Emerging Markets Daily - February 10
Fears Rise of Russia Attack on Ukraine, India CB Chief Blasts Crypto, Luckin Coffee Plots Comeback, China-Africa Trade Soars, Brazil Inflation Crimps Consumption
The Top 5 Stories Shaping Emerging Markets from Global Media - February 10
Russia Massive Military Drills on Ukraine Border Stir Invasion Fears
“Russia kicked off large-scale military exercises in Belarus on its western borders with Poland and Lithuania and along its southern flank near Ukraine, an escalation of the standoff between Moscow and Western powers and a possible precursor to a Russian invasion of a smaller neighbor.”
“Western officials believe the Russian exercises in Belarus could open a possible new vector to launch an attack on Ukraine, adding to the 100,000 troops Moscow has already deployed to the Russian-Ukrainian border. The Kremlin says the military activity is in response to a threat from the West to its own security.”
“Russia and Belarus, which conduct joint military drills routinely, have said the exercises, called United Resolve, are meant to test the readiness of their forces in neutralizing military threats and securing borders.”
“Video released by Russia’s Defense Ministry after the drills started on Thursday showed Russian tanks rumbling across snowy fields, soldiers firing artillery, fighter jets taking off in formation and missile systems deployed for use.”
“Ukraine’s President Volodymr Zelensky on Thursday denounced the exercises as psychological pressure, while French Foreign Minister Jean-Yves Le Drian described them as a violent gesture. In Moscow, Russian Foreign Minister Sergei Lavrov said that Western concerns over the drills were incomprehensible.” Evan Gershkovich reports.
India Central Bank Chief Blasts Crypto, Says ‘It’s Not Even a Tulip’
Bloomberg
“India’s central bank Governor Shaktikanta Das, a long-time opponent of cryptocurrencies, launched another broadside against digital tokens, saying they have no underlying value and are a threat to financial stability.”
“‘Investors in cryptocurrency should keep in mind that they are investing at their own risk. They should also keep in mind that the cryptocurrency has no underlying, not even a tulip,’ the Reserve Bank of India chief said Thursday, referring to the Dutch tulip bulb market bubble in the 17th century.”
“Governor Das’s comments come days after the Indian government removed uncertainty about the legal status of crypto trading. In the federal budget speech Feb. 1, Finance Minister Nirmala Sitharaman announced steep taxes for such transactions, effectively treating them as winnings from activities like gambling that are legal albeit not encouraged. Regulations are awaited.”
“The RBI, for its part, has taken a strong stance against private digital currencies. Given cryptocurrencies are designed to be traded freely and anonymously, the central bank is worried about capital controls, especially as it has a tight grip over the partially-convertible Indian rupee. Issues such as money laundering and terrorism financing have been raised as concerns.”
“‘Private crypto currency or whatever name you call is a big threat to our macroeconomic stability and financial stability,’ Das said. To somewhat blunt the impact from cryptocurrencies, RBI is developing its own digital rupee, although Das declined to give a firm time frame by when it will be ready. In the budget, Sitharaman said a central bank digital currency would be ready by sometime in the next financial year that starts on April 1.” Rahul Satija reports.
Luckin Coffee, the Embattled Chinese Coffee Chain, Making a Comeback
Financial Times
“In less than five years of existence, Luckin Coffee has been variously a symbol of the dynamism of Chinese capitalism, the subject of a massive fraud scandal, and now — its new senior executives insist — a plucky comeback story that has the potential to test US-China relations.”
“Founded in 2017, the chain of coffee shops spread quickly across China, creating a homegrown challenger to Starbucks. Just two years later, Luckin floated on Nasdaq with a market value that reached $13bn as investors were seduced by the prospect of booming Chinese consumer demand.”
“But the company unravelled in 2020 after it was revealed to have defrauded investors by faking more than $300mn of sales. Luckin was delisted by Nasdaq and forced to pay $180mn to settle charges from the US Securities and Exchange Commission.”
