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Emerging Markets Daily - July 27
EM Loses All Gains for the Year, China Stocks Plummet, Tunisia Crisis Deepens, IMF Downgrades EM Outlook, Kenya-UK Deal Aims to Make Nairobi Trade, Finance Hub
The Top 5 Emerging Markets Stories from Global Media - July 27
1. Emerging Markets Sell-off, All Gains Lost for the Year
“China’s stock selloff has caused emerging-market equities to erase all their gains for the year. The MSCI Emerging Markets Index -- which has more than a third of its weighting in China -- wiped out what was left of its 2021 advance after sliding 2.4% on Monday. Strategists are divided on the outlook. State Street Global Markets prefer developed markets as they are ahead in vaccination rates, while AllianceBernstein says EM assets will be supported by a recovery in risk appetite.”
“‘We’re more bullish on DM versus EM,’ said Daniel Gerard, a senior multi asset strategist at State Street Global Markets in Boston. He is especially negative toward Southeast Asia, where surging virus outbreaks are weighing on earnings, and Mexico, while preferring countries like Brazil and South Korea.”
“Emerging-market stocks, once the barometer for optimism on global growth, have given up a 12% advance since February on speculation the resurgence of virus cases and mobility restrictions will push down earnings. In contrast, the higher vaccination rates and economic reopenings in countries such as the U.S. and U.K. have boosted developed-market equities with the MSCI developed-market index up 14% this year.” Bloomberg reports.
China Stocks Plummet Amid Rumors of US Funds Retreat
“A deepening selloff in Chinese stocks spread to the bond and currency markets on Tuesday as unverified rumors swirled that U.S. funds are offloading China and Hong Kong assets.”
“The speculation, which included talk that the U.S. may restrict investments in China and Hong Kong, triggered a late afternoon bout of selling by traders in Asia who had already been dumping stocks in the crosshairs of Beijing’s sweeping regulatory crackdowns. The Hang Seng Tech Index plunged as much as 10% in Hong Kong, the yuan slid to its weakest since April against the dollar and Chinese bonds sank.”
“The dramatic moves underscored how fragile investor confidence has become after a months-long regulatory onslaught by Beijing that only seems to be getting worse. Traders fear the latest crackdown on the nation’s education, food delivery and property sectors could expand to other industries such as health care, as China looks to tighten its grip on Big Tech and reduce the wealth gap.”
“‘The spread of declines from the Chinese equities space into the yuan signals that the concerns over regulatory risk in China might have taken a turn for the worst,’ said Terence Wu, foreign-exchange strategist at Oversea-Chinese Banking Corp. in Singapore.”Jeanny Yu and Livia Yap report.
Tunisia Crisis Deepens After PM, Parliament, Ministers Dismissed
Wall Street Journal
“Tunisia plunged deeper into political crisis on Monday as President Kais Saied tightened his grip on power, dismissing top government officials and deploying military forces around the prime minister’s office in a dramatic move that opponents called a coup attempt.”
“The president had fired Prime Minister Hichem Mechichi, suspended Tunisia’s parliament and stripped lawmakers of parliamentary immunity on Sunday. He said the country faced one of the most threatening situations in its history following violent protests in which demonstrators decried Tunisia’s struggling economy and a Covid-19 outbreak that has deeply strained the healthcare system.”
Tunisia’s state news agency Tunis Afrique Presse reported Monday that Mr. Saied also dismissed the defense minister and acting justice minister effective a day earlier. Military forces had been deployed around the prime minister’s office, according to the news agency. Mr. Mechichi hasn’t been seen in public since Sunday, officials said.
“Mr. Saied also issued a decree on Monday declaring a nighttime curfew from 7 p.m. local time to 6 a.m., and a ban on gatherings of more than three people, according to the news agency.”
“Earlier on Monday, Rached Ghannouchi, the speaker of parliament, called on Tunisians to unite ‘against this coup attempt and a return to dictatorship, and to defend their freedoms and democracy,’ according to a Twitter post by Ennahdha, a political party to which he belongs. He spoke in front of the parliament building, according to the party, after security forces blocked him from entering the building. Mr. Ghannouchi said the parliament was an elected institution and that he and other lawmakers would refuse to obey the president’s orders.” Jared Malsin reports.
IMF Downgrades Growth Outlook for Emerging, Developing Economies
“The International Monetary Fund maintained its global economic forecast at 6 per cent but downgraded its growth outlook for emerging market and developing economies due to the uneven access to vaccines and the emergence of Covid-19 variants that are hindering the shape of recovery.”
“The fund said multilateral action has a vital role in diminishing divergence across countries and strengthening global prospects. The pandemic has reduced per capita incomes in advanced economies by 2.8 per cent, relative to pre-pandemic trends over 2020 to 2022, compared with an annual per capita loss of 6.3 per cent a year for emerging market and developing economies (excluding China), according to fund estimates.”
“‘Vaccine access has emerged as the principal fault line along which the global recovery splits into two blocs: those that can look forward to further normalisation of activity later this year [almost all advanced economies] and those that will still face resurgent infections and rising Covid death tolls,’ the Washington lender said in its latest update to its World Economic Outlook on Tuesday.”
“The fund issues its growth forecasts every three months and has emphasised that the outlook depends on the success of vaccination programmes and how effectively economic policies can limit lasting damage from the world's deepest recession since the Great Depression.”
“The IMF upgraded its 2022 outlook for the global economy by half a percentage point to 4.9 per cent. This was largely due to it upgrading advanced economies, specifically the US, because of additional fiscal support from the Biden administration that is expected in the second half of 2021 and an improved health outlook across peer countries.” Massoud A Derhally reports.
Kenya-UK Deal Aims to Make Nairobi Top Africa Trade, Finance Hub
“Kenyan and British officials are to sign a deal on Tuesday to boost investment in Nairobi, with the ultimate aim of turning the city, which is home to some of the continent’s biggest banks, into Africa’s financial hub.”
“The goal of the co-operation agreement, which officials have said could result in at least $2bn worth of deals during the next five years, is to help funnel international investment into Kenya and east Africa more broadly, people involved said.”
“This should over time enable Nairobi to compete with Dubai, as a conduit for trade in the region. The deal includes closer links between the London and Nairobi stock exchanges, as well as moves to ease incorporation and registration of companies in Kenya, east Africa’s economic powerhouse.”
“British insurer Prudential, which has grown rapidly in Africa, where it has 1.2m customers in eight countries, is the first non-African company to set up its regional head office in Nairobi under the new arrangements.”
“Kenyan mining company Mayflower Gold has also announced plans to dual list its shares on both the London and Nairobi stock exchanges in a deal worth £14m. The agreement, which kicks off Kenyan president Uhuru Kenyatta’s three-day visit to the UK, could further bolster economic ties between the two countries. In March this year, Kenya and the UK ratified a trade agreement signed last December — one of more than a dozen deals inked during the Brexit transition period — with Britain saying it would help to boost the £1.4bn in mutual trade.” Andres Schipani reports.