Emerging Markets Daily - February 17
US Says Russia Attack on Ukraine 'Coming', EMs Better Prepared for Fed Moves, Turkey's $3B Bond, Oil Price Slides on US-Iran Prospects, Munger Bullish on China
The Top 5 Stories Shaping Emerging Markets from Global Media - February 17
Russia Poised to Launch Ukraine Attack in “Coming Days,” U.S Says
Nikkei Asia
“Russia is preparing to invade Ukraine and could launch an offensive in the ‘coming days,’ possibly under false pretenses, U.S. Secretary of State Antony Blinken told the United Nations Security Council on Thursday.”
"‘This crisis directly affects every member of this council and every country in the world. Because the basic principles that sustain peace and security -- principles that were enshrined in the wake of two world wars and a Cold War -- are under threat,’ Blinken said after U.S. President Joe Biden ordered him to change his travel plans and head to the U.N.”
“Blinken's warning echoed remarks earlier by Biden, who said there was a ‘very high risk’ of a Russian invasion -- accusations the Russian side called ‘baseless’ and ‘dangerous.’ The U.S. secretary of state said Russia ‘plans to manufacture a pretext for its attack.’”
“…Russian Deputy Foreign Minister Sergey Vershinin was at the U.N. as his delegation circulated a document to Security Council members, alleging that Ukraine was committing ‘genocide’ against Russian speakers in the Donbas region.”
“Vershinin urged council members not to turn the meeting ‘into a circus’ by presenting a ‘baseless accusation saying that Russia allegedly was going to attack Ukraine. I think we've had enough speculation on that,’ the deputy foreign minister said, adding that Russia had ‘long ago clarified everything and explained everything.’”
“The U.S. and NATO have disputed an announcement by Moscow earlier this week that Russian troops had returned to base after concluding military exercises near the Ukraine border. A senior Biden administration official said Wednesday evening that the Russian troop presence had grown by around 7,000 in recent days.”
“In another sign of rising tensions, a State Department spokesperson said Thursday that Russia had expelled Bart Gorman, the No. 2 U.S. diplomat in Moscow, in what Washington called a groundless move.” Nikkei Asia reports.
EM’s Better Prepared for Upcoming Fed Tightening Cycle
S&P Global
“Financing conditions have tightened for emerging markets (EMs), both domestically and externally. Rising inflation, as well as tightening of financing conditions globally, are exerting pressure on EMs’ assets.”
“Following publication of recent U.S. job report, we now expect six hikes by the Federal Reserve in 2022 (up from expectations of three or more a month ago).”
“However, even though tighter external conditions are going to pressure EM exchange rates and bond yields, our view is that EM economies are overall better prepared for the Federal Reserve’s upcoming tightening cycle than in 2015.”
“At the same time, worsening financing conditions could pressure low rated corporations amid restricted market access and rising debt costs, which could increase defaults.” S&P Global writes. (Note: They also link to their excellent special report on EMs - no paywall).
Buyers Line Up for Turkey’s $3 Billion Bond Offering
(Photo Credit: Etmin)
Bloomberg
“Turkey paid dearly for its biggest-ever dollar bond sale as borrowing costs surge across the globe on prospects of tighter financial conditions.”
“The nation sold $3 billion in five-year Islamic dollar notes on Wednesday, its largest overseas debt placement on record. While strong demand allowed the government to pay less than initially planned, the 7.25% yield is still higher than most sukuk bonds offer.”
“Of the $250 billion in Islamic bonds outstanding globally, $190 billion have a coupon rate below 5%, according to Bloomberg data. Even single-B rated Bahrain sold seven-year bonds paying less than 4% in 2020. Since 1999, only Pakistan, Indonesia and the Maldives paid such high rates for dollar sukuk.”
“Turkey’s Treasury & Finance Ministry said the demand for the notes was more than three times the final size of the deal, with over 200 accounts participating in the order book. The sukuk market has a separate investor base, which looks for diversification and yield, and Turkey offers both. Most sukuk issuers are investment-grade borrowers from the Gulf region which offer less juice.”
“….The Turkish deal comes amid a surge in borrowing costs due to tensions between Russia and Ukraine and outflows from emerging-market debt funds as the Federal Reserve prepares to raise rates. And despite the return of relative calm in Turkish markets, the traditional investor base remains skeptical of the country’s debt due to policies that test the limits of conventional economics.” Selcuk Gogoluk reports.
Oil Prices Slide as Markets Gear Up for Possible Iran-US Deal
The National
“Oil prices slid on Thursday morning amid reports about an imminent US-Iran nuclear deal, which could lead to a return of Iranian barrels to the undersupplied crude market.”
“Prices were down more than 2 per cent in each benchmark in early trade on Thursday in response to the news, Emirates NBD said in its daily outlook. Brent, the global benchmark for two thirds of the world's oil, stood at $93.41 a barrel at 10.54am UAE time, down 1.48 per cent.”
“Crude prices have been edging close to the $100 per barrel mark in recent weeks, although the easing of tension in Ukraine helped to temporarily stall gains on Wednesday.”
“‘Developments in the US-Iran nuclear negotiations are helping to calm oil prices as hopes of Iranian barrels returning to the global picture build,’ Rystad Energy’s senior vice president Claudio Galimberti said.”
“For oil prices to rally above $100, Russia-Ukraine tensions need to intensify or crude output needs to continue to fall short of rising demand.” Aaarti Nagraj reports.
Charlie Munger Blasts Crypto, Rings Alarm on Inflation, Bullish on China
“Charlie Munger warned of dangerous speculation in markets, blasted cryptocurrencies, and rang the inflation alarm during Daily Journal's annual shareholder meeting on Wednesday.”
“Munger is best known as Warren Buffett's business partner and the vice-chairman of Berkshire Hathaway….The 98-year-old investor, polymath, and amateur architect is notoriously blunt; his most memorable comments include dismissing bitcoin as ‘rat poison’ and calling Robinhood a ‘gambling parlor’ that's ‘beneath contempt.’”
“The Daily Journal chairman was asked why he's happy to invest in China…Munger highlighted China's huge population and technological advances, and explained that he invested in the country because he could get better value.”
“…The veteran investor elaborated on why he and Buffett invest in China, saying Chinese companies are stronger relative to competitors and cheaper than US rivals.”
“On Crypto: ‘I'm proud of the fact I've avoided it. It's like some venereal disease ... I just regard it as beneath contempt,’ Munger said about cryptocurrencies. He asserted that people welcome the tokens because of their usefulness in extortion, kidnapping, tax evasion, and said he admired the Chinese government for banning them.”
“Munger welcomed the idea of the Federal Reserve launching a central bank digital currency (CBDC), noting that in his view bank accounts are equivalent to digital currencies.”
“Munger compared the rampant speculation in markets to a drunken brawl and warned it could have devastating consequences for humanity. He predicted the current asset-price bubble will end badly, but said he couldn't predict when it would burst.” Markets Insider reports.
“The most difficult thing is the decision to act, the rest is merely tenacity.” -Amelia Earhart, aviator