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Emerging Markets Daily - June 25
Rising Risks in EM Investing, Argentina Booted from MSCI EM Index, Didi Seeks $4B NY IPO, Ambani Eyes $10B in Clean Energy Investments, IMF OK's $407M for Kenya
The Top 5 Emerging Markets Stories from Global Media - June 25
Signs Indicate Rising Risks in Emerging Markets
“Low interest rates and expectations for a global economic recovery have bolstered emerging markets lately, but strategists see reasons for less bullishness in the near-term, at least.”
“While still positive on emerging-market stocks, Bank of America ‘s Hong Kong-based equity strategists Ajay Singh Kapur and Ritesh Samadhiya lowered their tactical allocation to cyclical stocks in Asia and emerging markets as some of the risks to the asset class gain momentum.”
“Those risks include the dollar beginning to strengthen, which poses a challenge for emerging markets, especially those reliant on foreign funding. Also potentially worrying: With more than three-quarters of global money managers in BofA’s latest survey expecting a strong economic recovery, the potential for a surprise that bolsters markets has dried up, the BofA strategists write in a note to clients.”
“China, which accounts for almost 37% of the MSCI Emerging Markets index, though, poses one of the biggest risks to the broader index. Several strategists have been wary about China’s moves to tighten credit; the ease of borrowing in China is often a leading indicator for global growth and cyclicals. Chinese regulators’ increased scrutiny over big internet and technology companies continues to loom over the market, as well. Indeed, China’s stock market has been one of the worst performers so far this year. The iShares MSCI China exchange-traded fund (MCHI) is down 1.2% so far this year as other markets charge higher.”
“DataTrek Research co-founder Nicholas Colas is concerned about the Chinese regulatory crackdown on technology companies, and also says history doesn’t offer an optimistic view for emerging markets when the Fed is raising rates. Emerging markets broadly could be under pressure as long as markets are worried about Fed rate increases and timing, he writes.” Reshma Kapadia reports.
Argentina Booted from MSCI Emerging Markets Index on FX Controls
“Argentine stocks were cut from emerging market status by index provider MSCI Inc on the country’s continued capital controls.”
“The downgrade to ‘standalone’ status, which comes just three years after the index provider raised the country’s shares from frontier to emerging-market status, was prompted by Argentina’s ongoing capital controls, according to a statement published Thursday evening. The world’s largest index provider had signaled last year that Argentina could lose its standing if controls remained or increased…”
“The MSCI Standalone Market Indexes are not included in the MSCI Emerging Markets Index or MSCI Frontier Markets Index. Countries currently in that category include Panama, Lebanon, Palestine, Ukraine, Botswana and Zimbabwe...”
“The decision is expected to lead almost $610 million to pull out of the three remaining companies in the MSCI Argentina index, according to JPMorgan estimates. Because the stocks were left as ‘standalone,’ rather than frontier status, there won’t be any inflows to mitigate that exit, the analysts added.”
“‘The new friends of the standalone neighborhood don’t inspire confidence in the investment community’ said Joaquin Bagues, head strategist at Portfolio Personal Inversiones in Buenos Aires. ‘It’s not a positive decision for Argentina from all points of view.’” Vinicius Andrade and Jorgelina do Rosario report.
Chinese Ride-Hailing Giant Didi Chuxing Seeks $4B NY IPO
“Didi Chuxing, the Chinese ride-hailing company, laid out plans to raise as much as $4bn from an initial public offering on the New York Stock Exchange, in what would be one of the largest international listings in years.”
“The Beijing-based company said it would offer 288m American Depositary Shares at a price range of $13 -$14, according to an updated prospectus. Each ADS translates to four shares of the company’s class A stock. Morgan Stanley and Singapore’s Temasek have indicated interest in purchasing up to $1.25bn in combined stock in the IPO, or about one-third of the total offering at the middle of the price range.”
“Morgan Stanley is also serving as a lead underwriter on the flotation, and Temasek is a longtime investor in Didi. Didi’s updated prospectus sets up a potential listing in the coming weeks, following a roadshow when it will pitch public investors.”
“The IPO is likely to be the largest international listing in the US since Alibaba raised more than $25bn when it went public in 2014. Didi would have a market capitalisation of $64.7bn at the middle of its price range, based on the number of class A and B shares listed in the prospectus.” Miles Kruppa reports.
Mukesh Ambani Pledges $10B For Clean Energy Investments
“Indian tycoon Mukesh Ambani unveiled an ambitious push into clean energy involving 750 billion rupees ($10.1bn) of investment over three years, marking a new pivot for one of the world’s biggest fossil-fuel billionaires.”
“Reliance Industries, which gets 60 per cent of its revenue from oil refining and petrochemicals, plans to spend 600 billion rupees on four ‘giga factories’ to produce solar modules, hydrogen, fuel cells and to build a battery grid to store electricity. An additional 150bn rupees will be invested in value chain and other partnerships, Asia’s richest man told shareholders on Thursday.”
“The move toward green by the Mumbai-based giant, which reported an annual revenue of $63bn, offers a glimpse of the new order awaiting some of the world’s major fossil-fuel producers. Global giants such as Exxon Mobil and TotalEnergies have been under pressure to pare their carbon footprint, as governments, investors and consumers join to fight climate change and global warming.”
“Speaking at the company’s online annual meeting, Mr Ambani gave scant details of how he would execute the plan. He was ranked No. 4 among global fossil-fuel billionaires by Bloomberg Green last year. The $10bn in green investment over three years compares with Fitch Ratings’ estimate – published Wednesday – of $7.4bn in annual average capital expenditure by the Reliance group through March 2025.” The National/Bloomberg reports.
IMF Approves Release of $407 Million Financing for Kenya
The East African
“The International Monetary Fund (IMF) executive board has approved the release of an additional $407 million budgetary support for Kenya after being satisfied with the government’s commitment to socio-economic and structural reforms under its 38-month financing programme with the East African nation.”
“In a statement Wednesday the Fund said the Board’s decision allows for an aggregate immediate disbursement of $407 million, bringing Kenya’s total disbursements for budget support under the under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) programme to about $714.5 million.”
“In April this year IMF Board approved a $2.34 billion three-year financing package for Kenya to support the government’s next phase of the Covid-19 response, enhance governance and reduce debt vulnerabilities while safeguarding resources to protect vulnerable groups.” James Anyanzwa reports.