Emerging Markets Daily - April 25
Global Rally Stirs Bubble Fears, India Fast Recovery At Risk by Covid Surge, Global Chip Shortage Spreads, World's Largest Cement Player Exits Brazil, Morocco Aerospace Bullish, and more...
The Top 5 Emerging Market Stories from Global Media - April 25
The ‘Everything Rally’ Stirs Global Bubble Fears
Wall Street Journal
“Markets for everything from home-building materials to bitcoin to stocks are soaring, stirring up fresh fears that global markets are in a bubble. Rarely have so many assets been up this much at once.”
“The price of lumber has shot up to all-time highs. Residential home sales in the U.S. are at levels last seen in 2006, before the housing bubble collapsed. And stocks are on a tear. Benchmark indexes from the U.S. to France to Australia have all climbed to fresh highs this year, with the S&P 500 and Dow Jones Industrial Average recently hitting their 23rd and 21st records of the year, respectively.”
“The frenzy has extended far beyond conventional markets tracked by Wall Street firms. Bitcoin hurtled above $60,000 for the first time last month before pulling back, while Dogecoin briefly jumped to a record, driven by fans posting hashtags like #DogeDay on Twitter. In the venture-capital world, investors are offering startups five times or more the amount of money they are requesting, and the average valuation for all startups has hit a new high.”
“‘This is very different to any other bubble that we’ve had ever,’ said Jeremy Grantham, co-founder and chief investment strategist of asset-management firm Grantham, Mayo & van Otterloo. Mr. Grantham is best known for correctly predicting the bursting of the Japanese asset bubble in the late 1980s, the dot-com bubble in 2000 and the housing crisis in 2008.”
“‘All of the previous bubbles occurred when economic conditions looked nearly perfect. This has been quite different because the market started its incredible surge in a rather wounded economy,’ he said. Wall Street has seen this movie before. Investors’ excessive exuberance across a variety of assets has stirred comparisons with the heady days of the Roaring ’20s. The lofty valuations of technology stocks have also made for easy comparisons with the dot-com boom and bust two decades ago.”
“Both of those episodes were punctuated with dramatic meltdowns from which it took stocks years to recover. The overlapping signals between then and now have led many investors to brace for what could be an even broader pullback—one that has the potential to not only wipe out wrong-footed stock pickers, but also speculators in other markets. ‘If we hit a low-confidence phase and they all go together, they will [inflict] more pain on the real world,’ Mr. Grantham said.” Akane Otani and Michael Wursthorn report.
India’s High-Speed Recovery At Risk By Gathering Covid Storm
Bloomberg
“Just two weeks ago, the International Monetary Fund upgraded India’s economic growth forecast to 12.5% -- the quickest rate among major economies. Now, as Covid-19 cases surge the most globally, that bullish view is looking increasingly in doubt.”
“In Delhi, India’s political capital, the streets are mostly empty and the markets nearly deserted with almost all shops closed in response to curbs put in place by the local administration to fight the pandemic. The scene is not so different in Mumbai, the financial hub that accounts for 6% of the national output.”
“Yet for now, Prime Minister Narendra Modi is shunning a nationwide lockdown and encouraging states to keep their economies open. And for that reason, economists are signaling risks to their forecasts, but not tearing them up all together just yet.”
“‘This second wave of virus cases may delay the recovery, but it is unlikely in Fitch’s view to derail it,’ the ratings company said in an April 22 statement. It stuck to its 12.8% GDP growth forecast for the 12 months through March 2022...”
“High-frequency data are already pointing to a deepening contraction in retail activity in the week through April 18 relative to its pre-pandemic January 2020 level, said Bloomberg Economics’ Abhishek Gupta. That’s a key risk for an economy where consumption makes up some 60% of gross domestic product.” Vrishti Beniwal reports.
Global Chip Shortage Spreads to Toasters and Washing Machines
Financial Times
“The deepening global chip crunch is spreading to makers of smartphones, televisions and home appliances, according to suppliers in Asia, as companies boost stockpiles of in-demand semiconductors".”
“Chip supplies have tightened due to booming demand for electronics during the Covid-19 pandemic and outages at large production facilities.”
“Production of low-margin processors that carry out simple tasks such as weighing clothes in a washing machine or crisping bread in a smart toaster has been affected. Production of those chips used in appliances have ended up at the back of the queue, as manufacturers allocate capacity to high-margin products, one industry insider said.” Song Jung-a and Eleanor Olcott report
World's Largest Cement Company Leaves Brazil after Economic Uncertainty and Devaluation of Real
Folha De Sao Paulo
“The cement producer LafargeHolcim decided to leave the country in a moment where the sector is recovering from the crisis caused by the recession of 2014. For specialists, uncertainties regarding the economic recovery and the devaluation of the real may have weighed in the decision.”
“Cement sales in the country grew 11% in 2020, driven by small reforms during the pandemic, and started 2021 with an increase of 19% in the first quarter, compared to the same period of the previous year.”
