Emerging Markets Daily - April 23
China Short Bets Hit Record Highs, Whither EM Amid Covid Surge?, EW Analysis: What Energy Transition?, China Envoy Targeted in Pakistan? DP World Strong 1Q
The Top 5 Emerging Market Stories from Global Media - April 23 (Includes Emerging World News Analysis: “What Energy Transition?”)
Bearish Traders Push China Short Bets to Record Highs
South China Morning Post
“China stock bears have driven up short bets to an all-time high this week, reflecting demand for hedging against the risks of policy tightening and further fallout from the nation’s antitrust crackdown on technology companies.”
“The combined value of stock shorts on the Shanghai and Shenzhen stock exchanges climbed to 152 billion yuan (US$23.4 billion) on Tuesday, according to data published by state agency China Securities Finance. That’s the highest since local brokerages were allowed to officially start securities lending and borrowing in 2010.”
“The bearish bets came after China’s economic growth accelerated to 18.3 per cent in the first quarter in a full recovery from the pandemic, raising expectations that policymakers will further put the brakes on excessive credit expansion.”
“Since late last year, Beijing has also been stepping up its scrutiny of Internet-platform operators. A months-long probe into anti-monopoly practices culminated this month in a record US$2.8 billion fine being imposed on e-commerce group Alibaba Group Holding.”
“‘There are near-term risks in China including an anti-monopoly drive that threatens large-cap Internet companies that push us to favour more cyclical and domestically oriented exposures,’ strategists including Wei Li at BlackRock wrote in a report on April 19. BlackRock manages about US$8.7 trillion globally.” Zhang Shidong reports.
Whither Emerging Bonds Amid Covid Surge, Inflation Fears?
The Economist
“Despite their supposed dynamism, emerging markets often struggle to escape their past. A few months ago, investors worried that this year would turn out to be a repeat of 2013, when rising bond yields in America prompted a sharp sell-off in emerging markets, known as the taper tantrum. Now investors are worried that 2021 will be a grim repeat of last year, as another, more virulent wave of covid-19 infections spreads through Brazil, India and elsewhere.”
“… one reason why the tantrum has receded is because the virus has not. As the pandemic begins to interrupt the emerging world’s economic recovery, their central banks will surely worry less about any gathering inflationary pressure. Morgan Stanley believes that central banks in Brazil, Russia and Mexico among others are unlikely to raise interest rates as sharply as markets now expect. The delayed recovery is bad for emerging economies, but not necessarily bad for their governments’ paper. Bonds usually do well when growth is slow and central banks are doveish, notes Mr Lord.” The Economist reports.
Emerging World News Analysis/Comment - What ‘Energy Transition?’ Fossil Fuels Will Be Here — And Vital — For A Long Time
Emerging World
When the 19th century novelist Mark Twain read his own obituary in the newspaper, he fired a note back to the editor that said: “the news of my demise has been greatly exaggerated.” The fossil fuel industry might feel a bit like Mark Twain. It, too, has been told of its death, and the recent Climate Summit hosted by U.S President Joe Biden with major pledges of emissions cuts seems to be adding a few nails to the coffin.
But not so fast.
Yes, we are headed for a post-carbon energy world, but it’s going to take a lot longer than many expect to get there. A piece in the Wall Street Journal by David Hodari caught our eye over here at Emerging World. The piece outlines the story of smaller energy firms buying up oil and coal assets of major companies. Why? The majors want to show investors that they are divesting from polluting projects, while generating some funds in return. The smaller companies buying up the assets from the likes of BP and Royal Dutch Shell “are still willing to bet there is more money to made in oil and coal,” Hodari writes.
It looks like a good wager.
Some numbers:
81% - the share of global energy consumption met by oil, natural gas and coal in 2019
76% - the share of global energy consumption met by oil, natural gas and coal in 2030
That’s not a huge drop-off.
What’s more, OPEC forecasts a 43% rise in oil consumption, driven by China and India demand by 2045. While oil demand growth is certainly slowing, we will need oil - and lots of it - for at least the next two decades.
The piece had some strong quotes. Some highlights below:
“While I agree that the direction of traffic is one way, toward renewables, I think it’s going to take longer than people think,” said Blair Thomas, chairman of Harbour Energy PLC.
“Capital that is not being spent now, is production that the industry won’t have two or three years from now,” he said. “The question is, will renewable penetration happen fast enough so that as demand comes back you don’t create a pinch? I tend to think it won’t.”
Developing economies don’t have the luxury of accelerating their transition away from fossil fuels, said Mike Teke, chief executive of Seriti Resources, a coal-mining company. Seriti, based in South Africa, has previously bought assets from Anglo American and is in the process of acquiring projects from South32 Ltd. , expanding in a fuel seen as too dirty by some but still crucial for the country’s electricity generation.
“It’s well and good for the developed world to tell us that we must shut down all coal-fired power stations and to say to us climate change is a big problem,” Mr. Teke said. “We cannot do that unless we want to cause civil strife and civil war.”
Meanwhile, as Western energy majors gradually decrease their oil and gas footprint, national oil companies from Algiers to Abu Dhabi will grow in stature and importance. And even if we were to go all electric vehicles tomorrow, oil would still be a vital component in the making of a whole host of vital goods from plastics to petrochemicals to jet fuel and beyond — all in booming demand across the emerging world.
