Discover more from Emerging World
Emerging Markets Daily - March 7
EM Sees First Outflows in Months, Rising Bearish Bets on Korean Stocks, Saudi Stocks Surge, Chinese Billionaires Ramp Up EV Plans, AirAsia Eyes Air Taxis
Emerging Markets Suffer First Outflows Since October
“Fears over rising US interest rates have spilt into emerging markets, prompting investors to pull money from stocks and bonds in an abrupt end to what had been a months-long streak of inflows.”
“A daily tracker of cross-border flows prepared by the Institute of International Finance shows that foreign investment turned negative in emerging market equities at the end of last week and in debt this week, resulting in total daily outflows for the first time since October.”
“The turnround comes as a sharp rise in US borrowing costs, which has spread to many other large developed markets, has brought back fears of the 2013 ‘taper tantrum’, when the signal that the Federal Reserve was considering withdrawing its stimulus weighed heavily on emerging markets.”
“‘Flows have turned negative and that’s really a surprise, as we were still early on in the rebound from a cataclysmic 2020,’ said Robin Brooks, the IIF’s chief economist. ‘The honeymoon that began after positive vaccine headlines in November is unfortunately over. We are in a repeat of the 2013 taper tantrum.’”
“The IIF’s tracker uses daily data available for assets in 30 emerging economies. It showed total inflows of $20bn in January, compared with more than $50bn in the IIF’s more comprehensive but less timely monthly series. Over the past week, the tracker recorded daily outflows of about $290m, compared with daily inflows of about $325m in February. Emerging market assets typically offer higher returns than their developed market peers to compensate for the greater perceived risk of holding them. When yields rise in developed markets, that dents their allure.” The Financial Times reports.
Institutional Investors Bet on Bearish Turn in Korean Stocks
“Institutional investors bought over 120 billion won ($106 million) in the leveraged inverse exchange-traded fund (ETF) that tracks the performance of the local benchmark KOSPI over the past two weeks, in anticipation of a bearish turn in the months-long bullish stock market, data showed Sunday.”
“The derivative financial product is designed to boost returns 2:1 compared to the KOSPI when the market is falling. For example, if the KOSPI dips by 2 percent, a two times-leveraged inverse ETF will deliver a 4 percent return to the investor excluding fees and commissions, without the investors having to conduct short selling.”
“Data from Korea Exchange (KRX) showed institutional investors bought 120.2 billion won KODEX 200 Futures Inverse 2X from Feb. 22 through March 5, the third-largest amount of products bought by them following shares of POSCO (182.1 billion won) and Lotte Chemical (145 billion won).”
“This far exceeds the amount of major large-cap shares net bought by them including SK Hynix (115 billion won), Shinsegae (86.6 billion won), KT (74.3 billion won) and S-Oil (69.5 billion won).”
“Foreign investors also net bought 33.4 billion won worth of the derivative inverse product in the same period. The products scooped up by the two large players that account for a respective 50 percent and 30 percent of the local stock market came from individual retail investors who sold a combined 152.5 billion won over the past two weeks.”
“Yet some argue that the large purchase volume is explained in part by a move to maintain the number of securities available in the market by liquidity providers (LP). They act as a middleman by buying a large number of securities issued by firms and make them available for individual retail investors to buy, regardless of investment positions.”
“Some investors expect a possible bearish turn given that the KOSPI has largely plateaued over the past two months, with the previous high of 3,266.23 points set on Jan. 11 yet to be broken.” Korea Times reports.
Saudi Stocks Surge As Oil Prices Rise
“Saudi stocks rose the most in the Gulf [on Sunday], tracking a surge in oil prices after OPEC+ shocked markets with a decision to keep supply in check. Saudi Aramco saw the biggest gain in six months.”
“The Tadawul All Share Index climbed as much as 1.4%, trimming the increase to 1.2% at the close. Saudi Aramco, Al Rajhi Bank and Saudi Basic Industries were the biggest contributors to the advance. Benchmarks in Kuwait, Oman and Bahrain also rose, while those in United Arab Emirates slipped.”
“The OPEC+ decision represents a victory for the government in Riyadh, which has advocated for tighter curbs to support prices. Oil, the kingdom’s biggest export, jumped last week to $69.36 per barrel in London, the highest since May 2019. Goldman Sachs Group Inc. raised its second- and third-quarter forecasts for Brent to $75 and $80 a barrel, respectively.”
“Saudi Aramco rose as much as 2.3%, the most since Sept. 2. Bank of America Corp. said the world’s largest oil company is ‘uniquely positioned’ to meet potential resurgence of oil demand, and could generate close to $100 billion in free cash flow next year should bullish assumptions materialize.” Bloomberg reports.
“‘At maximum sustainable capacity of 12 million barrels per day (bpd) and proven ability to produce even more, Aramco is one of the few companies globally that can substantially boost output without committing additional capex,’ the bank said on Sunday,” Arab News reports.
“Oil prices jumped about 3 percent on Friday, to reach their highest in more than a year after OPEC and its allies decided not to increase supply in April.
Brent crude was up by about 4 percent over the week while WTI oil gained 7 percent.”
“The rapidly improving outlook for the sector has also sweetened the dividend out look for the company if the oil price remains within the $60 to $75 per barrel range, the bank said.” Arab News reports.
Chinese Billionaires Ramp Up Electric Car Push
“A clutch of Chinese billionaires have upped the ante and ramped up the development and production of next-generation cars.”
“Among them are Robin Li, the founder of Baidu, the Chinese search-engine giant, and entrepreneurs William Li and He Xiaopeng, who have set up NIO and Xpeng, respectively, companies that viewed as Tesla’s biggest rivals in mainland China.”
“Elsewhere, Li Shufu, a guru of the country’s automotive industry, has unveiled plans to transform Zhejiang Geely Holding, one of China’s biggest carmakers and owner of Sweden’s Volvo Cars, into an electric-vehicle (EV) powerhouse. In fact, Baidu and Geely have partnered up to design new EVs with the aim of shaking up the sector.” South China Morning Post reports.
AirAsia Eyes Air Taxi Business by 2022
“AirAsia Group, one of Asia's biggest low-cost airlines, plans to launch a flying taxi service as soon as next year as the company looks to diversify its business amid pandemic-driven headwinds for the global aviation industry, its chief executive said.”
“‘We are doing drones today and AirAsia is not far away from the air-taxi [business]’, Tony Fernandes, chief executive of AirAsia Group, said during an online discussion as part of Malaysia’s Youth Economic Forum 2021. ‘We are working on that.’”
“The Kuala Lumpur-based company is about a year-and-a-half away from launching its air-taxi operations, which will likely be a quadcopter with four seats, he said. ‘We have pilots, we understand propulsion, we understand navigating the skies, so we have a team working on that right now,’ he said.”
“Air taxis have captured the interest of both investors and airlines, but the industry is at a nascent stage and it is yet to be seen if they can be mass produced to decarbonise air travel and ease congestion. Technology start-ups and major corporations including Boeing, Hyundai, Airbus, Toyota and Uber are in a race to develop commercially viable air taxis.” The National reports.