“…But two years later, Luckin is hoping that investors, regulators and even politicians have forgotten the entire episode. The Chinese coffee chain is staging an audacious comeback that involves trying to raise new capital, meeting with investors and plotting with advisers to relist its shares in the US, according to people familiar with the matter.”
“Luckin says it has turned a new page. ‘Almost everything about Luckin — apart from the name — has changed over the past two years,’ says Guo Jinyi, who took over as chief executive officer in July 2020, two months after it was delisted.”
“…Since the company was delisted, Luckin claims to have been on a tear in China. Revenues have more than doubled to $364.7mn year on year in the latest quarterly earnings report. Luckin now has more than 6,000 stores across China, about 500 more than Starbucks. The rapid growth story that global investors initially bought into when the company started trading in the US in 2019 appears to have been borne out.”
“That growth is once again attracting the interest of investors. More than $20mn of its shares change hands in over-the-counter transactions every day, and the company’s market value has climbed back up to more than $3bn, after its shares lost 90 per cent of their value in 2020.”
“…analysts have warned that Chinese consumer habits are fickle, and Luckin is increasingly fighting competition from domestic rivals with substantial financial backing, including a new, trendier competitor, Manner Coffee.”
“As investors question whether they can trust Luckin’s turnround story, one former US regulator says the fact that the company is under such intense scrutiny means it may be less likely to repeat past crimes. ‘Sometimes the safest place to eat is a place that’s just reopened after the health department shut them down.’” The FT reports.
China-Africa Trade Hits All-Time High in 2021
Quartz Africa
“Trade between Africa and China rose to a record high last year, according to recently released data by China’s customs agency. China is Africa’s largest trading partner, and last year’s growth strengthens this position.”
“The value of trade between Africa and China rose by 35% from 2020 to $254 billion last year, mainly due to an increase in Chinese exports to the continent. This rise occurred despite last year’s global supply chain challenges and other interruptions caused by the covid-19 pandemic.”
“The growth can be attributed to China’s export of essential pandemic goods such as pharmaceuticals, PPEs, masks, hazmat suits, chemicals, and digital hardware, says Zainab Usman, senior fellow and director of the Africa Program at the Carnegie Endowment for International Peace in Washington, D.C. These products had sustained demand in 2020 and 2021, and China is a big producer of them, she says.
“Another factor is increased exports to China by African countries. Exports from Libya and Benin, for example, went up by more than 400%. Those for Togo, São Tomé and Príncipe, Sierra Leone, Burkina Faso, Madagascar, and Eswatini doubled.” Carlos Mureithi reports.
Inflation Spreads Across Brazil, Forcing Difficult Consumption Decisions
Folha de Sao Paolo
“Cuts to the supermarket list, cancellation of services, postponement of trips and courses. With persistent inflation even more widespread throughout the economy, situations like this have become reality for many Brazilians.”
“After hitting the poorest, the rise in prices also forces changes in the routine of other layers of the population. With a tight budget, lawyer Joel Rosa da Rocha, 54, had to postpone his plan to study English. According to him, the course would be important to increase professional training.”
“Rocha wants to do a doctorate, but the wish will be postponed. The resident of Itapevi (SP) reports that, in addition to direct expenses with studies, expenses with travel to classes would not have room in his pocket either.”
“To try to save gasoline, which has skyrocketed in the pandemic, Rocha has even reduced the number of car trips to the supermarket during the week. And he had to reduce the volume of purchases.”
“One of the points that worry analysts is the signal that inflation, in addition to being persistent, has become more widespread in recent months. In January, 8 of the 9 groups of products and services surveyed had price increases, with an emphasis on the impact on food and beverages.” Leonardo Vieceli reports.
“I am buoyant and expansive and uncontainable--but I always was so, only I never knew it!” ― Chitra Banerjee Divakaruni, The Palace of Illusions