Emerging Markets Daily - March 23
Russia Halts Major Oil Pipeline, Egypt Seeks IMF Support, Putin Demands Gas Payments in Rubles, Tencent Rises on Buyback Rumors, China-Pakistan Strategic Ties
The Top 5 Stories Shaping Emerging Markets from Global Media - March 23
Major Russia Pipeline for Kazakh Oil Halts All Exports, Citing Storm Damage. Move Will Stop 1.4 Million Barrels a Day. Brent Crude Hits $121 On the News.
Financial Times
“Oil exports from a crucial pipeline on Russia’s Black Sea coast were fully halted on Wednesday, pushing crude prices higher amid fears that Moscow would interrupt energy supplies just as US president Joe Biden arrives in Europe to discuss the war in Ukraine.”
“The Caspian Pipeline Consortium, the Moscow-headquartered group running a pipeline linking Kazakh oilfields with Russia’s Novorossiysk port, said on Wednesday that it was shutting down all three units used to load oil from the more-than-1,500km artery on to tankers, blaming storm damage.”
“The full closure comes as EU leaders prepare to discuss deeper sanctions on Moscow for its decision to invade Ukraine. ‘If a weather-related ‘accident’, it is certainly a convenient one from Moscow’s standpoint,’ said Bob McNally, head of consultancy Rapidan Energy Group and a former adviser to the George W Bush White House.”
“…The latest move will halt the export of 1.4mn barrels a day of oil, higher than the 1mn a day expected from the partial shutdown on Tuesday. Brent crude, the international oil marker, rose by 5 per cent to more than $121 a barrel on Wednesday.”
“The CPC mainly ships oil produced in Kazakhstan by companies including Chevron and ExxonMobil, as well as some Russian crude from fields along the route. Chevron said earlier on Wednesday that exports from its Tengiz field continued uninterrupted.”
“…According to the CPC, 213 of the 585 tankers loaded from the pipeline in 2021 went to Italy. Another 41 went to Spain, 39 to France and 26 to the US. The US import ban exempts oil produced in Kazakhstan, which accounts for roughly 90 per cent of the pipeline’s flows.” The FT reports.
Egypt — Major Wheat Importer from Russia and Ukraine — Requests IMF Support
Al Arabiya and Reuters
“Egypt has requested the International Monetary Fund’s support to implement a comprehensive economic program, the IMF said on Wednesday, adding that continued exchange rate flexibility would be essential to absorb external shocks.”
“The IMF is working closely with Egyptian authorities to prepare for discussion of the program, with a view to supporting sustainable, job-rich and inclusive growth, it added.”
“Egypt has faced new economic pressure linked to Russia’s invasion of Ukraine, which prompted foreign investors to flee emerging markets. On Monday, Egypt let its currency depreciate sharply after it had remained mostly steady for several years.”
“Russia and Ukraine were the main exporters of wheat to Egypt - typically the world’s top importer - and major sources of tourism. The rapidly changing global environment and spillovers related to the war in Ukraine are posing important challenges for countries around the world, including Egypt,’ the IMF said in a statement.” Al Arabiya reports.
Putin Demands Ruble Payment for Gas From ‘Hostile States’
Bloomberg
“Russia plans to demand ruble payments for natural gas purchases from European nations, deepening its standoff with the west and potentially aggravating Europe’s worst energy crunch since the 1970s.”
“Gas prices surged more 30% after President Vladimir Putin ordered the central bank to develop a mechanism to make ruble payments for natural gas within a week at a meeting with his government.”
“…The specifics of the new arrangement weren’t immediately clear, but by demanding payments in rubles, Putin is essentially forcing European companies to directly prop up his currency after it was sent into free-fall by sanctions placed on the Russian economy. The ruble gained 7% against the dollar Wednesday, trimming its losses this year to 23%.”
“Germany, the biggest buyer of Russian gas, said the announcement on ruble payments is a breech of the contracts, and the nation will speak to its European partners on how to respond, according to Economy Minister Robert Habeck. Italy, the second-biggest customer of Gazprom PJSC, the Russian state export monopoly, said it wasn’t inclined to pay for Russian gas in rubles because it could help Putin weaken Europe’s sanction regime.”
