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Emerging Markets Daily - March 9
EM Sentiment Drags, Stocks Near Correction, Turkish Lira Continues Fall, India to Overtake China as Fastest Growing Major Economy, Oil Price Continue Rise, Hin Leong to be Liquidated
The Top 5 Emerging Markets Stories - March 9
EM Stocks on Edge of Correction Territory
“Emerging-market stocks were on the edge of correction territory on Tuesday, as the recent rise in global bond market borrowing costs and the dollar tempered appetite for risk.”
“MSCI’s 27-country EM index, which contains nearly 1,400 companies, had rallied more than 90% from last year’s COVID-crisis lows, but it has been sliding since mid February as global equity markets have turned.”
“A 2.2% fall in one of China’s main markets briefly pushed the EM index beyond the 10% peak-to-trough threshold that analysts define as a market correction. But a 2.3% rally in Russian stocks and 1.2% rebounds in Poland and Turkey lifted it just enough to provide a reprieve.”
“Many of the world’s big investment banks and funds were backing emerging-market assets to have a strong year this year as economies bounce back from COVID, but it has been a difficult start so far.”
“The drop in stocks is more than double that of MSCI’s main global index. JPMorgan’s local currency debt index has returned -5.4% since the start of the year, while the equivalent hard-currency debt benchmark is down 4.6%, its worst start to a year in quarter of a century.”
“MSCI’s index of emerging-market currencies also saw its sharpest fall on Monday since the pandemic-driven drops a year ago.” Reuters reports.
“The prospect of rising inflation and U.S. Treasury yields may damp emerging-market sentiment, reflected by a slump in Chinese assets despite trade data that pointed to a speedier global recovery from last year’s lockdown.” Bloomberg reports.
“Exports from the world’s second-biggest economy soared in the first two months of the year, data showed Sunday, reflecting a recovery in external demand and providing a much-needed boost for risk assets after a turbulent start to March. Meantime, the U.S. Senate passed a $1.9 trillion stimulus package Saturday that may offer an additional spur to countries such as Mexico whose economies are most sensitive to U.S. growth.”
“‘All fixed-income assets face a challenging market as rates and inflation become more of a threat,’ said Abdul Kadir Hussain, Dubai-based head of fixed-income asset management at Arqaam Capital. ‘Emerging markets are no different. We have already seen outflows from emerging-market fixed-income funds, and I suspect that will continue in the near term.’”
“Last week, exchange-traded fund investors withdrew money from emerging-market bonds, while adding to stocks, as they weighed the prospects of stronger global growth and a pickup in U.S. yields.”
Turkey’s Lira Nears Two Week Skid As Inflation Rises
“Turkey’s lira skidded nearly 2.3% on Monday and has fallen in 10 of the last 11 sessions as domestic inflation, global bond yields and oil prices have all risen, setting up a test of the central bank’s tight policy pledge.”
“Wall Street banks Citigroup and JPMorgan were the latest to predict Turkey would raise interest rates next week to stabilize the currency and address inflation, which rose above 15% last month.”
“After lifting rates to 17% in December, central bank Governor Naci Agbal said on Friday: ‘We are going to take firm steps’ to stabilise inflation. He added ‘a paradigm shift’ happened in November when he took the bank’s reins.”
“But while the lira had rallied some 20% since early November, it has given back half those gains in the past two weeks. Turkey already has the highest policy rate of any advanced or developing country, and rate cuts were expected later in the year. Agbal’s comments on Friday, in a blog post, were taken by some as a sign the bank will first tighten more.” Reuters reports.
India Set to Be Fastest Growing Large Economy This Year
“After plunging into recession for the first time in nearly a quarter of a century, India's economy should come roaring back to life in 2021.”
“India's gross domestic product is projected to expand by 12.6% during the country's fiscal year starting in April, according toa forecast released Tuesday by the Organization for Economic Cooperation and Development.”
“If that level of growth is realized, it would allow India to reclaim its status as the fastest growing major economy — stealing the title back from China, which the OECD expects will deliver growth of 7.8% this calendar year after dodging a recession in 2020.”
“India's economy recorded a rise in gross domestic product of 0.4% in the final three months of 2020, ending its recession. For 2020 as a whole, the Indian economy contracted by about 7%.” CNN Business reports.
Oil Prices Continue Rise on Global Recovery Expectations, US Stimulus
“Oil prices rose on Tuesday on expectations of a recovery in the global economy after U.S. Senate approval of a $1.9 trillion stimulus bill and on a likely drawdown in crude oil inventory in the United States.”
“But a stronger dollar and receding fears of oil supply disruption from Saudi Arabia after an attack on its oil facilities capped price gains. Brent crude futures for May rose by 32 cents, or 0.5%, to $68.56 a barrel by 0125 GMT, while U.S. West Texas Intermediate (WTI) crude for April rose 19 cents, or 0.3%, to $65.24.”
“‘Fundamentals remain incredibly supportive, especially with Saudi Arabia in full control pursuing a tight oil policy,’ Stephen Innes, chief global markets strategist at Axi said in a note. Brent is currently holding up above $68, suggesting speculators are likely dipping their toes back in after yesterday’s chaos.” Reuters reports.
Storied Asian Oil Trader, Hin Leong, To Be Liquidated
“The High Court has given the green light for the winding up of Hin Leong Trading, marking the end of the road for the collapsed oil trading giant after nearly a year of restructuring…”
“Once one of Asia's top oil traders, Hin Leong collapsed last year after the oil price plunge triggered a default that exposed years of hidden losses and alleged fraud by its founder Lim Oon Kuin - better known as O.K. Lim - as well as his son Evan Lim Chee Meng and his daughter Lim Huey Ching.”
“PwC filed suit last August to force Lim and his two children to repay the US$3.5 billion debt and and $90 million in dividends that they allegedly paid themselves even though their company was insolvent. PwC alleged that they breached their fiduciary duties as directors and engaged in fraudulent trading.”
“The alleged fraudulent activity included ‘the creation of fictitious gains to conceal accumulated trading and other losses, the forgery of documents, the manipulation of Hin Leong's accounts through irregular accounting entries, the overstatement of Hin Leong's inventory and the obtaining of financing through improper means’, according to the lawsuit.”
“HSBC, Hin Leong’s largest creditor, with about US$600 million owing, also took legal action against the family, followed by Bank of China. According to estimates stated in court filings last year, DBS, ABN Amro Bank and OCBC Bank are owed about US$200 million to US$300 million each.” Singapore Straits Times reports.