Emerging Markets Daily - July 29
Global Recovery Powers Earnings, New Covid Variants Could Hit EM With Double Blow, Didi Shares Surge, Inside S. Africa Riots, Beijing Seeks Calm After Stocks Rout
The Top 5 Emerging Markets Stories from Global Media - July 29
Economic Recovery Powers Robust Corporate Earnings
Financial Times
”The global economic bounceback from Covid-19 fuelled a bumper crop of corporate earnings on Thursday as commodity prices surged and consumers returned to spending money outside their homes.”“UK-listed companies alone announced more than $10bn of dividends and share buybacks, with groups from Royal Dutch Shell to distiller Diageo reporting resurgent sales and profits.”
“The commodity price surge, fuelled by stronger demand after the economic shock of coronavirus, enabled Shell to raise its dividend by 40 per cent after a cut last year, while Anglo American said it would return $4.1bn to shareholders following the strongest profits in the miner’s 104-year history.”
“Anglo chief executive Mark Cutifani said: ‘The first six months of 2021 have seen strong demand and prices for many of our products as economies begin to recoup lost ground, spurred by stimulus measures . . . The share buyback should tell you that we don’t think this is as good as it gets.’”
“France’s TotalEnergies reported its highest half-year profit in five years and announced share buybacks, while steelmaker ArcelorMittal posted its highest profits since 2008. Miner Rio Tinto announced a record $9.1bn dividend payout on Wednesday as its half-year profits topped those for the whole of 2020 thanks to surging iron ore demand from a rebounding Chinese economy.”
“As the recovery aided demand for raw materials, consumers acted on new freedoms in countries including the US, UK and several European nations by returning to bars, restaurants and offices.” Judith Evans reports.
New Covid Variants Could Hit EM With Double Blow, IMF Says
Macau Business/Xinhua
“New, highly infectious COVID-19 variants could inflict double blow on emerging markets in a downside scenario, leading to significant losses in output over the coming years, an International Monetary Fund (IMF) official has said.”
“‘I wish we could be talking about upside risks … Unfortunately, it’s not where we are,’ Petya Koeva Brooks, deputy director of the IMF’s Research Department, told Xinhua in a remote video interview earlier this week.”
“In the latest update to its World Economic Outlook (WEO) released Tuesday, the IMF maintained its global economic growth forecast at 6 percent for 2021, highlighting widening gaps in global recovery and warning of downside risks amid vaccine inequality.”
“The projection showed that growth prospects for advanced economies this year have improved by 0.5 percentage point to reach 5.6 percent, while those for emerging market and developing economies are downgraded by 0.4 percentage point to 6.3 percent.”
“‘The access to vaccines and the ability of countries to provide policy support are the main reasons why we’re seeing this divide,’ Brooks said. ‘Unless we solve that problem, I think it would be hard to talk about durable global recovery going forward.’”
“Close to 40 percent of the population in advanced economies have been fully vaccinated, compared with 11 percent in emerging market economies, and a tiny fraction in low-income developing countries, according to the IMF…”
“IMF staff recently outlined a 50-billion-U.S. dollar plan, which has been endorsed by the World Health Organization (WHO), World Bank, and World Trade Organization, and aims for faster vaccine rollout and accelerated recovery…”
“While more widespread vaccine access could improve the outlook, risks on balance are tilted to the downside, according to the IMF, which estimated that the emergence of highly infectious virus variants could derail the recovery and wipe out 4.5 trillion dollars cumulatively from global gross domestic product (GDP) by 2025.”
“In another downside scenario, it is assumed that new, more infectious variants pose risks not just to those countries with low vaccination rates, but also to many advanced economies where vaccine hesitancy has already or could, moving forward, slow the pace of vaccinations…”
“According to the WEO update, global trade volumes are projected to expand 9.7 percent in 2021, up by 1.3 percentage points from April projection. This follows an 8.3-percent contraction in 2020.”
“‘We have been positively surprised just in terms of what we’ve seen in the months of the year up to now … but by and large, I think this is an area where we could all do better,’ Brooks said. ‘The last thing that one needs at this stage of the recovery is trade tensions and anything related to that,’ she added.” Macau Business/Xinhua report.
Didi Shares Surge on Reports That It May Go Private
Bloomberg
“Didi Global Inc. surged after the Wall Street Journal reported the firm is considering going private to placate Chinese regulators and compensate investors for losses.”
“The Beijing-based company has been in discussions with bankers, regulators and key investors about ways to resolve regulatory woes since its troubled listing, the newspaper said, citing people with knowledge of the matter. One of the options could involve a tender offer for the publicly traded shares, according to the report.”
“Its shares soared as much as 49% but later pared gains, and were up about 16% after Didi said on its social media account that reports about its privatization were untrue.”
“Bloomberg News reported last week that Chinese regulators were considering serious, perhaps unprecedented, penalties for Didi, including forcing it to delist. Beijing is likely to impose harsher sanctions on the ride-hailing company than on Alibaba Group Holding Ltd., which swallowed a record $2.8 billion fine after a months-long antitrust investigation and agreed to initiate measures to protect merchants and customers, people familiar with the matter have said.”