The news of fossil fuel’s demise, it seems, has been greatly exaggerated.
Pakistan Investigates Whether China Ambassador Was Target in Attack on Quetta Hotel
Wall Street Journal
“Authorities are investigating whether the Chinese ambassador was the target of a suicide bombing in a restive Western province, Pakistani officials said, in what could be the latest attack in the country directed at a Chinese target.”
“Pakistan is a close ally of China and has been one of the main recipients of money through Beijing’s Belt and Road Initiative, but recent attacks have illustrated the security threat posed by China’s presence in the country.”
“The bomb ripped through the parking lot of a hotel in the western city of Quetta on Wednesday night, killing at least five people and wounding around a dozen more, Pakistani officials said.”
“The Chinese ambassador, Nong Rong, was staying at the hotel, which is in a heavily guarded part of the city. He was due to return there from a dinner meeting outside the hotel when the blast occurred, Pakistani officials said.” Saeed Shah reports.
DP World Reports Strong 1Q Results
“DP World on Thursday said it handled 18.9 million TEU (twenty-foot equivalent units) across its global portfolio of container terminals in the first quarter of 2021. Gross container volumes increased by 10.2 per cent year-on-year on a reported basis and up 9.6 per cent on a like-for-like basis…”
“The first quarter witnessed a ‘strong’ start to the year with the company’s terminals in India and Australia being the key drivers of growth, said DP World…”
“The company said that while the near-term trading environment is positive, economic recovery can be disrupted by the pandemic, geopolitical uncertainty in some parts of the world and on-going trade war.” John Benny reports.
What We’re Also Reading…
Nickel-Rich Indonesia Attracts Global EV Materials Suppliers
Nikkei Asia
“From Germany-based BASF to Japan's Sumitomo Metal Mining, overseas companies are rushing to set up nickel-processing facilities in Indonesia as the country bans exports of raw ore.”
“Nickel is a critical part of electric-vehicle batteries, and Indonesia hopes to leverage its rich reserves to establish a domestic battery supply chain. But aggressive policies by the world's largest producer of the metal have also raised concerns over the negative impact of resource nationalism.”
“BASF and French nickel processor Eramet are considering building a nickel- and cobalt-refining complex in Indonesia to begin operations in the mid-2020s. The facilities would supply an annual 42,000 tons of nickel and 5,000 tons of cobalt, for use in cathode materials for lithium-ion batteries.”
“Sumitomo Metal Mining has also expressed strong interest in bringing an Indonesian refinery online in mid-decade, an investment possibly worth billions of dollars.” Nikkei Asia reports.
Saudi FinTech Player Raises $110 Million
The National
“Tamara, a Saudi-Arabia-based ‘buy now, pay later’ platform, raised $110 million in a Series A funding round led by London-based payments processor Checkout.com.”
“The investment, which is a mix of debt and equity, will be used to hire new staff and help the start-up accelerate its expansion across the GCC by the end of this year followed by its entry into other geographies, the company said in a statement on Thursday.”
“Tamara, which is currently operating in the kingdom and the UAE, was ‘born to make a change’, Abdulmajeed Alsukhan, the company’s co-founder and chief executive, said.”
“BNPL allows customers to divide the cost of their online shopping into interest-free instalments or pay off the entire amount after a certain period of time. The payment model boomed during the Covid-19 pandemic, with many customers opting for delayed payments in the wake of financial uncertainty. Merchants also benefited through improved conversion rates of traffic coming to their platforms.”
“The Europe, Middle East and Africa region leads the global market in terms of BNPL adoption, according to Worldpay’s 2020 Global Payments report. It is expected to reach 8.9 per cent of total e-commerce purchases in the region by 2023, up from 5.8 per cent last year.” Alkesh Sharma reports.
Turkey Crypto Exchange Collapses as Founder Flees; Losses As High as $2B
Bloomberg
“One of Turkey’s largest cryptocurrency exchanges said it lacked the financial strength to continue operations, leaving hundreds of thousands of investors fearing their savings have evaporated as authorities sought to locate the company’s 27-year-old founder, who fled the country.”
“Confusion reigned about how many users of the Thodex exchange were affected and how much money was at stake. In a statement from an unknown location, Thodex Chief Executive Officer Faruk Fatih Ozer promised to repay investors and to return to Turkey to face justice after he did. The government moved to block the company’s accounts and police raided its head office in Istanbul.”
“Losses could be as high as $2 billion, according to Haberturk newspaper, and a lawyer for the victims said the money invested by about 390,000 active users had become “irretrievable.” Both figures have been disputed by Ozer. About 30,000 users have been impacted, he said in a statement on the company’s website on Thursday.” Taylan Bilzic and Firat Kozok report.
Weekend Podcast Listening…Christopher Schroeder on China Tech
Emerging World fellow traveler Christopher Schroeder -- American entrepreneur, adviser and investor -- shares what he has been learning about China's tech scene and why the old American playbook for global business won't fit a world where consumers have choice and innovation in their own backyard.
It’s a must-listen. Check it out here.
And here’s what he said about it:
