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Prospects Daily: Developing-country stocks continue to fall, German investor confidence weakest since December 2012, Kenya breaks Africa’s record on its Eurobond debut

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Financial Markets
 
Developing-country equities slid for a fifth day on Tuesday, led by a lingering slump in Argentinian stocks. The benchmark MSCI Emerging Market Stock Index fell 0.2%, partly affected by higher-than-forecasted U.S. inflation figures in May, which fueled speculation the Fed may raise interest rates earlier than expected.  Argentina’s Merval index fell as much as 3.1% today after plunging more than 10% yesterday, and benchmark stock indexes in Russia and Ukraine retreated at least 0.9%. China’s Shanghai Composite index dropped the most in a month while India’s Sensex index rose 1.3%.
 
The Republic of Ecuador is set to issue its first international bond since 2008 default today. The Andean country plans to sell at least $500 million of dollar-denominated bonds that may carry an initial yield of the low 8% area.  The country voluntarily defaulted on its $3.2 billion foreign debt obligations five years ago. Along with Kenya’s inaugural international bond issue yesterday, Ecuador’s bond offering underlines the huge investors’ appetite for the riskiest developing-country sovereign debt.
 
High Income Economies
 
Reflecting broad-based price increases, U.S. consumer price index rose 0.4% (m/m) in May after climbing 0.3% in April.  The latest increase was the biggest monthly increase since February 2013 and was larger-than-expected as economists had forecast the index to edge up by only 0.2%.  Higher prices for food, shelter, electricity, airline fares, and gasoline all contributed to the increase.  Core consumer prices, which exclude food and energy prices, increased by 0.3% in May, the biggest increase since August 2011, after rising by 0.2% in April.
 
Weakening for the sixth straight month, the Centre for European Economic Research/ZEW economic sentiment index for Germany fell unexpectedly to 29.8 in June, the lowest score since December 2012, from 33.1 in May.  The index was forecast by economists to rise to 35.  The latest reading suggests that investors have been unimpressed by recent European Central Bank action and adds to signs that the German recovery is nearing a peak.
 
Singapore’s non-oil exports unexpectedly fell 6.6% (y/y) in May, more than reversing the 0.9% rise in April.  Shipments were forecast by economists to rise marginally by 0.5%.  Leading the decline was exports of electronic products that plunged 15.3%, sharper than the 8.7% drop seen in April.  Non-electronic exports also decreased in May, by 2.4% after rising 5.5%.
 
Developing Economies
 
East Asia and Pacific
Foreign direct investment flows to China fell in May, decreasing 6.7% (y/y) to US$8.6bn.  In April, FDI to China totaled US$8.7bn. During the January-to-May period, FDI inflows to China rose by 2.8% to US$48.9bn.  In 2013, FDI inflows into China reached a record US$118bn.  Among the countries that are the main sources of China’s FDI, the biggest increase in investments came from South Korea (+88%, y/y) and the U.K. (+62%); while inflows from Japan (-42%), U.S. (-9%) and the European Union (-22%) fell.
 
Sub-Saharan Africa  
Kenya made its debut Eurobond launch on Monday, raising US$2.0bn from international investors, the largest debut so far in Sub-Saharan Africa.  Kenya issued two notes: a US$1.5bn 10-year security priced at 6.875% and a US$500 million 5-year bond that yielded 5.875%.  The yields were lower than initially expected. The US$2.0bn bonds were oversubscribed by a factor of 4, suggesting strong appetite for riskier assets.     

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