Emerging Markets Monitor - August 5
China Warships Near Taiwan, Offshore Investors Dump $3.1B in China Stocks, Mark Mobius on EM Today, The Battle for LNG Supplies, Pakistan Rupee Rises Again
The Top 5 Stories Shaping Emerging Markets from Global Media - August 5
China Sends Warships Near Taiwan, Cuts Off Defense Talks with the U.S
Bloomberg
“China on Friday continued its most provocative military drills in decades and cut off defense talks with the US, as relations between the world’s biggest economies deteriorate in the wake of House Speaker Nancy Pelosi’s trip to Taiwan.”
“A day after likely firing missiles over the island of 23 million people, China sent warships across the Taiwan Strait’s median line in the first such incursion in years. The People’s Liberation Army also sent warplanes across the US-defined boundary, Taiwan’s Defense Ministry said, the third straight day of such flights since Pelosi’s visit.”
“The Chinese Foreign Ministry announced unspecified sanctions against Pelosi and her immediate family over what it said was her ‘egregious provocation.’ Although largely symbolic, the move makes the House speaker the highest-ranking American official sanctioned by Beijing. The action was announced shortly after Pelosi left Japan after wrapping up her dramatic weeklong trip.”
“In addition to halting talks with the US on defense, China announced it would cancel a dialogue with military leaders and halt discussions on climate -- one area where the two nations had found common ground in recent years.” Bloomberg reports.
Offshore Investors Dump $3.1 Billion of Chinese Stocks in July
South China Morning Post
“Offshore investors dumped US$3.1 billion worth of mainland Chinese stocks in July, turning net sellers for the first time since March, according to exchange data.”
“They sold a net of 21 billion yuan (US$3.1 billion) worth of A shares last month, according to data from the Stock Connect, a key scheme connecting the mainland and Hong Kong exchanges. The last time mainland stocks saw net selling was in March, when 45 billion yuan worth was dumped.”
“Among the top stocks offloaded by foreign investors were 13.8 billion yuan of liquor distiller Kweichow Moutai, 14.2 billion yuan of auto and battery producer BYD and 17.9 billion yuan of battery maker Contemporary Amperex Technology. Other stocks included Tianqi Lithium and Longi Green Energy Technology.” SCMP reports
For more on Kweichou Moutai, once the world’s most valuable liquor company, see here one of our earliest Emerging World articles
Mark Mobius on Emerging Market Opportunities Today
MarketWatch
“…as the U.S. dollar as retreated from its multi-decade highs over the past month, investors, including Allianz’s Mohammad El-Erian have pointed out that valuations in emerging markets have reached ‘historically cheap’ levels.”
“Asked about his outlook for emerging- markets, Mark Mobius, a pioneering investor who helped to build Franklin Templeton’s emerging markets business before launching Mobius Capital Partners, argued that while the overall tone has been ‘generally negative’ this year, there are still plenty of opportunities to be found in the emerging-markets space.”
“…The MSCI Emerging-Market Index, a gauge that includes shares of companies from more than 20 of the world’s biggest markets in Asia, Latin America and Africa, is down 18.4% compared with the S&P 500’s 13.4% year-to-date. Over the last 10 years, MSCI’s EM index has returned just 36.9% in U.S. dollar terms, while the S&P 500 has returned 264.5%, according to FactSet data.”
“When asked about his outlook for each region, Mobius said it would be ‘impossible to generalize’ but that he sees ‘opportunities’ for investment around the world…When it comes to individual countries, Mobius said he favors India among the biggest EM players, and sees opportunities in Kenya and South Africa among smaller emerging and frontier markets.”
“Any investor looking to invest in the EM space should keep a few important prerequisites in mind. ‘The key is the foreign exchange situation and the country’s ability to pay it debts and our ability to get [U.S. dollars] out of the country when we want to liquidate holdings,’ Mobius said.”
“At the company level, Mobius looks for firms with strong pricing power and ‘little to no debt.’”
For more on Mark Mobius’ Investing Philosophy, see our Emerging World interview
“While he expects Chinese tech stocks will rebound soon, Mobius said foreign investors should approach Chinese stocks with caution. ‘There will be some recovery in those tech names but the general tone of the market is not good in view of the disastrous property market,’ Mobius said.” Joseph Adinolfi reports.
Europe and Asia Intensify Battle to Lock in Gas Supplies
Financial Times
”The battle between Asia and Europe to lock in gas supplies is stepping up a gear, heightening the risks of a further surge in prices that would add fresh fuel to the cost of living crisis.”
“Japan and South Korea, the world’s second- and third-biggest importers of liquefied natural gas, are looking to secure supplies for the winter months and beyond, out of fear of being priced out later in the year as Europe’s demand increases, according to traders.”
“The intensifying competition from Asia comes at a time when LNG, which is shipped across the sea in giant tankers, is in high demand as Europe attempts to replace natural gas delivered through pipelines from Russia.”
“Natural gas prices in Europe are already up almost five times from a year ago, which has sharply increased energy costs for consumers and dealt a painful blow to utility companies.”
“‘What we are seeing is a bit of a scramble to secure LNG cargoes through the end of this year and into 2023,’ said the chief executive of an Asia-based gas company, adding that the move was earlier than usual. ‘It hasn’t fed through so much into pricing yet, but that will come next because the late purchaser will be the ones that will bear the burden on pricing.’” The FT reports.
Rupee Appreciates Further Amid Slow Recovery from Economic Crisis
The News (Pakistan)
“The Pakistani currency gained further ground Friday against the US dollar in the interbank market as the country slowly recovers from the currency crisis amid hopes of the revival of the International Monetary Fund’s (IMF) loan programme.”
“The local unit closed at 224.04 after gaining 2.11, or 0.94%, in the interbank market. It appreciated 2.65 or 1.17% against the dollar to close at 226.15 on Thursday. Forex traders have linked the development to multiple factors and see the rupee consolidating gains, trading at 210 per dollar in the next couple of weeks.”
“…The State Bank of Pakistan (SBP) expects the IMF board to approve a staff-level agreement with the country in the third week of August. Pakistan’s currency saw its best day ever on Wednesday, when it rose by Rs9 against the US dollar. It strengthened 4% — the highest single-day gain since 1999.”
“The positive statement from the IMF, soft dollar demand from importers to make payments, and greenback selling by exporters shored up the beaten-down currency.”
“…The country’s trade deficit also fell 47% month-on-month to $2.6 billion in July, driven by a drop in imports.”
History rarely repeats itself, but its echoes never go away - Tariq Ali
yet despite the pelosi visit, tsmc is at a 1month high.
like putin, xi was waiting for a pretext to do what was going to be done regardless. although xi has also isolated himself from advisors that may offer alternative worldviews, the world hopes he realizes the total cost of actual conflict and is satisfied with loud sabre-rattling.