Emerging Markets Daily - January 11
Egypt's Sizzling Bonds, Argentina's Closing IMF Window, India's 'Breathtaking' IPO, LG's Virtual Human Singer to Debut, Maersk Sees More Shipping Delays
The Top 5 Stories Shaping Emerging Markets from Global Media - January 11
Egypt’s Red-Hot Bond Market Prepares For Influx of Passive Cash
“JPMorgan Chase & Co. will add Egypt -- which has $26 billion of eligible government bonds -- to a group of indexes this month, setting the market up to receive an influx of cash from passive money managers.”
Bloomberg
“Egypt’s red-hot bond market has made it a favorite of emerging-market investors, and they’re counting on another year of big gains.”
“JPMorgan Chase & Co. will add Egypt -- which has $26 billion of eligible government bonds -- to a group of indexes this month, setting the market up to receive an influx of cash from passive money managers. Investors have already been enticed by Egypt’s hefty interest rates, which rank as the highest in the world after adjusting for inflation.”
“With global bond markets reeling from losses as the Federal Reserve turns hawkish, Egypt is looking like a bright spot for investors. Local bonds have returned 1.7% since December, making it one of only a handful of emerging markets that’s delivered a positive performance.”
“PineBridge Investments and Renaissance Capital say they expect the strong performance to continue and predict double-digit gains in 2022 -- adding to last year’s 13% return, which was the second-best in the world and compared with an average loss of 1.2% for local emerging market debt.”
“Local-currency bonds from the North African nation may return 17% this year, according to Anders Faergemann, a money manager at PineBridge in London. ‘The disinflation process is still intact and the exchange rate is fairly valued,’ he said.”
“In the long run, Egypt’s bond market track record is even better. Its local bonds have returned 156% in dollar terms over the past five years as reforms under deals with the International Monetary Fund and financing from Gulf Arab allies attracted inflows. That compares with 26% for Bloomberg’s emerging market index and even beats the S&P 500 index, which returned 133%.”
“Its dollar bonds are another story, with hard-currency debt bearing the brunt of risks from rising Treasury yields and the country’s deficits. Having lost 8% last year, investors now demand an extra premium to hold Egypt’s dollar debt -- which at 593 basis points is similar to Iraq and higher than Gabon and Pakistan.” Bloomberg reports.
Argentina Shows Little Sign of Progress As IMF Deadline Looms
Financial Times
“As a March deadline looms for Argentina to restructure billions of dollars in debt with the IMF, the country is again at risk of being cut off by international financial institutions and retreating into isolation as the leftwing Peronist government struggles to find support for a new deal.”
“Martín Guzmán, Argentina’s finance minister and chief IMF negotiator, told provincial governors in Buenos Aires last week that ‘there is no agreement’ with the Washington-based lender yet, after 18 months of inconclusive talks.”
“Guzmán’s proposal presented to the governors would aim for a balanced budget by 2027, resisting IMF calls for faster cuts to spending and subsidies. He also proposed to keep using central bank money printing to fund the deficit for at least five more years, which will fuel inflation.”
“Guzmán said the main point of disagreement with the fund had been on the so-called ‘fiscal path’ — how far and how quickly to cut spending in order to balance the budget. He did not provide details on how the budget would be balanced by 2027.”
“The presentation ‘confirms the reluctance from the Argentine authorities over the need to cut spending to reduce the deficit’, said Fernando Sedano, an economist at Morgan Stanley, while illustrating the ‘sizeable gap’ that needs to be bridged to ‘achieve objectives.’” The FT reports.
Indian Authorities Prepare for ‘Breathtaking’ Life Insurance Co IPO
LiveMint India/Bloomberg
“From adjusting capital-markets rules to sending phone messages and publishing newspaper advertisements, authorities and executives are leaving no stone unturned in trying to ensure Life Insurance Corp. of India’s record initial public offering is a success.”
“Prime Minister Narendra Modi’s government has the IPO -- which could raise between ₹40000 crore and ₹1 lakh crore this quarter -- as a key item in its economic agenda, with proceeds from the state-run insurer essential to reaching a budget-deficit target.” (Editor’s note: this translates to 400 billion rupees - $5.4 billion - and 1 trillion rupees this quarter)
“‘The size of LIC is breathtaking,’ said Abhay Agarwal, fund manager at Mumbai-based Piper Serica Advisors Pvt. While it might be easy for the government to make regulatory amendments needed for the IPO, ‘it will require significant marketing efforts to cross the ₹50,000 crore line,’ he added.”
“Authorities will review and amend rules on foreign-direct investment to make it easier to lure investors from abroad, an official said this month without specifying a time-frame. Equity stakes among foreigners are allowed for most Indian insurers, but not in LIC, which is a special entity created by an act of Parliament.”
“The clearance for foreign stakes in the mega offering would not just permit global funds to participate, but also allow them to buy more after the exchange listing. Regulators made other moves late last month, including tightening rules governing share sales by anchor investors.” LiveMint India/Bloomberg report.
LG’s Virtual Human to Make Debut as Singer
Korea Herald
“LG Electronics said Tuesday it has signed a memorandum of understanding with Mystic Story, a local music label led by singer-song writer Yoon Jong-shin, to debut its virtual human ambassador, Reah Keem, as a singer.”
”Yoon, Mystic’s chief producer, will oversee the overall project from writing songs to vocal training for Keem. Her imminent debut was teased last week when LG unveiled a music video clip at the Consumer Electronics Show. ‘I want to be an artist who not just makes music but also communicates with the public through diverse artistic elements such as visual art and fashion,’ Keem said in a statement.”
”Keem, an artificial intelligence-based virtual influencer, made her public debut at last year’s CES when she made a surprise appearance as a presenter for LG’s press conference. Since then, she has shared her daily life via her Instagram account with more than 14,400 followers, calling herself a singer-songwriter and DJ.”
“According to LG, she is 23 years old and her name Reah stands for ‘a child from the future’ in Korean.” Korea Herald reports.
Top Shipping Group Maersk Expects Cargo Delays to Persist
Channel News Asia
“Top container shipping firm AP Moller-Maersk on Tuesday (Jan 11) warned its customers it was still struggling to move goods around the world as the easing of congestion is taking longer than the Danish company had hoped for.”
“The pandemic has prompted shortages of container ships and logjams at ports at a time of very high consumer spending, meaning that hundreds of container vessels are lying idle outside ports. ‘Unfortunately, 2022 has not started off as we had hoped,’ Maersk said in an advisory published on its web page.”
"‘The pandemic is still going strong and unfortunately, we are seeing new outbreaks impacting our ability to move your cargo,’ it said, adding that it expects the constrains to continue ‘for some time still’. The biggest waiting times for container vessels to discharge or pick up cargoes were on the US West Coast where the waiting time at Long Beach port in Los Angeles currently is between 38 and 45 days, Maersk said.”
“However, it noted that there had been some recent easing in Northern Europe where the Port of Antwerp in Belgium was expected to reduce the wait to around two days this week from 10 days the week before.” Channel News Asia reports.
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