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Emerging Markets Daily - June 4
Biden Bans US Investments in Dozens of Chinese Co's, Russia State Fund to Dump Dollar, Lebanon Collapse, Indonesia's SuperApp, China Tech Valuations Looking Up, Fund Manager Says
The Top 5 Emerging Markets Stories from Global Media - June 4
Biden Bans Investing in Dozens of Chinese Firms, Accelerating Row
The Financial Times
“The Biden administration is banning Americans from investing in dozens of Chinese defence and surveillance technology companies in an effort to stop US capital from being used by China to undermine national security.”
“President Joe Biden on Thursday signed an executive order to prohibit investments in 59 companies, including marquee Chinese groups such as Huawei, the telecoms equipment manufacturer, and Semiconductor Manufacturing International Corporation, China’s largest chipmaker, which US intelligence says is critical to the Chinese military.”
“The ban will take effect on August 2. But investors can make trades during the next 12 months to divest their holdings. While Americans are not required to divest the securities, they will be unable to sell their holdings after the one-year period without special approval from the US Treasury, which will oversee the new regime…”
“One senior US official said the order would ensure that Americans are ‘not financing the military industrial complex of the People’s Republic of China’…The ban marks the latest effort by the Biden administration to take an increasingly hawkish stance on China over everything from its repression of the Uyghurs to its aggressive military activity in the South and East China Seas…”
“The targeted companies also include Aviation Industry Corporation of China, China National Offshore Oil Corporation, China Railway Construction Corporation and China National Nuclear Corporation. The list contains three big Chinese telecommunications companies: China Mobile, China Telecom and China Unicom.” Demetri Sevastopulo reports.
Russia Sovereign Wealth Fund To Dump Dollar In Favor of Euros, Yuan
The Wall Street Journal
“Russia is to ditch the dollar from its sovereign-wealth fund, the country’s finance ministry said, as Moscow accelerates steps toward weaning its economy off the greenback amid the continuing threat of U.S. sanctions.”
“The finance ministry said the National Wealth Fund, which holds part of the country’s oil revenues, will cut the share of dollar assets it holds to zero from 35%. The $186-billion strong fund will then hold most of its assets in euros, yuan and gold, the finance ministry said.”
“The move would further strengthen the role of the Chinese currency in Russia at a time Moscow and Beijing are pursing closer ties. ‘This is a sensible decision, it is connected, among other things, with the threats of sanctions that we received and received from the American leadership,’ First Deputy Prime Minister Andrei Belousov said on the sidelines of the St. Petersburg Economic Forum, the country’s flagship investment event.”
“Washington imposed sweeping sanctions against Russia in April over alleged interference in last year’s U.S. election, the SolarWinds hack of government and corporate computer networks, and other alleged transgressions. The sanctions also bar U.S. banks and institutional investors from buying new Russian government ruble-denominated bonds at auction.”
“The measures stopped short of prohibiting the purchase of Russian government bonds in the open market, a step analysts say would have had a much more damaging effect on the Russian economy. Such a move, though, remains in the U.S. arsenal and could be taken in the future, observers say.” Georgi Kantchev reports.
Lebanon Economic Collapse Among World’s Worst in More Than a Century: World Bank
“Lebanon's economic collapse is likely to rank among the world's worst financial crises since the mid-19th century, the World Bank said in a damning report.”
“The report predicts that Lebanon's economy will shrink by close to 10 percent in 2021 and stresses there is ‘no clear turning point in the horizon’. Lebanon defaulted on its debt last year, the currency lost around 85 percent of its value and poverty is devastating a country once seen as a beacon of prosperity in the region, AFP reported.”
"‘The economic and financial crisis is likely to rank in the top 10, possibly top 3, most severe crisis episodes globally since the mid-nineteenth century,’ the report said.”
“The complete meltdown of Lebanon's economy during the past 18 months is widely blamed on corruption and mismanagement by the country's hereditary political elite.” Asharq Al Awsat reports.
Gojek, Tokopedia Merger Creates $18 Billion Indonesia SuperApp Giant
Rest of World
“…Across Indonesia, life’s daily tasks, from getting groceries to paying bills, can increasingly be accomplished without ever leaving the platforms of the country’s two largest tech companies: ride-hailing and delivery company Gojek and e-commerce site Tokopedia.”
“In May, the two companies formally announced that they would merge to become GoTo Group, an $18 billion giant that brings together an array of functionalities that Indonesians have come to depend on: ride hailing, food and grocery delivery, mobile gaming, financial services, and online retail, all underpinned by payment platform GoPay.”
“The payment piece of the combined company could be what makes GoTo more than the sum of its parts. It could allow the company to do what most fintechs only dream of and capture every frequency of consumer transaction, from the daily (groceries, travel, media) to the regular discretionary spend (food delivery) to larger purchases (e-commerce) and even investments and banking products. It’s a journey that only a handful of companies in China have managed to make — notably Gojek backer Tencent and Tokopedia investor Alibaba. GoTo’s aim now is to replicate that model and leverage its virally popular services into an all-encompassing super app.” Meaghan Tobin and Wulan Kusuma Wardhani report.
China Tech Crackdown Nears End, Beaten-Down Valuations Looking Up
“Beijing’s antitrust crackdown on homegrown tech giants may be coming to an end, leaving stock valuations of some of the major firms at attractive levels.”
“That’s the view of Hyomi Jie at Fidelity International Ltd., whose China consumer equity funds oversee $7.3 billion in assets. One has beaten 96% of peers in the past year. Hong Kong-based Jie sold some of her holdings in Alibaba Group Holding Ltd. and Tencent Holdings Ltd. earlier in the year, though they remain among her largest positions…”
“While probes of billionaire Jack Ma’s Alibaba and Ant Group Co. took three to four months, a second batch of investigations into firms such as Tencent and Meituan may proceed more quickly, indicating that the regulatory cycle could be wrapping up as key players in the industry have agreed on what needs to be done, according to Jie.”
“She isn’t alone in noting the appeal of valuations of shares such as Alibaba and Tencent now, with buy recommendations from analysts dominating for those stocks, according to Bloomberg-compiled data.”
“China’s rapid-fire moves to curb anti-competitive practices by more than 30 technology firms have rattled investors, leaving them uncertain about the prospects of once-adored industry favorites. Shares of internet titans such as Alibaba and Tencent have fallen about 20% from their recent peaks, driven also by a global tech selloff.” Livia Yap and Jeanny Yu report.