Emerging Markets Monitor - December 18
Asia Stocks to Rebound in '23, China Tech Stock De-Listings Averted, IMF OK's $3B Egypt Loan, Lat-Am Stocks Rising, China Covid Surging + King Dollar Graphic
The Top 5 Stories Shaping Emerging Markets from Global Media - December 18
Stock Strategists See Asia Market Rally In 2023
Bloomberg
“The tide is expected to turn for Asian equities after two dismal years, with China’s economic reopening and a potentially weaker dollar set to drive their outperformance in 2023.”
“Regional stocks could climb 9% through the end of next year, according to the average of 11 estimates in a Bloomberg-compiled survey of strategists. Most of the negatives that have weighed on Asia — from a supercharged dollar, China’s Covid lockdowns, and a chip downcycle — are fading, leading to better earnings prospects.”
“‘The environment in Asia equities is one of several pivots happening,’ said Frank Benzimra, head of Asia equity strategy at Societe Generale SA, adding that he expects a rebound in earnings to take place from the second quarter.”
“The MSCI Asia Pacific excluding Japan Index has slumped 19% so far in 2022 following a 4.9% drop in 2021, widening its underperformance versus global peers. Foreign investors have pulled more than $50 billion from emerging markets outside China this year.”
“Although none of the survey participants see Asian stocks dropping next year, there was a wide dispersion in forecasts — from flat returns to a 15% jump — underscoring caution over global recession risks and a rocky China reopening. While regional gauges may beat the S&P 500 Index according to strategist surveys, they will fall short of recouping their own 2021 peaks even if the most bullish estimate comes true.” Bloomberg reports.
Delisting Risk for China Tech Stocks in the U.S Averted - For Now
CNN Business
“US regulators have gained full access to the audits of Chinese companies for the first time, reducing the threat that tech giants such as Alibaba (BABA) and JD.com (JD) could be kicked off US stock exchanges.”
“The announcement marks a major breakthrough in a yearslong standoff over how Chinese companies listed on Wall Street should be regulated. It will come as a huge relief for these firms and investors who have invested billions of dollars in them.”
“‘For the first time in history, we are able to perform full and thorough inspections and investigations to root out potential problems and hold firms accountable to fix them,’ Erica Williams, chair of the Public Company Accounting Oversight Board (PCAOB), said in a statement Thursday, adding that such access was ‘historic and unprecedented.’”
“…There are more than 260 Chinese companies listed on US stock exchanges, with a combined market capitalization of more than $770 billion, according to recent calculations posted by the US-China Economic and Security Review Commission.” CNN Business reports.
IMF Board Approves $3 Billion Loan to Egypt
The National
“The International Monetary Fund’s executive board has approved a $3 billion support package for Egypt, whose economy has been hit hard by the fallout from the Russia-Ukraine war and the coronavirus pandemic.”
“The approval of the 46-month loan will catalyse additional funding of about $14 billion, the Washington-based lender said in a statement.”
“The package provides for a flexible exchange rate regime and enhanced social safety nets to protect the most vulnerable among Egypt’s 104 million people.”
“The agreement, reached at a staff level on October 27, provides for an immediate disbursement of nearly $350 million to help support Egypt's balance of payments and its general budget, according to the statement.”
“In a statement issued on Saturday, Egypt's Cabinet said the deal with the IMF amounted to ‘additional confirmation of the support by the international community and development partners of the Egyptian economic reform programme.’ The National reports.
Infographic of the Week - King Dollar
From Visual Capitalist
Latin America Stocks Rising. Time to Buy
Barron’s
“While the rest of the world’s stock markets have fallen in 2022, the iShares MSCI Brazil exchange-traded fund has gained 16.5%. There are similar positive performances from Mexico and Chile ETFs.”
“After ugly returns in 2020-21 and a terrible 10 years overall, Latin America is back. Not that Wall Street seems to have noticed. The average mutual fund in Morningstar’s Diversified Emerging Markets fund category has only a 12% portfolio weighting in the region. By contrast, Asia, which is performing poorly, has a 74% weighting. Little wonder that the average emerging markets fund is down 19% this year.”
“…There are reasons to be bullish. ‘The rally in global commodities has benefited the Latin American region, which is a large exporter of metals and soft commodities like soy and corn,’ explains Will Pruett, manager of Fidelity Latin America.”
“Commodity purchases have buoyed Latin American currencies. ‘Also, most Latin American markets have been ahead of the curve in raising [interest] rates,’ Pruett adds. ‘As an example, Brazil has taken its overnight rate from 2% to nearly 14% since starting its hike cycle about 18 months ago. As a result, we are now to see the first signs of easing inflation in Brazil, Mexico, and Chile.’” Lewis Braham writes.
Covid Outbreak Throws Chinese Factories, Supply Chains Into Chaos
Financial Times
”The coronavirus sweeping across China is causing widespread business disruption as staffing shortages threaten to close down factory production lines and truck drivers fall ill, bringing chaos to supply chains.”
“The Omicron variant of the virus has begun to run rampant through several big cities since the sudden U-turn on president Xi Jinping’s former zero-Covid policy of containment earlier this month. The surge in infections is largest in the capital Beijing, where more than half the 22mn population is infected, according to some estimates.”
“Many office workers have begun to work from home but some factories are becoming thinly staffed as workers call in sick. Business owners and executives said this was causing increasing disruption to production and supply chains.”
“Companies have been left with no direction on how to handle the sudden surge in cases, after previously operating under strict guidelines handed down by local governments. Factory bosses are now either loosening all controls or isolating workforces to keep production lines functioning.”
“Jörg Wuttke, the president of the EU Chamber of Commerce in China, said it would be increasingly untenable for manufacturers to rely on the closed loop model. He said the huge scale of the exit wave and the lack of measures to suppress its spread meant these strategies would not work anymore.”
“There is some evidence that the disruption will be shortlived. Apple contract manufacturer Foxconn’s Zhengzhou campus — the world’s largest iPhone factory — is among those shedding its notorious restrictions and production is rebounding, according to one employee.”
“You have power over your mind - not outside events. Realize this, and you will find strength.” - Marcus Aurelius