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Emerging Markets Daily - March 15
Tencent Shares Plummet, Beijing Tightens Grip on Alibaba, Iran Blames Israel for Ship Blast, India Moves to Ban Cryptocurrency, Lebanon Pound Hits All-Time Low
The Top 5 Emerging Markets Stories - March 15
Tencent Loses $62 Billion as China Authorities Target The Tech Giant
“Tencent Holdings Ltd. shares fell a second day on concern regulators are now turning their sights to Pony Ma’s business empire, fueling a $62 billion wipe-out that one brokerage says obliterated most of the value of its online finance business.”
“The stock fell more than 4% in Hong Kong on Monday, following a 4.4.% drop on Friday. China’s top financial regulators see Tencent as the next target for increased supervision after the clamp down on Jack Ma’s Ant Group Co., people with knowledge of their thinking have said. Like Ant, Tencent will probably be required to establish a financial holding company to include its banking, insurance and payments services, according to one of the people.”
“A move against Tencent would mark a significant escalation in China’s campaign against the unfettered expansion of its technology giants. Premier Li Keqiang pledged at the National People’s Congress earlier this month to expand oversight of financial technology, stamp out monopolies, and prevent the ‘unregulated’ expansion of capital.”
“Tencent’s regulatory woes goes beyond its fintech business. The antitrust regulator on Friday fined the company, along with some of China’s other tech behemoths, for not seeking prior approval for earlier investments and acquisitions.” Bloomberg reports.
Meanwhile, the Wall Street Journal reports that “The immediate blow to Tencent seems manageable, but even under the best-case scenario, regulatory uncertainty will weigh on shares for some time…”
“Just a few weeks ago, Chinese videogame and internet technology giant Tencent looked near to cracking a $1 trillion valuation. Shifting winds out of Beijing could blow that out of reach for quite a while.”
Beijing Widens Alibaba Probe, Seeks Disposal Of Its Media Assets
“China’s government has asked Alibaba Group Holding Ltd. to dispose of its media assets, as officials grow more concerned about the technology giant’s sway over public opinion in the country, according to people familiar with the matter.”
“Discussions over the matter have been held since early this year, after Chinese regulators reviewed a list of media assets owned by the Hangzhou-headquartered company, whose mainstay business is online retail. Officials were appalled at how expansive Alibaba’s media interests have become and asked the company to come up with a plan to substantially curtail its media holdings, the people said.”
“Alibaba, founded by billionaire Jack Ma, has throughout the years assembled a formidable portfolio of media assets that span print, broadcast, digital, social media and advertising. Notable holdings include stakes in the Twitter-like Weibo platform and several popular Chinese digital and print news outlets, as well as the South China Morning Post, the premier English-language newspaper in Hong Kong. Several of these holdings are in U.S.-listed companies.”
“Such influence is seen as posing serious challenges to the Chinese Communist Party and its own powerful propaganda apparatus, the people said.” The Wall Street Journal reports.
Geopolitics: Iran Blames Israel for Explosion on Ship in Mediterranean
“Iran said Israel was likely behind an explosion that damaged an Iranian container ship in the Mediterranean last week, as the longtime foes trade accusations of attacks at sea.”
“‘The geographical location of the sabotage operation directs the first suspicion toward Israel,’ Foreign Ministry spokesman Saeed Khatibzadeh told reporters at a briefing. The Islamic Republic will consider ‘all options’ to respond to the perpetrators, he said.”
“Iran said on Friday that the Shahr E Kord cargo vessel had been damaged two days earlier by an explosive device in international waters. In February, Israeli Prime Minister Benjamin Netanyahu said Iran was responsible for an unexplained blast on an Israeli-owned cargo vessel in the Persian Gulf. And early this month, an Israeli minister accused Iran of ‘environmental terrorism,’ saying one of its ships had dumped oil in Israeli waters that later washed up on shore.”
“An Israeli maritime intelligence specialist later said the crude spill likely originated from sanctions-busting oil trade between Iran and Syria.” Bloomberg reports.
India Moves Toward Sweeping Cryptocurrency Ban
“India will propose a law banning cryptocurrencies, fining anyone trading in the country or even holding such digital assets, a senior government official told Reuters in a potential blow to millions of investors piling into the red-hot asset class.”
“The bill, one of the world’s strictest policies against cryptocurrencies, would criminalise possession, issuance, mining, trading and transferring crypto-assets, said the official, who has direct knowledge of the plan.”
“The measure is in line with a January government agenda that called for banning private virtual currencies such as bitcoin while building a framework for an official digital currency. But recent government comments had raised investors’ hopes that the authorities might go easier on the booming market.”
“Instead, the bill would give holders of cryptocurrencies up to six months to liquidate, after which penalties will be levied, said the official, who asked not to be named as the contents of the bill are not public. Officials are confident of getting the bill enacted into law as Prime Minister Narendra Modi’s government holds a comfortable majority in parliament.” Reuters reports.
Lebanon’s Currency Plummets to All-Time Low
“Lebanon’s socio-economic crisis is deepening after the local currency further depreciated on Saturday to reach a historic low of 12,400 Lebanese pounds to the US dollar, losing 85 percent of its initial pre-crisis and official rate value, which is still at 1,507 Lebanese pounds to the US dollar…”
“Deputy head of MENA and Europe at the World Economic Forum Maroun Kairouz said that the underlying cause or the structural cause of the currency collapse is basically a big deficit in the balance of payments…”
“‘The lira has lost its value as a store of value, he said. ‘The Lebanese are in a mass conversion of their reserves from Lebanese Lira to US dollars to maintain their savings. The second amplifying cause is the failure to form a government on one side and the failure to act for a period of over a year and a half since the beginning of the crisis, which is unprecedented in recent history,’ Kairouz added.”
“The local currency has been plummeting for over a year. Politicians have disagreed on a plan that would allow international aid from the World Bank, International Monetary Fund, and other foreign donors. Meanwhile, Lebanon has been witnessing increased power outages as the Central Bank delays payments for government-backed fuel subsidies due to depletion of reserves in foreign currency.”
“The country’s public debt is $92 billion, equivalent to 170 percent of GDP, one of the world's highest levels.” Al-Arabiya Business reports.
Meanwhile, an FT editorial blasts Lebanon’s political class for inaction in the face of “national emergency.” The FT editorial board writes: “Instead of statesmen taking full measure of this national emergency, Lebanon is plagued by political vultures feeding rapaciously on its carcass….It is hard to overstate the plight of Lebanon, as it hurtles towards collapse.”
“Already prostrated by a compounded financial, fiscal, debt and banking crisis, the coronavirus pandemic and port blast squeezed any remaining life out of the economy. The local currency has lost almost 90 per cent of its value. As businesses fail, joblessness and hunger abound, along with the spread of begging and barter.”
“Lebanon’s fabled banks, having lent 70 per cent of their assets to an insolvent state and central bank, are essentially bankrupt, and have locked most depositors out of their savings. A deadline for recapitalising the banks has passed, with only a pretence of restructuring. A caretaker government limps on. There is no budget and there will soon be no hard currency to pay for imports, while the central bank prints increasingly worthless money and fuels hyperinflation.”