“However, the expectation is for a slowdown in the short term. For SNIC (National Union of the Cement Industry), at the end of the year the performance should be between 1% and 2% above the previous year. Still, the prospect is that the medium term will be helped by the government's concession program.” Nicola Pamplona reports
Morocco’s Aerospace Ecosystem Eyes Bullish Growth Post-Pandemic
African Business
“The growth of Morocco’s aerospace industry was stopped in its tracks by the pandemic but market experts are bullish about the sector’s underlying health.”
“Most new commercial aircraft have numerous components manufactured in Morocco, as the sector becomes firmly rooted in global value chains, with production growing on average 20% per year from 2014 until 2020.”
“In 2016, Mazars, an international consulting firm, ranked Morocco as the world’s fifth most attractive source for aerospace suppliers and number one in Africa. Advances in different segments of production have consolidated Morocco’s status as a prime destination for aeronautical industry equipment manufacturers.” Will McBain reports
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What We’re Also Reading…
Geopolitics: Biden Recognizes Massacres of Armenians as Genocide, Exacerbating Tensions with Turkey
Bloomberg and WSJ
“Mr. Biden’s declaration Saturday is the first such formal statement by a sitting U.S. president and will likely exacerbate growing tensions with Turkey, which denies that the killings of Armenians between 1915 and 1923, under the Ottoman Empire, constituted genocide.”
“The Turkish lira dropped 1% against the dollar on the news Friday, extending the Turkish currency’s week-long slide to 3.9%.”
“Mr. Erdogan is likely to use Mr. Biden’s pronouncement for domestic political gain, appealing to his conservative base by labeling the U.S. decision a Western insult against Turkey, according to observers. The Turkish president has exploited past crises in relations with Western powers to shore up domestic support.” William Mauldin and Jared Malsin report for WSJ; Onur Ant, Jennifer Jacobs, and Gregory Korte report for Bloomberg
Chinese Companies in Record-Setting U.S Listings
The National
“Chinese companies are listing in the US at the fastest pace ever, brushing off tensions between the world’s two biggest economies and the continued risk of being kicked off American exchanges.”
“Companies from the mainland and Hong Kong have raised $6.6 billion through initial public offerings in the US this year, a record start to a year and an eightfold increase from the same period in 2020, data compiled by Bloomberg show. The largest IPO is the $1.6bn listing of e-cigarette maker RLX Technology, followed by the $947 million offering of software company Tuya.”
“That’s even as Sino-US tensions show few signs of easing and the threat of Chinese companies being delisted from US exchanges remains. In fact, the US Securities and Exchange Commission said last month it would begin implementing a law forcing accounting firms to let US regulators review the financial audits of overseas companies. Non-compliance could result in a delisting from the New York Stock Exchange or Nasdaq.”
“The risk for mainland firms is high given China has long refused to let US regulators examine audits of its overseas-listed companies on national security concerns.” The National/Bloomberg reports.
Why Corporations Are Flocking to South Korean Pop Band BTS
Korea Herald
“BTS’ success in the music industry is fast spilling over into the advertising business as more companies seek a promotional boost from the group and their fans’ social media omnipresence.”
”Last Monday, McDonald’s announced it would team up with South Korean pop group BTS for a new celebrity meal named The BTS Meal. A few days later, French fashion house Louis Vuitton named the pop icons as its new House Ambassadors.”
”The two companies’ posts on Twitter were soon met with a great amount of engagement, prompting memes and racking up over 1 million likes altogether as of Friday.”
”In a sign that it is part of the group’s fan base known as the BTS Army, the official McDonald’s account now has a purple heart emoji in its bio as well as a little seven at the end of its name. Other household-name company accounts such as those of Guinness World Records, Uno and Barbie have also chimed in under the fast food chain’s viral tweet.”
”Experts said corporations collaborating with the stars are not just targeting their fans as consumers. Their goal would also include the buzz that they create on social media and beyond.” Korea Herald reports.Hong Kong Virtual Banks Step up the Competition
South China Morning Post
“Mox Bank, the virtual lender backed by Standard Chartered, expects to double its customer base this year having eclipsed 100,000 account holders in just eight months since its official debut, according to chief executive Deniz Guven.”
“The lender is the second branchless bank to pass the 100,000 threshold – a milestone that it achieved on Saturday – after ZA Bank declared it had reached 300,000 customers last month, in its first year of operations. WeLab Bank, another such lender, expects to reach the 100,000 mark by June, according to its CEO, Tat Lee. The trio account for 86 per cent of the total 580,000 customers among the eight virtual banks in the city, based on regulatory data.”
“The eight virtual banks, which are a major part of a fintech push by the Hong Kong Monetary Authority (HKMA) in recent years, had already secured a combined HK$20 billion in deposits as of March, with most operating only for a few months. This shows the new generation of banks can compete with the 155 traditional lenders that serve the city’s 7.5 million people.” Chad Bray and Enoch Yiu report