Emerging Markets Daily - February 23
Rising US Yields Loom Over EM, Petrobras Woes, HSBC Ramps Up Asia Wealth Management, India's Zomato Heats Up Pre-IPO, UAE Joins Asian Digital Currency Initiative
The Top 5 Emerging Markets Stories - February 23
Surging U.S Yields Loom Over Emerging Markets
“Rising U.S. Treasury yields are starting to concentrate minds in the world of emerging markets. Developing-nation local-currency bonds had their worst week since September in the five days through Friday, while dollar debt slipped by the most since January as surging inflation expectations fueled a rout in Treasuries.”
“The selloff in the world’s largest bond market also sent implied volatility for currencies and stocks to the biggest weekly increase this year. Even so, exchange-traded fund investors looked past the increase in U.S. yields last week and continued to pour money into emerging markets.”
“All eyes will be on Federal Reserve Chair Jerome Powell’s testimony to Congress this week. The central bank chief is set to echo remarks that policy makers are fully committed to supporting the economy. Investors will also look for any sign that he’s troubled by steeper long-term borrowing costs after the real rates on long bonds rose above zero for the first time since June…”
“A Bloomberg study in January found all developing-world currencies typically sell off when yields jump at a rate greater than about 25 basis points per month… Oil will also keep traders on their toes, with Saudi Arabia and Russia differing once again on their output strategy heading into an OPEC+ meeting. The Mexican peso, Colombian peso and Russian ruble were among the worst performers in emerging markets as Brent crude retreated on Friday.”
“‘Our optimistic emerging-market currency outlook is not without risks of setbacks along the way,’ said Ehsan Khoman, head of emerging-market research in Europe, the Middle East and Africa at MUFG Bank in Dubai. ‘We believe relative cyclical outperformance and attractive yields on offer continue to favor stronger EM currencies as Covid-19 ebbs,’” Bloomberg reports.
Petrobras, Widely Downgraded, Rebounds in Early Trading After Sharp Fall
“Shares in Brazil’s state-run oil company Petrobras rose around 8% in early Tuesday trading, rebounding after a sharp plunge the previous day on President Jair Bolsonaro’s move to appoint a new chief executive,” Reuters reports on Tuesday.
“Shares in Petroleo Brasileiro SA, as the company is officially known, plunged 22% on Monday, wiping out 71 billion reais ($13 billion) in market value.”
“Brazilian financial markets went into a tailspin on Monday, as investors dumped the country’s currency and stocks, while pushing up interest rates, after President Jair Bolsonaro moved late on Friday to sack the head of state-run oil firm Petrobras following weeks of clashes over fuel price hikes.”
“The right-wing populist’s intervention in one of Brazil’s most valuable companies, along with a vow to reduce prices in the power sector too, cast growing concern on the government’s commitment to free markets.”
“Several brokerages downgraded Petroleo Brasileiro SA, as Petrobras is formally known, and Bank of America cut Brazilian stocks to ‘marketweight’ in its Latin American portfolio, excluding Petrobras and state power company Eletrobras entirely,” Reuters reported on Monday.
HSBC Resumes Dividend Payment, Ramps Up Asia Wealth Management
“HSBC, the biggest of Hong Kong’s three currency-issuing banks, said it would resume paying dividends to shareholders after a fourth-quarter net profit helped it report a smaller-than-forecast decline in 2020 earnings.”
“The London-based bank, which generates much of its revenue in Asia, also said it would invest US$6 billion in its wealth management and wholesale banking operations in Asia over the next five years as it places greater emphasis on the region. That would include increasing its wealth sales force in Hong Kong, Singapore and other parts of Southeast Asia.”
“HSBC cancelled its final 2019 payment and suspended an interim payout last year at the request of its chief regulator in the United Kingdom, raising the ire of retail investors, many of whom are in Hong Kong,” South China Morning Post reports.
India’s Zomato Heats Up As IPO Looms
“While investing around $100 million in Zomato Pvt. Ltd. in the firm’s previous funding round, Kora Management LP had said, ‘With 700 million active broadband subscribers in India, of which 500 million have come online only in the past four years, Zomato has many more mouths it can feed.’”
“About three months later, while the broadband subscriber base hasn’t changed much, the assessment of how many mouths Zomato can feed has increased quite dramatically. Zomato’s latest funding round values the firm at a pre-money valuation of Rs37,850 crore ($5.15 billion). In the previous funding round of $660 million, the pre-money valuation stood at Rs24,300 crore ($3.24 billion). That represents a jump of 56% in a matter of just a few months.”
“Kora is among the leading investors in the latest funding round; along with Tiger Global Management LLC and Fidelity Management & Research Co. LLC, it accounted for 88% of the current fundraise of $250 million. In the previous financing round, these three investors had contributed over 50% to the total.”
“The pre-IPO fundraising could be as high as $500 million, say media reports, in which case the share of the three investors may eventually be lower. Even so, as an analyst at a domestic institutional brokerage says, ‘The strategy of getting mostly the same investors to double down is a tried and tested trick from the PE (private equity) playbook,’” LiveMint India reports.
UAE Joins China, Thailand, Hong Kong on Digital Currency Initiative
“The Central Bank of UAE (CBUAE) will join a multi-currency central bank digital currency project for cross-border payments initiated by Hong Kong Monetary Authority (HKMA), the Bank of Thailand and People’s Bank of China (PBC).”
“The CBUAE along with the Digital Currency Initiative (DCI) of PBC is now part of the second phase of the Project Inthanon-LionRock1, initiated by the HKMA and the BOT. This effort is strongly supported by the Bank for International Settlements Innovation Hub Centre in Hong Kong and has been renamed Multiple Central Bank Digital Currency (m-CBDC) Bridge project.”
“By developing a proof-of-concept (PoC) prototype, the project aims to facilitate real-time cross-border foreign exchange payment-versus-payment transactions on a 24/7 basis. It will also explore business use cases in a cross-border context, using domestic and foreign currencies,” Gulf News reports.