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Emerging Markets Monitor - February 22
Tencent Under Fire From ESG Investors, BlackRock Bullish on EM, China Tech's Price Wars, Pakistan Nears IMF Bailout, Xi Preps for Moscow Visit and Putin Talks
The Top 5 Stories Shaping Emerging Markets from Global Media - February 22
Tencent Becomes a Can’t Touch Stock for ESG Investors
“Dozens of ESG funds sold more than $1 billion worth of Tencent Holdings Ltd. shares in the past six months, as concerns about Chinese censorship and regulatory risks grew.”
“Sustainalytics, an ESG research and ratings company, in late August downgraded Tencent to the category of ‘non-compliant’ with UN principles. Since then, funds run by AXA Investment Managers SA, Candriam and Storebrand Asset Management sold their stakes; among ESG funds in Europe, more than 40 sold Hong Kong-listed shares valued at $1.2 billion, according to data compiled by Bloomberg.”
“Though many ESG investors still own Tencent and other Chinese internet companies, the exits illustrate how some are grappling with challenges posed by the nation’s record of surveillance and suppression of free speech, including on platforms like Tencent’s WeChat. The government’s crackdown on technology firms has also called into question the viability of investing in the sector in recent years.”
“‘Censorship and surveillance were growing, and expanding to regions like religion, LGBT issues, the Ukraine war, and Covid,’ said Simon MacMahon, global head of ESG research for Sustainalytics, a unit of Morningstar Inc. Chinese internet companies Baidu Inc. and Weibo Corp. were also downgraded. The three firms ‘play a significant role in that,’ he said in an interview.” Bloomberg reports.
BlackRock Overweights EM Stocks, Treasuries
“BlackRock Investment Institute raised U.S. short-term government bonds as well as Chinese and other emerging market stocks to ‘overweight’ on Tuesday, saying investors were realizing that the U.S. Federal Reserve may have to become more aggressive in its campaign to subdue inflation.”
“Macroeconomic data in recent weeks has pointed to a resilient economy with inflation stubbornly far from the Federal Reserve's 2% target.”
“…It also said it was going ‘overweight’ on Chinese and other emerging-market stocks on its six- to 12-month horizon - a bet on China's economic recovery after Beijing jettisoned its strict ‘zero COVID’ policy in December.”
“…The investment management company said it preferred emerging markets over domestic equities due to ‘China’s powerful restart, peaking EM rate cycles and a broadly weaker U.S. dollar.’”
“BlackRock also warned that geopolitical risks related to China had increased, and that risks remained related to regulatory intervention. China's blue-chip CSI300 Index has climbed 7% so far in 2023, outperforming the S&P 500's 4% recovery.” Reuters reports.
China’s Big Tech Firms Set for Fierce Price Wars
South China Morning Post
“Just as the dust settles on the end of a long regulatory crackdown, analysts say China’s Big Tech firms now face a new challenge – a period of brutal price wars in a sector with increasingly blurred business lines, pointing to thinner profits and a tough outlook ahead.”
“JD.com, the e-commerce giant controlled by its billionaire founder Richard Liu Qiangdong, is lumbering up for the first round of these price wars after setting aside 10 billion yuan (US$1.45 billion) in subsidies for consumers starting from March, according to people familiar with the matter.”
“Under this programme, JD customers will be entitled to receive ‘compensation’ if they can find the same product on sale at a lower price on competitor platforms such as Alibaba Group Holding’s Tmall or Pinduoduo, the budget shopping app owned by Nasdaq-listed PDD Holdings.”
“…Expectations for tougher competition and thinner margins ahead have seen the shares of Chinese e-commerce companies plunge this week, despite relatively upbeat forecasts for fourth quarter earnings. JD shares were down 10 per cent in the past five days in Hong Kong, while PDD was down 9.9 per cent over the same period in New York.”
“A key development is a reduction in barriers to entry between different business segments. For example, Douyin – the domestic sister app of ByteDance’s hit short video app TikTok – has pushed deeper into China’s food delivery sector. A company representative said in early February that it planned to offer food delivery services in more Chinese cities, expanding an existing trial in Beijing, Shanghai and Chengdu". South China Morning Post reports.
Pakistan Nears IMF Bailout Plan After Tax Plan Approved
“Pakistan is inching closer to reviving a $6.5 billion bailout from the International Monetary Fund after the parliament approved on Monday the plan to roll out higher taxes.”
“An agreement is expected to be finalized within three days after most issues were resolved, ARY News reported, citing Hamed Yaqoob Sheikh, secretary at the finance ministry. A bill that will increase the general levy to 18% from 17% and boost tax on imports of luxury items such as mobile phones to 25% from 17% was approved by the parliament.”
“The government had raised energy prices and let the currency weaken after the IMF called on Pakistan to scrap subsidies and enable a market-determined exchange rate. Although almost all conditions have been met, a key item that remains is further tightening of monetary policy, said Zubair Ghulam Hussain, chief executive officer at Insight Securities Pvt.”
“State Bank of Pakistan has raised the benchmark rate by 725 basis points since the start of 2022 to contain inflation that quickened to a 48-year high in January. SBP is scheduled to hold its next policy review on March 16.” Yahoo/Bloomberg reports."
Geopolitics: President Xi Prepares Moscow Visit for Talks With Putin
Wall Street Journal
“Chinese leader Xi Jinping is preparing to visit Moscow for a summit with Russia’s president in the coming months, according to people familiar with the plan, as Vladimir Putin wages war in Ukraine and portrays himself as a standard-bearer against a U.S.-led global order.”
“Beijing says it wants to play a more active role aimed at ending the conflict, and the people familiar with Mr. Xi’s trip plans said a meeting with Mr. Putin would be part of a push for multiparty peace talks and allow China to reiterate its calls that nuclear weapons not be used.”
“Western capitals have expressed skepticism about China’s diplomatic initiative, the broad outlines of which were first previewed last week by the country’s top diplomat, Wang Yi, at the Munich Security Conference.”
“…Mr. Wang arrived Tuesday afternoon in Moscow, in a trip Beijing’s Foreign Ministry had billed as an opportunity to discuss China-Russia relations and ‘international and regional hot-spot issues of shared interest.’” Mr. Wang initially met with Nikolai Patrushev, the powerful secretary of the Russia Security Council, according to accounts in both Russian and Chinese state media that both cited cooperation between the countries.” WSJ reports.
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