Broad High Yield. DM Fixed Income is represented by the JPMorgan JULI Total Return Index and Domestic High Yield Index. Fixed Income, Equity and Commodity data is as of March 1, 2024 (mid-afternoon).

Emerging Markets Weekly Highlights

Egypt secures unprecedented and front-loaded $35bn FDI from UAE

Event: Last week, the UAE and Egypt agreed to a $35bn FDI deal to develop the Ras el-Hekma area along the Mediterranean coast. The flows are expected to be front-loaded over the next two months of which $11bn will cover rollover of UAE deposits at the CBE. Eurobonds have jumped over 10 pts in the last week on the news.

Gramercy Commentary: This very large FX inflow is constructive and sets the stage for a more moderate and successful currency adjustment in advance of an agreement with the IMF on an upsized program potentially before the start of Ramadan. The shift from reliance on more volatile portfolio flows to stickier FDI is also welcomed. Going forward, program performance and evolution of the ongoing conflict in Gaza and its associated impact on canal and tourism receipts should remain in focus.

Nigeria’s Central Bank (CBN) delivers aggressive 400bps hike, further policy tightening is in the pipeline

Event: The CBN increased its monetary policy rate by 400bps to a historic high of 22.75%, overdelivering on consensus market expectations of a 250bps hike.

Gramercy Commentary: This week’s meeting was the first one for new Governor Olayemi Cardoso and his team since taking office back in October 2023 with a mandate to normalize Nigeria’s distorted environment for monetary policy management. The CBN leadership chose to send a strong signal to markets by delivering a jumbo rate hike. It was complemented by additional liquidity tightening measures and a commitment that “they’ll stop at nothing” to bring inflation down, regain investor confidence and stabilize the currency (NGN) that has been under significant pressure lately. Indeed, additional forceful policy measures will likely be needed to achieve these ambitious credit-positive objectives. Headline CPI hit a record high in January coming in at just shy of 30% YoY and is projected to accelerate further to ~35% by mid-year. In this context, we expect another sizable policy rate hike in March to bring the policy rate closer to on-the-run inflation and narrow the ex-post negative interest rate gap. We expect that it will be accompanied by further steps to smooth out FX volatility and improve onshore USD liquidity, including clearing the remaining ~$2.5bn of FX backlog with local banks out of a total of ~$7bn inherited from the previous CBN management. A continued strong commitment by the authorities to normalize Nigeria’s monetary policy environment is required to catalyze fresh foreign capital inflows into local currency assets, which should help ease FX shortages and NGN volatility as well as rebuild CBN’s FX reserves.

The National Bank of Hungary (NBH) accelerated easing

Event: The NBH lowered its base rate by 100bps to 9% compared to a 75bps cut at the prior meeting amid weaker than expected growth and inflation data. The MPC noted that the accelerated pace is temporary and will continue to adopt a cautious approach.

Gramercy Commentary: The move was expected in the context of a downside surprise in January inflation. The more hawkish press conference should help to balance risks to the forint which is supported by incrementally improving fiscal and external accounts but remains subject to political noise.

Emerging Markets Technicals

Emerging Markets Flows

Source for graphs: Bloomberg, JPMorgan, Gramercy. As of March 1, 2024

For questions, please contact:

Kathryn Exum, CFA ESG, Director, Co-Head of Sovereign Research, [email protected]

Petar Atanasov, Director, Co-Head of Sovereign Research, [email protected]

James Barry, Director, Deputy Portfolio Manager, [email protected]

This document is for informational purposes only. The information presented is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Gramercy may have current investment positions in the securities or sovereigns mentioned above. The information and opinions contained in this paper are as of the date of initial publication, derived from proprietary and nonproprietary sources deemed by Gramercy to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. This paper may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this paper is at the sole discretion of the reader. You should not rely on this presentation as the basis upon which to make an investment decision. Investment involves risk. There can be no assurance that investment objectives will be achieved. Investors must be prepared to bear the risk of a total loss of their investment. These risks are often heightened for investments in emerging/developing markets or smaller capital markets. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. References to any indices are for informational and general comparative purposes only. The performance data of various indices mentioned in this update are updated and released on a periodic basis before finalization. The performance data of various indices presented herein was current as of the date of the presentation. Please refer to data returns of the separate indices if you desire additional or updated information. Indices are unmanaged, and their performance results do not reflect the impact of fees, expenses, or taxes that may be incurred through an investment with Gramercy. Returns for indices assume dividend reinvestment. An investment cannot be made directly in an index. Accordingly, comparing results shown to those of such indices may be of limited use. The information provided herein is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation.