Emerging Markets Daily - Sept. 19-20
US Markets Join Global Fall on Evergrande Crisis, Asian Markets Roiled, US Opens Up Travel to Vaccinated, Costa Rica Warns of EM Instability, Africa Digital Inclusion
The Top 5 Stories Shaping Emerging Markets from Global Media - Sept 19-20
U.S Market Joins Global Sell-off on China Evergrande Crisis Fears
Wall Street Journal
“An early decline on Monday put U.S. stocks on track for their worst day in weeks as worries about China’s indebted property sector spurred a broad retreat in riskier assets.”
“The S&P 500 dropped 2.0%, after the broad stocks gauge posted its biggest two-week decline since February. The Dow Jones Industrial Average lost 1.8%, or around 620 points, dragged down by shares of Caterpillar and financial heavyweights like Goldman Sachs. The technology-focused Nasdaq Composite Index fell 2.5%.”
“These levels point to U.S. stock indexes having their worst day in weeks. The S&P 500 hasn’t fallen more than 1% since Aug. 18, when it fell by just under 1.1%.”
“‘It’s a surprise Monday open,’ said Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management. ‘We are definitely being a little more cautious at this point.’”
“The declines were broad-based, with 10 out of the S&P 500’s 11 sectors declining. The retreat came amid concerns over property developer China Evergrande Group. Market participants increasingly believe that Beijing will let Evergrande fail and inflict losses on its shareholders and bondholders. The company’s debt burden is the biggest for any publicly traded real estate management or development company in the world.”
“The concerns over Evergrande struck as investors had already grown more cautious about the outlook for stocks, after a booming rally for much of the year. Money managers have said valuations look elevated and pointed to signs that the economic recovery in the U.S. has lost steam amid the spread of the Delta variant of the coronavirus.” The Wall Street Journal reports.
China Property Fear Spreads Beyond Evergrande, Roils Asian Markets
“Growing investor angst about China’s real estate crackdown rippled through markets on Monday, adding pressure on Xi Jinping’s government to prevent financial contagion from destabilizing the world’s second-largest economy.”
“Hong Kong real estate giants including Henderson Land Development Co. suffered the biggest selloff in more than a year as traders speculated China will extend its property clampdown to the financial hub. Intensifying concerns about China Evergrande Group’s debt crisis dragged down everything from bank stocks to Ping An Insurance Group Co. and high-yield dollar bonds. One little-known Chinese property developer plunged 87% before shares were halted.”
Hong Kong’s benchmark Hang Seng Index slumped 3.3%, its biggest loss since late July. The selling also spilled over into the Hong Kong dollar, offshore yuan and S&P 500 Index futures. Holiday closures in much of Asia may have exacerbated the volatility, traders said.
“Faced with uncertainty over how far Xi is willing to go with his market-roiling campaigns to achieve 'common prosperity’ and rein in overindebted companies, many investors are choosing to sell first and ask questions later. Interest payment deadlines this week on several Evergrande bonds and bank loans add another layer of risk as market participants brace for what could be one of China’s largest-ever debt restructurings.”
“‘The price action across several asset classes in Asia today is horrendous due to rising fears over Evergrande and a few other issues, but it could be an overreaction due to all of the market closures,’ said Brian Quartarolo, portfolio manager at Pilgrim Partners Asia.” Catherine Ngai and Ishika Mookerjee reports.
US Lifts Restrictions for Vaccinated Travelers
“The U.S. said Monday it will lift coronavirus travel restrictions for fully vaccinated travelers, reopening its borders for the first time in more than a year.”
“The head of the White House’s COVID-19 Response Team, Jeff Zients, said that foreign nationals will have to show proof of vaccination and proof of a negative COVID test taken three days prior to boarding an airplane. The administration is targeting November to introduce the new policy.”
“Zients said the U.S. Centers for Disease Control and Prevention (CDC) will determine which vaccines will be accepted.
“‘This new international travel system follows the science to keep Americans and international air travel safe,’ Zients said. ‘By requiring foreign nationals to be fully vaccinated in order to fly to the United States and in implementing additional strict safety protocols, we will protect Americans here at home and enhance the safety of international travel.’”
“The White House decision answers a growing EU grievance — that it had opened its skies to non-essential U.S. travelers, but that Washington wasn't reciprocating for Europeans…”
“The news of the policy change was welcomed by an airline industry battered by the pandemic and which has been hoping for a return to normalcy on the lucrative transatlantic route.”
“European airline lobby Airlines for Europe (A4E) said it ‘applauds’ the decision. ‘After an 18-month travel ban, this decision will give a much-needed boost to trans-Atlantic traffic and tourism on both sides of the Atlantic and — most importantly, reunite families and friends just in time for the holidays,’ the group said in an email. ‘With more than 70 percent of adults fully vaccinated in Europe, we’re happy to see the evidence-based policymaking we’ve been asking for finally coming to fruition.’” Politico EU reports.
Costa Rica Says Developing Countries Face Further Instability Without More Aid
“Developing countries are at risk of sliding into instability under the weight of the pandemic without more financial support from richer nations and the IMF, Costa Rica’s president has warned. Costa Rica, which has a population of just over 5m people, is known for eco-tourism. It has suffered an increase in its own debt-to-GDP ratio in recent years.”
“President Carlos Alvarado said that lower income and higher social spending caused by the pandemic were squeezing governments in the developing world and pushing society to its limit.”
“‘It’s put a lot of economies that were already indebted under a lot more pressure,’ he told the Financial Times. ‘There’s also a lot of social demands, there’s a big risk of economic, political and social instability in developing economies.’
“The UN has warned of a global debt sustainability crisis in the wake of the coronavirus pandemic, which pushed an estimated 100m more people into poverty in 2020, according to the World Bank. The IMF has offered new support by issuing special drawing rights, or SDRs, and debt service relief.” Christine Murray reports.
MTN, Flutterwave Join Hands, Expand Africa Digital Inclusion
“Just months ago, telecommunications firm Safaricom – famous for its Mpesa and other digital offerings – made its Ethiopian entry. Now, its regional peer, MTN, has signed a partnership deal with Flutterwave that will enable businesses in Cameroon, Côte d’Ivoire, Rwanda, Uganda and Zambia to make cash transfers via MTN Mobile Money (MoMo). Both moves are big wins for financial inclusion in Africa.”
“This digital move is primed to plug millions of unbanked people in those countries into mainstream financial services and prop up businesses especially those in remote areas.”
“MTN and Flutterwave’s deal follows Safaricom’s entry into Ethiopia earlier this year, giving it access to a market of more than 110 million potential subscribers.”
“Safaricom, East Africa’s biggest telco, is gearing up for the commercial launch of operations in Ethiopia in 2022, with its subsidiary there announcing it will invest $8.5bn over ten years to steer digitalisation. The firm aims to build a team of 1,000 employees by June next year.”
“Our ongoing recruitment process is intentionally guided by the promise of a digital future for the people of Ethiopia,” Anwar Soussa, Managing Director of Safaricom Ethiopia said last week.
MTN MoMo is a fintech platform providing individuals and businesses with an electronic wallet, for contactless financial services like electronic transfers and payments. Seth Onyango reports.
“If your dreams do not scare you, they are not big enough.” – Ellen Johsnon Sirleaf, President of Liberia, Nobel Peace Prize winner