Discover more from Emerging World
Emerging Markets Daily - March 5
EM Equities Hottest Asset Class Now, Oil Hits 14 Month High, Combative Pakistan PM Blasts Opposition Amid No-Confidence Vote, China Natural Gas Demand Soars, Brazil Economy in Record Contraction
Emerging Market Equities Rising Above All Asset Classes: Bloomberg
“If capital flows into U.S. exchange-traded funds are any indication, investors have begun to favor emerging-market stocks over almost every other asset class -- including U.S. equities.”
“The largest ETF buying developing-nation shares received more money in the five days through Thursday than any of the more than 2,400 other funds in U.S. exchanges, according to data compiled by Bloomberg. That’s sending the Vanguard FTSE Emerging Markets ETF toward its biggest weekly inflow in two years.”
“In contrast, the $324 billion SPDR S&P 500 ETF, the flagship for U.S. equities, witnessed outflows exceeding $4.5 billion, the worst among peers. Other funds investing in Nasdaq 100 Index shares, gold, silver, real estate, global bonds and inflation-linked securities all lost money. Dollar debt, usually the most popular segment within emerging markets, is also losing out to stocks now.”
“Money managers from Ashmore Group Plc to JPMorgan Chase & Co. and UBS Group AG have been making a bull case for emerging-market equities in 2021 as they expect the group to be the prime beneficiary of the post-coronavirus economic rebound. Asia’s relative success in containing the pandemic, vaccine breakthroughs in China, India and Russia, as well as renewed demand for commodities and Joe Biden’s $1.9 trillion stimulus plan are underpinning the optimism.”
“Analysts have been raising earnings estimates for emerging-market companies faster than for rich nations. After a meltdown in March 2020, profit forecasts have recovered a net 4% in the developing world. Projections are little changed in the U.S., while they are still 11% lower in Europe.” Bloomberg reports.
Oil Prices Hit 14 Month High, Saudi Preaches Caution, India Worries
“Oil prices jumped more than 2% on Friday, hitting their highest in nearly 14 months after OPEC and its allies agreed not to increase supply in April as they await a more substantial recovery in demand.”
“Brent crude futures were up $1.52, or 2.3%, at $68.26 a barrel by 1008 GMT and U.S. West Texas Intermediate (WTI) crude futures climbed $1.30, or 2%, to $65.13 as both remained on track for weekly gains.”
“Both contracts surged more than 4% on Thursday after the Organization of the Petroleum Exporting Countries (OPEC) and allies, together known as OPEC+, extended oil output curbs into April, granting small exemptions to Russia and Kazakhstan.”
“Investors were surprised that Saudi Arabia had decided to maintain its voluntary cut of 1 million bpd through April even after the oil price rally of the past two months on the back of COVID-19 vaccination programmes around the globe.”
“‘An array of factors coalesced to bring the parties together, but the resultant price increase will almost certainly push the parties to change their minds when they meet again on April 1,’ Citigroup said in a note.”
“Goldman Sachs raised its Brent crude price forecast by $5 to $75 a barrel in the second quarter and $80 a barrel in the third quarter of this year. UBS raised its Brent forecast to $75 a barrel and WTI to $72 in the second half of 2021.” Reuters reports.
“‘Prudence dictates caution,’ Saudi Oil Minister Prince Abdulaziz bin Salman told reporters on Thursday,” The National reports. "You can't keep preaching cautiousness, without demonstrating cautiousness. And because of that we have elected to keep the voluntary cuts until April. We are not in a hurry to bring it forward. We are not fast, we are not furious,’ he added.”
“‘I don't care about prices. I care about discipline,’ Prince Abdulaziz said following the meeting. The group achieved an overall conformity of 103 per cent in February, according to Opec.”
“Prince Abdulaziz dismissed the idea of crude riding a super cycle telling reporters ‘I'll believe it when I see it’. Opec's continued reluctance in raising its production as prices near $70 per barrel has prompted calls from consumers such as India. The country's petroleum minister, Dharmendra Pradhan, publicly urged the group to stabilise oil prices and bring it to a level feasible to large energy consumers like India.”
"‘We have to build roads, railways, airports, big projects. We have to create jobs, we have to regulate the economy. At that point of time, we need a reasonable price for our energy,’ he told CeraWeek by IHS on Wednesday.
“Opec+ will convene its JMMC next on March 31 and will have a ministerial meeting the following day on April 1.”
Pakistan PM Needs Army to Survive Vote, Blasts “Corrupt” Opposition
“Pakistan Prime Minister Imran Khan spent much of his election campaign in 2018 denying he was a military stooge. Yet after suffering a shocking loss in parliament this week, he turned to the nation’s powerful army chief.”
“Khan met army chief General Qamar Javed Bajwa along with the head of the military’s spy agency on Thursday after his finance minister lost a tightly fought battle for a seat in the Senate, or the upper house. The conversation with the head of the institution that has conducted numerous coups, and retains tremendous sway over policy, is likely to send a strong message to lawmakers as Khan seeks a confidence vote in parliament Saturday.”
“For the army, which has ruled the nation for about half of its existence since independence in 1947, Khan represents stability as the economy recovers from the pandemic-induced contraction. With U.S. President Joe Biden urging allies to uphold democracy, Pakistan will be keen to avoid turmoil in the region, which is already reeling from a coup in Myanmar.”