“Regulators are weighing a range of potential punishments, including a fine, suspension of certain operations or the introduction of a state-owned investor, they said.”
“Prior to Thursday, Didi shares have tumbled more than 36% from their offering price, after Beijing announced a probe into the company and removed its services from Chinese app stores.” Shiyin Chen reports.
South Africa Riots: The Inside Story of Durban's Week of Anarchy
BBC
“Two weeks after South Africa was gripped by a frenzy of looting and arson - the worst scenes of violence since the advent of democracy in 1994 - the makeshift road blocks and mounds of rubbish in the port city of Durban have been cleared away.”
“But soldiers continue to patrol tense neighbourhoods devastated by a week of anarchy that left more than 300 people dead.”
“…It was Zuma's arrest, for contempt of court, which sparked the unrest, leading to claims that his allies were seeking to overthrow South Africa's young democracy.”
“But later Mr Zikalala was toeing the official government line, acknowledging that the violence in his province and in the economic heartland of Gauteng ‘started as a mobilisation around the former president, but then became something uncontrollable’.” Andrew Harding reports
Beijing Meets Banks to Calm Frayed Nerves after Three-day Stock Market Rout
South China Morning Post/Bloomberg
“China’s securities regulator convened executives of major investment banks on Wednesday night, in an attempt to ease market fears about Beijing’s crackdown on the private education industry.”
“The hastily arranged call, which included attendees from several major international banks, was led by the China Securities Regulatory Commission (CSRC) vice-chairman, Fang Xinghai, people familiar with the matter said, asking not to be named as they were discussing private information. Some bankers left with the message that the education policies were targeted and not intended to hurt companies in other industries, the people said.”
“It is the latest sign that Chinese authorities have become uncomfortable with a sell-off that sent the country’s key stock indexes to the brink of a bear market on Wednesday morning. State-run media has published a series of articles suggesting that the rout was overdone, while some analysts have speculated government linked funds have begun intervening to prop up the market.” SCMP/Bloomberg News reports
What We’re Also Reading…
Saudi Arabia to Impose Three-year Travel Ban on Citizens who Visit 'Red List' Countries
Arabian Business
“Saudi Arabia is set to impose a three-year travel ban on citizens who violate the kingdom’s travel restrictions by visiting countries on its red list either directly or indirectly through states on the green list.”
“This latest measure was announced on the Ministry of Interior’s Twitter page and cited an ‘official source’ who added that legal action and penalties would be taken on those who go against the travel restrictions.”
“It comes as the kingdom announced that, starting August 9, only fully vaccinated citizens will be allowed to travel abroad. Two doses of Saudi approved coronavirus vaccines will be accepted for travel, as per the statement by the Saudi General Authority of Civil Aviation (GCAA), which was circulated to all airlines operating in the kingdom’s airports.” Nabila Rahal reports
China Meets With Taliban, Stepping Up as U.S. Exits Afghanistan
The Wall Street Journal
“China’s foreign minister urged the Taliban to distance itself from terrorist groups and take steps to establish peace in Afghanistan, in a meeting with the group on Chinese soil that signaled Beijing is stepping in diplomatically as the U.S. withdraws from the country.”
“At the session with Taliban co-founder and political office chief Mullah Abdul Ghani Baradar in the northeastern Chinese city of Tianjin on Wednesday, Foreign Minister Wang Yi called the Taliban a pivotal military and political force in Afghanistan that is expected to play an important role in reconstructing the country, according to China’s Foreign Ministry.”
“…Beijing has had numerous interactions with the Taliban over the years, but the need for reassurances has grown as the Taliban make a string of advances on the battlefield. The Taliban see China as a source of international legitimacy, a potential economic supporter and a means of influence over Pakistan, a Chinese ally that has aided the group.” Chao Deng reports
Argentina in Water Emergency due to Record Low Paraná River Flows
El Pais
“The Paraná River , the second longest in South America, suffers a historical drought due to the lack of rainfall. Its flow registers the minimum values of the last more than 70 years from its birth, in Brazil , to its mouth in Argentina and also as it passes through Paraguay. In Argentina, the Government of Alberto Fernández this week declared a water emergency for 180 days to mitigate the serious economic and environmental consequences of the drop in water levels. The decrease in its flow hinders exports, power generation and increases the risk of fires.”
“The Paraná is the main exit route for grains and agro-industrial products from Argentina . In about 70 kilometers of coastline around the city of Rosario there are about thirty port terminals from which soy, corn, flour, oil and fuel are exported, among others. Every year, around 2,500 large ships transport them from there to the rest of the world, but for months their maximum load capacity has been reduced by 10% due to the decrease in depth in critical passages, explains Alfredo Sese, Technical Secretary of the Transportation Commission of the Rosario Stock Exchange (BCR).” Mar Centenera reports