Emerging Markets Daily - April 19
World Bank Slashes Growth Forecast, EM Banks Face Gov't Debt Trouble, LG Energy in $9B Indonesia EV Deal, Mobius: Buy China Stocks Now, The Battle to Broadcast Indian Cricket, +Pakistan Tech Start-Ups
The Top 5 Stories Shaping Emerging Markets from Global Media - April 19
World Bank Slashes Global Economic Growth Forecast
“The World Bank now expects the global economy to grow 3.2 percent in 2022, down from its previous estimate of 4.1 percent, its president, David Malpass, said on Monday. The World Bank estimated that the global economy grew 5.7 percent last year.”
New York Times
“The World Bank is slashing its forecast for global economic growth this year, citing the war in Ukraine, inflation and the lingering effects of the pandemic.”
“The World Bank now expects the global economy to grow 3.2 percent in 2022, down from its previous estimate of 4.1 percent, its president, David Malpass, said on Monday. The World Bank estimated that the global economy grew 5.7 percent last year.”
“The projection was updated before policymakers from around the world head to Washington this week for the spring meetings of the World Bank and the International Monetary Fund.”
“‘We begin this spring meeting facing severe overlapping crisis,’ Mr. Malpass said during a briefing with reporters. ‘There’s Covid, inflation and Russia’s invasion of Ukraine.’”
“Mr. Malpass said these forces were expected to drive up global poverty rates as the world coped with sudden increases in prices of energy, fertilizer and food. Rising interest rates are expected to slow growth and exacerbate inequality, he said.” Allan Rappeport reports.
EM Banks’ Gov’t Debt Holdings Pose Financial Stability Risks
IMF Blog
“The pandemic has left emerging-market banks holding record levels of government debt, increasing the odds that pressures on public-sector finances could threaten financial stability. Authorities should act quickly to minimize that risk.”
“Governments around the world have spent aggressively to help households and employers weather the economic impact of the pandemic. Public debt has mounted as governments have issued bonds to cover their budget deficits. The average ratio of public debt to gross domestic product—a key measure of a country’s fiscal health—rose to a record 67 percent last year in emerging market countries, according to Chapter 2 of the IMF’s April 2022 Global Financial Stability Report.”
“Emerging-market banks have provided most of that credit, driving holdings of government debt as a percentage of their assets to a record 17 percent in 2021. In some economies, government debt amounts to a quarter of bank assets. The result: emerging-market governments rely heavily on their banks for credit, and these banks rely heavily on government bonds as an investment that they can use as collateral for securing funding from the central bank.”
“Economists have a name for this interdependence between banks and governments. They call it the ‘sovereign-bank nexus,’ because government debt is also known as sovereign debt—a vestige of the Middle Ages, when kings and queens did the borrowing.”
“There is reason to worry about this nexus. Large holdings of sovereign debt expose banks to losses if government finances come under pressure and the market value of government debt declines. That could force banks—especially those with less capital—to curtail lending to companies and households, weighing on economic activity. As the economy slows and tax revenues shrivel, government finances could come under even more pressure, further squeezing banks. And so on.”
“The sovereign-bank nexus could lead to a self-reinforcing adverse feedback loop that ultimately could force the government into default. There is a name for that, too—the ‘doom loop.’ It happened in Russia in 1998 and in Argentina in 2001-02.” IMF Blog reports.
LG Energy Signs $9B EV Supply Chain Deal in Indonesia
Financial Times
“A South Korean consortium will invest $9bn in Indonesia to build a mines-to-manufacturing electric vehicle supply chain, as battery makers look to reduce their reliance on Chinese suppliers and mitigate commodity price rises following Russia’s invasion of Ukraine.”
“The group led by LG Energy Solution, the world’s second-biggest EV battery maker, has signed an agreement with local mining company PT Aneka Tamban (Antam) and Indonesia Battery Corporation.”
“The project will handle the entire battery production process including smelting and refining nickel, manufacturing precursors, cathode materials and cells, and assembling finished products in the south-east Asian country. Indonesia is the world’s largest producer of nickel, with about 21mn tonnes of reserves, according to US Geological Survey data.”
