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In the latest newsletter, a prominent bank remains optimistic about 2024 but has signaled a tactical sell-off for emerging-market currencies due to elevated December US inflation. Christine Lagarde has voiced concerns about the potential re-emergence of Donald Trump in 2025, citing apprehensions over his prior presidential term. Ethiopia is at a crossroads as International Monetary Fund (IMF) officials gear up for a crucial visit, marking a pivotal move in securing a bailout essential for debt restructuring.

Matheus Zani & Daniel Porto

R&D Featured Article

Creating a foreign share class: what GPs need to know

As currency volatility in key growth areas prompts General Partners (GPs) to explore beyond dollarized share classes, foreign share classes emerge as a strategic solution for mitigating currency risk. Despite historical reluctance due to perceived complexity and cost, funds are increasingly adopting foreign share classes to attract international investors and diversify exposure. These classes, denominated in currencies different from the fund's base, offer flexibility and reduce currency exposure for investors. However, the adoption comes with complexities, requiring careful consideration of risks, benefits, costs, and regulatory implications. Technology, exemplified by providers like Deaglo, plays a pivotal role in optimizing hedging strategies, offering visibility, risk analytics, and scenario modeling to navigate the challenges associated with foreign share classes in an evolving market.

2. Lagarde Warns of Concerns Over Trump's Potential 2025 Return

Christine Lagarde has expressed apprehension over the possibility of Donald Trump returning to power in 2025, citing concerns about his past term as president. Lagarde highlighted that Trump's policies, particularly on trade tariffs, NATO commitment, and the fight against climate change, were not in alignment with European interests. In a separate statement, Lagarde revealed that the European Central Bank (ECB) intends to commence a reduction in interest rates once it is confident that inflation is on track to reach its 2% target.

3. Ethiopia Navigates IMF Talks

Ethiopia faces a critical decision as International Monetary Fund (IMF) officials prepare to visit, a pivotal step for securing a bailout crucial to debt restructuring. The dilemma involves allowing the national currency to weaken, risking higher inflation and social instability. The IMF mission, expected in the coming weeks, follows promising discussions in October. Ethiopia's official creditors set a four-month deadline in November for a preliminary deal with the IMF, threatening to nullify a debt-servicing suspension if not met. The government is negotiating to borrow $3.5 billion from the IMF and a similar amount from the World Bank. With a surge in living costs and consumer prices rising, the IMF urges a cautious approach to currency devaluation. Analysts emphasize the delicate nature of negotiations and the urgency for a timely resolution. Ethiopia needs an IMF program for a G20 Common Framework debt restructuring, as its external debt and financial challenges escalate amid the global economic landscape.

Charted Territory

What to look out for today

GBP - GDP (Nov)
GBP - Industrial Production (Nov)
USD - Core PPI (Dec)

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