“European gas benchmark surged as much as 34% after Putin’s demand, climbing as high as 132.74 euros a megawatt-hour and reigniting a wild rally in prices. The measure applied to country’s deemed “hostile” include the U.S, U.K. and all members of the European Union. ‘I have taken a decision to switch to ruble payments for our natural gas supplies to the so-called hostile states,’ Putin said on Wednesday.”
“The ‘hostile’ states accounted for some 70% of Gazprom’s 2021 export revenue amounting to some $69 billion, Dmitry Polevoy, economist at Moscow-based Locko Invest, said in an emailed note.” Bloomberg reports.
Tencent Share Buyback Speculation Grows After Alibaba, Xiaomi Buybacks. Tencent Climbs 3% on the Rumor. Alibaba Surged 18% Since This Week’s Buyback.
Bloomberg via Yahoo Finance
“Share buybacks are emerging as the hottest trend among Chinese tech giants and industry leader Tencent Holdings Ltd. may be the next to jump on the bandwagon.”
“The online gaming giant climbed as much as 3.1% in Hong Kong on Wednesday, just before it’s expected to announce its slowest profit growth ever. Investors are betting that the company will follow in the footsteps of Alibaba Group Holding Ltd. and Xiaomi Corp., which both announced massive buybacks after their earnings, with the moves fueling a rally in their shares.”
“The improving sentiment in tech stocks reflects broader hopes that China’s crackdown on the sector is coming to an end after the government pledged greater support for the economy and capital markets. But, a recovery remains dependent on concrete action from the authorities, and Morgan Stanley’s equity strategists warn that it’s too early to be optimistic.”
“An 18% surge in Alibaba’s stock since Tuesday indicates that share buybacks have become a more rewarding strategy for Chinese tech giants, after valuations slumped to near record lows and regulatory fears eased. Still, the scale of repurchases is small compared to megacaps in the U.S., which have bought back more than $20 billion worth of stock in each of the recent quarters.” Yahoo Finance/Bloomberg report.
From Jet Fighters to Submarines, China Ramps Up Arms Sales to Pakistan, Hoping To Squeeze India
Nikkei Asia
“From the sale of stealth fighters to submarines, China is accelerating its defense cooperation with Pakistan in a bid to exert pressure on India, a rival in border disputes with both.”
“China is believed to want to expand its influence in South Asia while the U.S. and Europe are focused on the war in Ukraine. Beijing ‘stands ready to provide assistance within its capacity for Pakistan to overcome difficulties and recover its economy,’ Chinese Foreign Minister Wang Yi told Pakistani Prime Minister Imran Khan in a Tuesday meeting, according to China's Ministry of Foreign Affairs.”
“Khan expressed hopes for joint achievements and cooperation ‘in all fields,’ the ministry said. Ukraine was among the other topics discussed. China this month delivered six J-10CE fighter jets to Pakistan, the Communist Party-affiliated Global Times has reported. An update to China's homegrown J-10s, they are a key part of the Chinese air force and often fly into Taiwan's air defense identification zone.”
“The J-10CE is a so-called 4.5-generation fighter, placing it somewhere between the F-15s used widely by Japan and the U.S. and F-35 stealth fighters in terms of capability. The delivered jets later took part in a military parade in Pakistan.”
“Pakistan this month is also adding 50 new JF-17 fighters, which were developed jointly with China. They do not match the performance of the J-10CE but do come with near-stealth capability.”
“…China is actively contributing to improvements in Pakistan's navy as well, concerned that the Indian military could wield greater clout in key Indo-Pacific sea lanes. Pakistan in January inducted a Chinese-built Type 054 frigate, which is designed for anti-surface, anti-air and anti-submarine warfare.”
“‘Pakistan is reportedly also planning to purchase from China eight submarines, which Pakistan is positioning as the 'backbone of the Navy,' Japan's Ministry of Defense said in its 2021 white paper. ‘Four will be built in China, with the remainder to be built in Pakistan.’” Nikkei Asia reports.
“We can easily forgive a child who is afraid of the dark; the real tragedy of life is when men are afraid of the light.” – Plato