“The deal comes as South Korean battery makers have increased investment in the chemicals and materials used in EV batteries to reduce their dependence on China, the world’s biggest processor of most of the minerals needed for production.”
“The war in Ukraine has added to the pressure to improve supply chain security. Russia accounts for 11 per cent of the world’s nickel production and prices of crucial commodities have increased significantly since the invasion.” Song Jung-a reports.
‘Father of Emerging Markets’ Says China Stocks Have Hit Bottom. Buy Now.
South China Morning Post
“China’s stock market is likely to have reached the bottom, according to Mark Mobius, dubbed the ‘father of emerging markets.’”
“But investors should resist the temptation of using index funds – ones that invest according to the weightings of an index – to return to the market, he warned. Rather, they should focus on individual small and mid-sized companies that demonstrate good earnings prospects and carry low debt. These are the stocks that will be benefit from new regulatory policies, he said.”
“‘Obviously, the Chinese government wants the market to perform better. We are probably reaching the bottom or near the bottom and the market is probably going to recover,’ Mobius said in an exclusive interview with the South China Morning Post. The MSCI China Index, which tracks 738 stocks, fell 14 per cent in the first quarter, adding to a 21.6 per cent slump in 2021.”
“Beijing’s sweeping crackdown on the technology sector that began last summer, coupled with the risk of Chinese companies being delisted in the US and fears linked to Russia’s invasion of Ukraine, formed a perfect storm that knocked US$1.9 trillion of market value off the index members in a 15-month period.” SCMP reports.
The Michael Jordan of Emerging Markets Investing
For more on Mark Mobius, his journey, and his views on markets, see our exclusive Emerging World Interview:
Amazon, Disney, and Reliance Battle for Right to Broadcast Indian Cricket
LiveMint India/Bloomberg
“Amazon.com Inc., The Walt Disney Co. and billionaire Mukesh Ambani-led Reliance Industries Ltd. are among those that have signaled an intention to bid for the broadcast rights of the Indian Premier League, or IPL, according to people familiar with the matter, setting the stage for an epic showdown for the prized asset in cricket-crazy India.”
“Besides these, Sony Group Corp., Zee Entertainment Enterprises Ltd., and fantasy-sports platform Dream11 have also purchased the bid-related documents from Board of Control for Cricket in India, or BCCI, people said asking not to be named as the information is not public. BCCI is the sport’s local governing body that will be conducting the online auction starting June 12.”
“The auction will allow the winner or winners -- there are four baskets of rights to bid for -- to globally telecast matches of India’s top cricket league between 2023 and 2027 via live streaming and TV broadcast. Securing rights to the world’s third-largest sporting event by number of viewers -- IPL is considered the Super Bowl of cricket -- means access to hundreds of millions of eyeballs.”
“More companies may still seek to join the race, which is expected to draw bids worth $5 billion or more, to acquire the media rights for the sporting event while those that sought the applications can decide to not bid, the people said. Last year’s edition of the IPL brought in 380 million viewers, and whichever broadcaster wins the rights will likely secure millions of new subscribers in a highly competitive market.”
What We’re Also Reading… The Rise of Pakistani Tech Start-Ups
Check out the Rest of World interview with the insightful and inspiring Kalsoom Lakhani, co-founder of a Pakistan-focused venture fund.
“‘It’s like drinking from a firehose’: Inside Pakistan’s tech investment boom. Pakistani VC Kalsoom Lakhani on the good, bad, and ugly of the recent funding boom.” Itika Sharma Punit reports.
Kalsoom is a valued fellow traveler in our Emerging World caravan, and she has a great Twitter Feed that is a must-read for all things Pakistan and emerging markets and more. You’ll see cool graphics like this in her Twitter feed, posted on April 1, alongside this tweet below the graphic.
Spring is here in Washington and that means….IMF-World Bank Spring Meetings, of course.
The regular confab begins this week, and many of the public sessions can be viewed online. You can watch it here.