“Khan needs the support of 172 of the lawmakers to win the confidence vote. Khan’s Tehreek-e-Insaf party and allies have 178 seats in the 342-member National Assembly or lower house of parliament. However, the party-backed Finance Minister Abdul Hafeez Shaikh got 164 votes in the election on Wednesday. The members of the National Assembly vote in the Senate and the defeat prompted Khan to seek a vote of confidence and prove he still commands a majority.”
“With Pakistan looking to resume funding from the International Monetary Fund’s $6 billion bailout program last month, the army will be keen to prop up Khan.” Bloomberg reports.
Meanwhile, addressing the opposition in a nationally televised speech, Imran Khan was combative, saying: ‘My message to you all is that I will not spare anyone of you. I will rally public out of their homes, as this nation does not come out to protect the looted money. I will show you how people are gathered against corruption,”” The News International of Pakistan reports.
He went on to say: “‘I will fight against those who steal the money of the country and take it out. This country will become a great country when all these big bandits are taken to prison…My message to the Pakistan Democratic Movement [a group of 11 political parties that comprise the opposition to Khan’s PTI party] is that I don’t care if I go out of power. The government only spends money on my travel and security and the rest is borne by myself; I live in my own home. The country is facing difficult times and the people face hunger.”
“‘The opposition invested money in the Senate seat from Islamabad just to blackmail me through a no confidence motion and show as if I have lost support of the majority,’ he said. ‘They thought, that with the no-confidence motion, I will budge. But I am going to the assembly and ask my members it is your democratic right to raise your hands if I am not capable and eligible, I will respect you. And will go to the opposition. But my message to PDM leaders is that it makes no difference to me; I have not built factories or posted my relatives to key positions. I live in my own home. For I fear Allah. I saved the country’s money. I spent ten times less on my travel broad,’ he remarked.”
China’s Pursuit of Natural Gas Jolts Markets and Drains Neighbors
“China’s quest to anchor its industrial growth to cleaner energy is whiplashing global prices of liquefied natural gas, reshaping trade in the world’s fastest-growing fossil fuel and raising fears of power blackouts in neighboring economies competing for the resource.”
“A sudden confluence of global supply outages and an unusually cold winter tripled LNG prices in mid-January to a record $32.50 a million British thermal units from early December—and brought into focus China’s increasingly outsize role.”
“Underpinned by its economic boom and rising presence in LNG spot markets, Beijing’s efforts to shift from coal to gas as a fuel over the longer term has drawn ever-larger LNG imports in recent years, tightening supplies available to gas-dependent neighbors Japan and South Korea. The three economies account for 60% of the world’s LNG consumption.”
“China’s voracity worsened a natural-gas shortage in January in Japan—which China last year outstripped as the world’s largest LNG importer—that put parts of Japan at risk of blackouts. In December, China imported 7.6 million metric tons, the most ever. Utilities in Japan reported severe shortages of natural gas and averted blackouts by turning back to coal, oil and other older means of power generation.”
“Imports meet about 45% of China’s demand, which has been rising since President Xi Jinping set around 2015 decades long plans to pipe natural gas into millions of Chinese homes and factories. Beijing views natural gas as a steppingstone—a cleaner fossil fuel—in its campaign for carbon neutrality by 2060.” The Wall Street Journal reports.
Brazil Economy Contracts By a Record 4.1% in 2020
“The Brazilian economy registered a record contraction of 4.1% in 2020, as a result of the economic impact generated by the novel coronavirus pandemic, according to GDP data released this Wednesday by IBGE Brazilian Institute of Geography and Statistics.”
“This is the most significant drop in the historical series with the current methodology, which starts in 1996, surpassing the retraction of 3.5% registered in 2015.”
“The institute also informed that Brazil's GDP recovery in the third quarter of last year lost strength in the last three months of the year.” Folha de Sao Paolo reports.
“Brazil's most populous and wealthiest states are restoring lockdowns after Covid-19 hospitalizations and deaths set new records, trends that could prolong the country's economic contraction through the first half of 2021,” Argus Media reports.
“Sao Paulo, Rio de Janeiro, Minas Gerais and other states have imposed two-week lockdowns with restrictions on all non-essential businesses. Mining, construction and agriculture are among the sectors classified as essential, putting the burden of the restrictions on the retail and service sectors.”
"‘We are on the brink of the health system's collapse. Urgent and collective measures are required,’ Joao Doria, governor of Sao Paulo, Brazil's most economically important state, said yesterday when announcing the lockdown that starts on 6 March.”
“Brazil's economy shrank by 4.1pc in 2020 because of the pandemic, less than many had projected but still the worst setback on record, according to data released yesterday by the Brazilian statistics institute (IBGE).”
“Physicians are blaming the recent surge in virus deaths on mid-February Carnival celebrations. Carnival was officially cancelled in many parts of Brazil because of the pandemic but some revellers still flocked to private parties and festivities.”
“The São Paulo State Federation of Trade of Goods, Services and Tourism said that the Brazilian economy should recover the level of the beginning of the last decade only in 2023,” Rio Times reports.