Emerging Markets Daily - February 25
EM Sell-Off Creates Opportunities, Kyiv Girds for Russian Assault, Oil Could Hit $130 by June, Moderna Sees Pandemic End in 2022, S. Korea Wants to Graduate from EM
The Top 5 Stories Shaping Emerging Markets from Global Media - February 25
Pimco, Blackrock See Opportunity in EM Sell-Off On Russia-Ukraine Crisis
Bloomberg
“Investors reeling from a collapse in emerging markets amid Russia’s invasion of Ukraine are starting to look for buying opportunities.”
“Pacific Investment Management Co. is interested in Romania and commodity producers after a knee-jerk selloff in markets stretched indiscriminately across risk assets. BCA Research is waiting for the perfect moment for investors to snap up heavily discounted or pro-cyclical assets. Even cautious BlackRock Inc. acknowledged that financial opportunities were created in the aftermath of Russia beginning a war with its neighbor.”
“…An across-the-board selloff gripped bonds, stocks and currencies from emerging markets on Thursday after Russia’s full-scale invasion of Ukraine and amid deepening tension with the West. It’s a tightrope walk for money managers brave enough to hunt for deals in an asset class also throttled by stubborn inflation, upcoming Federal Reserve tightening and China’s regulatory crackdowns.”
“But for Pimco’s Arnopolin, the market impact of geopolitical risk events tend to be relatively short-lived, meaning time will help reverse losses in nations that have few deep connections to the situation -- like Nigeria or Argentina.”
“For emerging assets, ‘we don’t see this as a sudden-stop event for an entire asset class,’ said Cathy Hepworth, head of emerging-market debt at at PGIM Fixed Income. ‘It is unlikely that broad emerging markets would underperform other risk markets once recent events are digested. At this juncture, it does not appear current events will lead to a global systemic shock.’”
“…For now, Asia remains a relative ‘safe haven’ when compared to broader emerging markets, especially central and especially compared to eastern Europe, according to TD Securities. Pockets in the Middle East and northern Africa could also prove to be more resilient given their links to commodities, said Ayman Ahmed, a portfolio manager at Thornburg Investment Management. Sydney Maki reports.
Ukraine Capital Girds for Russian Assault
Reuters
“Missiles pounded Ukraine's capital on Friday as Russian forces pressed their advance and authorities in Kyiv said they were preparing for an assault aimed at overthrowing the government.”
“Air raid sirens wailed over Kyiv, a European city of three million people, and some residents sheltered in underground metro stations, a day after Russian President Vladimir Putin launched an invasion that has shocked the world.”
“Ukrainian officials said a Russian aircraft had been shot down and crashed into a building in Kyiv overnight, setting it ablaze and injuring eight people. A senior Ukrainian official said Russian forces would enter areas just outside the capital later on Friday and that Ukrainian troops were defending positions on four fronts despite being outnumbered.”
“Russia launched its invasion by land, air and sea on Thursday following a declaration of war by Putin, in the biggest attack on a European state since World War Two.”
“Putin's full aims remain obscure. He says he does not plan a military occupation, only to disarm Ukraine and remove its leaders. But it is not clear how a pro-Russian leader could be installed without holding much of the country. Russia has floated no name of such a figure and none has come forward.”
“Russia is one of the world's biggest energy producers, and both it and Ukraine are among the top exporters of grain. War and sanctions will disrupt economies around the world. Oil and grain prices have soared. Share markets around the world, many of which plunged on Thursday at news of the outbreak of war, were mainly rebounding on Friday.” Reuters reports.
Oil Prices Could Hit $130 by June
The National
“Oil prices could hit $130 a barrel by June if the Ukrainian conflict disrupts Russian crude flows and surge beyond that if the crisis escalates further, according to industry analysts.”
“The assessment comes after US President Joe Biden laid out punitive measures against Russia that include limiting its ability to do business in dollars, euros, pounds, and yen, while 27 EU members also said they would freeze Russian assets and deny banks access to its financial markets in response to Moscow's military offensive in Ukraine.”
“The measures follow Germany's suspension of the Nord Stream 2 pipeline. On Friday, Japan said it would impose sanctions on Russia that are aimed at semiconductor exports and financial institutions.”
“‘The escalation immediately jeopardises up to 1 million barrels per day of crude supplies that transit through Ukraine and the Black Sea, but the long-term disruptions could be far more significant,’ said Rystad Energy’s chief executive Jarand Rystad.”
“‘Oil prices could surge to around $130 per barrel, with consumers feeling the squeeze at the gas pump and in their power bills. The reality is that significantly higher prices are on the horizon in Europe and overseas.’ On Thursday, markets tumbled and oil prices soared to above $100 a barrel for the first time since 2014.”
“The price ceiling for crude could rise further in the coming days if supplies from northern seaports or even Asia-bound crude barrels face imminent disruption,” said Rystad Energy’s senior oil market analyst Louise Dickson.
“Russian gas, which reaps $300 million a day for Moscow, accounts for more than 30 per cent of Europe’s demand and alternatives cannot cover the shortfall — a key factor in the US and EU not hitting Russia's energy industry with sanctions.”
“Russia is among world’s largest producers of oil and accounts for about 11 per cent of global production.” Massoud A Derhally reports.
Moderna Sees End to Pandemic in 2022
Financial Times
“Moderna has said it expects the pandemic to end this year but forecast that a seasonal booster shot will be needed in the autumn to protect people from ‘breakthrough’ Covid-19 infections.”
“The US drugmaker said on Thursday that it is developing a new bivalent booster combining its existing Spikevax Covid-19 vaccine and an Omicron specific booster, which it believes would provide more durable protection against coronavirus variants than its existing jab.”
“Stéphane Bancel, Moderna chief executive, told the Financial Times...there is an 80 per cent chance that Covid-19 would become endemic in 2022 because of the surge in infections caused by the Omicron variant and increased vaccine uptake.”
“‘We should be in a world where between vaccination, boosting and natural infection and potentially a less virulent virus we might move to an endemic setting where it circulates in the community forever,’ Bancel said. Moderna has begun talking to private sector companies in the US in preparation for the endemic phase of the virus when the government would no longer control Covid-19 vaccine distribution, Bancel said.” Jamie Smyth reports.
South Korea Wants to Graduate from ‘Emerging Markets’
Wall Street Journal
“South Korea is reviving a longstanding push to be upgraded to a developed market by MSCI Inc., a change that could pull in more than $40 billion in foreign capital.”
“As an emerging market, South Korea ranks alongside countries such as Colombia, Egypt and the Philippines. That jars in a wealthy country that nowadays boasts the world’s 10th-largest economy, a $2.3 trillion stock market, high-tech heavyweights such as Samsung Electronics Co., and global soft power thanks to cultural exports like the Netflix series “Squid Game” and K-pop group BTS.”
“The issue is such a sore point in South Korea that it is a topic ahead of next month’s presidential elections. Lee Jae-myung, the candidate for the ruling left-leaning Democratic Party, has touted inclusion as a way to narrow the ‘Korea discount,’ in which stocks in Seoul typically trade at lower valuations than those on other exchanges.”
“Any upgrade, however, rests chiefly on technical grounds related to what MSCI calls market accessibility. It also requires South Korean authorities, scarred by a free fall in the country’s currency during the 1997-1998 Asian financial crisis, to abandon some of their caution about unfettered foreign-exchange trading.”
“If it succeeds, South Korea could become the first country to secure developed-market status from MSCI since Israel was elevated in 2010. Some of its stocks would join the widely followed, 23-market MSCI World Index.”
“Goldman Sachs analysts estimate an upgrade could trigger more than $44 billion in foreign inflows, and help reinvigorate the benchmark Kospi Composite index, which as of Friday had dropped 19% from a record closing high reached last July. Inclusion could help drive the Kospi to 4500 in two years’ time, they argue, or an increase of roughly 68% from Friday’s close at 2676.76.” Frances Yoon reports.
“Above all, don't lie to yourself. The man who lies to himself and listens to his own lie comes to a point that he cannot distinguish the truth within him, or around him, and so loses all respect for himself and for others. And having no respect he ceases to love.”
― Fyodor Dostoevsky, The Brothers Karamazov