Emerging Markets Daily - May 14
India Stocks and Covid, Lebanon Electricity Woes, Is Now the Time to Buy EM Stocks?, High Commodity Prices Buoy Producing Countries, Russia and US Tensions Rise
The Top 5 Emerging Markets Stories from Global Media - May 14
India Stock Market’s “Surprisingly Muted” Reaction to Covid Wave
Business Standard/Bloomberg
“India’s Covid-19 crisis has so far failed to spark a deep stock selloff like that seen last year, and some asset managers point to less stringent curbs on activity as one factor at least for now.”
“Even as the nation reports more than 300,000 confirmed infections and over 4,000 deaths a day, India’s benchmark equity index has been moving in line with regional peers. The S&P BSE Sensex index has declined 6.6% from a mid-February peak, about as much as the MSCI AC Asia Pacific index. That compares with a 23% tumble in the Sensex in March last year when the coronavirus pandemic started to rage globally.”
“The surprisingly muted stock market reaction to India’s virus disaster can also be seen in net outflows of foreign investors, which totaled about $1.5 billion in April versus $8.4 billion during the height of the rout last March. They turned net buyers of Indian equities this week after four straight weeks of outflows. More limited and regional lockdown measures being implemented by state governments have prevented a slide in economic activity like last year, but the risk is that the outbreak may prompt a sharp escalation in restrictions again.” India’s Business Standard and Bloomberg report.
Turkish Firm To Shut Down Lebanon Electricity Supply On Payment Dispute
Arab News/Reuters
“Turkey’s Karpowership, which provides electricity to Lebanon from two barges, said on Friday it was shutting down supplies over payment arrears and a legal threat to its vessels as the nation grapples with a deep economic crisis.”
“The company, which supplies 370 megawatts (MW), or about a quarter of Lebanon’s current supply, told the government this week it would have to shut down unless there were moves toward settling the issues.”
“The shutdown threatens longer daily power cuts across the heavily indebted nation, which did not have enough capacity to meet demand even before Karpowership’s move on Friday.”
“Many people in the country, which has seen its currency collapse since a crisis erupted in late 2019, rely on private generators or struggle for many hours a day without power...”
“The source, speaking on condition of anonymity, said arrears exceeded $100 million, and said the government had not sought talks to resolve the arrears despite the firm’s repeated appeals to avert a shutdown.” Arab News/Reuters report.
Is Now a Good Time to Buy Emerging Markets Stocks?
Financial Times
“At the height of a pandemic, as growth stutters across the developing world and governments struggle to replicate the success of vaccine rollouts in advanced economies, it may seem odd even to pose such a question. Yet, it seems to be one that many investors are not only asking, but answering with a ‘yes’.”
“The number and value of emerging market-focused exchange traded funds (ETFs) and similar products — tradeable funds that typically appeal to retail investors — have risen remarkably during the coronavirus crisis…”
“What’s more, retail investors seem attuned to strengths and weaknesses among the emerging markets (EMs), with their eyes drawn less by problem-hit Brazil than by the huge energies of China…Deborah Fuhr, US-based founder of ETFGI, says many retail investors, with time on their hands during the pandemic, have taken an interest in global investment themes, such as Chinese technology stocks, especially when they are discussed on television.”
“Retail investors are riding on the back of a broader institutional surge into EMs. Data from industry watcher Morningstar shows that investors pumped more than $100bn into EM stocks and bonds in the nine months to the end of March, more than making up for the roughly $44bn they withdrew in the first half of last year as the pandemic took hold...”
“Emerging markets provide about three-quarters of global economic growth, but their equities have lagged behind the S&P 500 index of US stocks for much of the past decade...”
“There is a long history of investors hunting for profit in undeveloped economies — whether in Latin American railways, South African gold or Indonesian rubber. The modern story of EMs starts in the 1980s, when fund managers in the UK and other rich countries sought to take advantage of the high returns on offer from fast-growing countries in Latin America, south-east Asia and other parts of the developing world.”
“The countries classified as emerging markets have changed almost beyond recognition since then. Today’s MSCI EM index of equities in 27 countries — the most widely-followed benchmark — includes some, such as South Korea, Taiwan and the Czech Republic, that have made such progress that few outside the index-driven investment community would regard them as any less developed than industrialised economies.”
“But while the landscape has changed, the proposition remains the same: emerging markets, as they catch up with countries in the developed world, will grow more quickly, offering greater rates of return on investments. The downside is that such growth, and the returns, can be highly erratic.” Jonathan Wheatley reports.
High Commodity Prices Offer Windfalls To Producing Countries
Wall Street Journal
“Higher commodity prices are delivering economic windfalls to countries that supply metals vital to the global recovery from the pandemic, though the boom could still mask problems like high infection rates and slow vaccine rollouts.”
“Prices of iron ore and copper both hit record highs this week as the trillions of dollars of stimulus deployed world-wide push up demand for metals. It is a case of history repeating itself for exporters such as Australia and Chile, which benefited from heavy infrastructure spending by China and other countries striving to recover from the financial crisis more than a decade ago.”
“Rising prices help commodity-producing countries by delivering more tax revenue, which can be used to pay for healthcare and other economic-support measures that were made necessary by the pandemic. By borrowing less, countries can be better insulated against future economic shocks. Higher commodity prices can be an engine for local stock markets and drive up profits for mining companies such as BHP Group Ltd. and Rio Tinto PLC, which then pay out large dividends to shareholders.”
“Oil producers, from the U.S. to Russia to countries in the Middle East, could benefit from a similar trend…One key oil market benchmark, Brent crude, is up more than 30% this year.”
“Still, governments that bet on sustained revenue windfalls from high commodity prices to increase short-term spending are vulnerable if prices fall. A boom in commodity prices also risks stoking inflation around the world. Policy makers may need to intervene to prevent bubbles from forming, including by raising interest rates, even when economic recoveries are fragile.” David Winning and James Glynn report.
Geopolitics: Russia, US Tensions Rise Amid More Diplomatic Expulsions
bne IntelliNews
“As the tit-for-tat diplomatic clash between Russia and the US continues, the Kremlin has expelled senior diplomat and the spokeswoman for the US embassy in Moscow in the same week as the US embassy stopped issuing visas to Russians.”
“The US embassy confirmed that Rebecca Ross, who is the official spokeswomen for the embassy, has been made persona non grata and must leave the country. In all, Russia has ordered ten diplomats home as a retaliation following the US imposition of sanctions on April 15.”
“The Kremlin has also banned Russian nationals from working at the embassies and consulates of ‘unfriendly countries’ that of course includes the US. As the Moscow embassy is one of the largest US embassies in the world about half its staff are local hires and do much of the day-to-day work, including working in the consular section issuing visas. With the departure of the local staff the US embassy says it is no longer able to process visa applications and has suspended the issue of visas for all but emergency cases…”
“The US also expelled 10 diplomats from Washington as part of the April sanctions decision, claiming they were spies. The US sanctions also named 32 Russians accused of interfering in the 2020 presidential election as well as imposing restrictions on US investment into Russian Ministry of Finance ruble-denominated OFZ treasury bills.” bne IntelliNews reports.