Emerging Markets Daily - June 6
Bullish Case Builds for EM, New G-7 Taxation Rules, El Salvador Eyes Bitcoin Adoption, China COSCO Teams Up With Tesla, Egypt's New Capital in the Desert
The Top 5 Emerging Markets Stories from Global Media - June 6
Bullish Case Grows for Emerging Market Stocks
Bloomberg
“A bullish case is building for emerging-market stocks, which have trailed their developed-nation peers this year, with strategists saying the asset class is better positioned to benefit from a global reopening.”
“There are already signs the gap is narrowing, with the MSCI Emerging Markets Index last month outperforming the MSCI World Index for the first time since January. Relatively attractive valuations, a weaker dollar and expectations that global supply chains will whir back into high gear are burnishing the appeal of developing-nation equities. The surge in global commodity prices is adding to optimism that improving growth will help boost cyclical shares in these markets.”
“‘Investors who missed out on the strong U.S. and EU consumer and cyclical equity bull run so far this year should consider investing in EM stocks,’ said David Chao, a global market strategist in Hong Kong at Invesco Ltd., which oversees about $1.4 trillion. ‘Rising inflation expectations and bond yields should drive continued investor rotation from growth to cyclical assets –- EM economies are more cyclical in nature.’”
“Analysts see the MSCI EM index, which is trading at 14 times forward earnings, rallying about 20% over the next 12 months, according to data compiled by Bloomberg. That’s almost double the advance seen for the developed-nations’ gauge, which has a valuation multiple of about 20.” Bloomberg reports.
G-7 Nations Agree on New Rules for Taxing Global Companies
The Wall Street Journal
“The Group of Seven leading rich countries agreed to back new rules for taxing businesses that operate internationally in a significant step toward a global agreement that would deliver the 15% floor that the Biden administration said it could accept.”
“The agreement, reached by treasury chiefs during a meeting in London on Saturday, resolves some of the long-running tensions between the U.S. and large European economies that have at times threatened to push the international tax system into chaos and spark a trans-Atlantic trade conflict.”
“…There are still significant details to be worked out, and the deal isn’t sufficient to see the new rules applied globally. For that to happen, it would need support from the Group of 20 leading economies—which includes China and India, among other developing economies—as well as the backing of the 135 countries that have been negotiating the new rules as part of what is known as the Inclusive Framework. Treasury chiefs from the G-20 are due to meet in Venice on July 9-10.” Paul Hannon, Richard Rubin and Sam Schechner report
El Salvador Looks to Become First Country to Adopt Bitcoin as Legal Tender
The Straits Times
“El Salvador’s Nayib Bukele, Latin America’s youngest president who’s known to break from the norms, said he plans to send legislation that would make Bitcoin legal tender in the country, alongside the US dollar.”
“‘In the short term, this will generate jobs and help provide financial inclusion to thousands outside the formal economy,’ the 39-year-old leader said in a video broadcast at the Bitcoin 2021 conference in Miami on Saturday (June 5). He said he would submit the legislature a bill next week.”
“El Salvador is a largely cash economy, where 70 per cent of the population does not have a bank account. Money sent home by migrants, account for more than 20 per cent of its gross domestic product. Incumbent services can charge 10 per cent or more in fees for those international transfers, which can sometimes take days to arrive and that sometimes require a physical pick-up, CNN reported.” The Straits Times reports
China's COSCO Teams up with Tesla to Digitize Logistics
Nikkei Asia
“Chinese state-owned shipping company COSCO Group has tied up with Tesla to undertake a digital transformation, a process the leading container carrier expects to help unsnarl the mess that international logistics has become amid the pandemic.”
“The tie-up also calls for COSCO to share its shipping data with Tesla so the EV pioneer can put the system through its paces at a Shanghai port.”
“Ports and logistics networks have lost much of their efficiency since the second half of 2020 as governments began introducing and tightening measures to prevent the spread of the coronavirus, Xu Lirong told Nikkei. Xu is the chairman of COSCO Shipping Holdings.”
“As logistics have snarled, seaborne freight shipping fees have risen, Xu said, noting that a shortage of containers is also behind the increased costs.” Shin Watanabe reports
A New Capital in the Egyptian Desert: Sisi’s Military Model for the Economy
Financial Times
“…In August, civil servants will begin making the 45km transition from ministries in downtown Cairo to the new capital, where construction workers are putting the finishing touches to the $3bn ‘government district’. The aim is to have 55,000 staff operating out of more than 30 huge new ministries by the end of the year. Ultimately, with private developments alongside military projects, the goal is to have 6.5m people living in the city.”
“The project — forecast to cost $45bn when it was launched six years ago — embodies Sisi’s vision of development and how it should be done: the military is unabashedly front and centre and it is being built on a pharaonic scale. Sisi insists it represents the ‘declaration of a new republic’ even as sceptics consider it a vanity project a country with more urgent priorities can ill-afford.”
“‘The economy looks healthy from the outside, but if you poke around it’s all built on quicksand,’ says an Egyptian academic.” Andrew England reports
