Emerging Markets Monitor - January 31
Adani Fall-Out Threatens India EM Story, Washington Targets Huawei, Abu Dhabi's IHC Invests $381M in Adani, BYD Sales Surge, Israel Strikes at Iran Defense Facility
The Top 5 Stories Shaping Emerging Markets from Global Media - January 31
Adani Risk Clouds Wall Street’s Top Emerging Markets Bet: India
“The start of 2023 was meant to be India’s. The nation’s fast-growing economy and rapidly expanding equity markets had convinced money managers from Morgan Stanley Investment Management to State Street Global Advisors to call it a top investment destination.”
“Then came the $66 billion selloff in billionaire Gautam Adani’s corporate empire.”
“It’s a shock that forces Wall Street to reexamine its confidence on India’s expansion and its pro-business government, which helped the benchmark Sensex index trade last quarter at the highest in a decade versus the S&P 500. Those already-lofty valuations — combined with a scathing New York short-seller report attacking Adani Group — spotlights the contradictions within India’s runway for growth.”
“‘India has to show its institutions are strong,’ said Rajeev De Mello, a global macro portfolio manager at GAMA Asset Management, who owns the nation’s equities as part of his overweight emerging-market position. ‘Governance issues are a concern for all markets. But when valuations are higher than other countries, maintaining the integrity of the financial markets is critical.’”
“Investors have been increasingly drawn in by the narrative of opportunity in Indian assets. While bonds have been slowly making their way into global benchmark indexes, a flurry of companies have rushed to sell shares, increasing the size of the nation’s burgeoning stock market.”
“India’s stocks now account for more than 14% of MSCI’s emerging-market equities index, trailing only China, after it surpassed the weightings of Taiwan and South Korea last year. Morgan Stanley predicts India’s equity market is set to be the world’s third largest before the end of the decade.” Bloomberg reports.
Washington Halts Licenses for US Firms to Export to Huawei
”The Biden administration has stopped providing US companies with licences to export to Huawei as it moves towards imposing a total ban on the sale of American technology to the Chinese telecom equipment giant.”
“Several people familiar with the discussions inside the administration said the commerce department had notified some companies that it would no longer grant licences to any group wanting to export American technology to Huawei.”
“The move marks the latest prong in Washington’s campaign to curb the Shenzhen-based tech company, which US security officials believe helps China engage in espionage. Huawei denies any involvement in spying.”
“The Trump administration in 2019 imposed tough restrictions on exporting American technology to Huawei by adding the group to a blacklist called the ‘entity list’. The move was part of a strategy to crack down on Chinese companies that Washington believed posed a risk to US national security.”
“But the commerce department continued to grant export licences for some companies, including Qualcomm and Intel, to provide Huawei with technology that was not related to high-speed 5G telecom networks.”
“Over the past two years, President Joe Biden has taken an even tougher stance on China than Donald Trump did, particularly in the area of cutting-edge technology. In October, he imposed sweeping restrictions on providing advanced semiconductors and chipmaking equipment to Chinese groups.” The FT reports.
Abu Dhabi’s IHC To Invest $381 Million in Adani Enterprises
The National (UAE)
“International Holding Company, the UAE's most-valuable listed company, will invest Dh1.4 billion ($381 million) in the follow-on share sale floated by Indian billionaire Gautam Adani’s flagship business last week.”
“The investment in Adani Enterprises' $2.5 billion further public offering (FPO) is IHC's first this year and part of the Abu Dhabi conglomerate's efforts to scale up and diversify its investments globally, it said on Monday.”
“The investment will be made through the group's subsidiary, Green Transmission Investment Holding.”
“‘For the past three years, India has been a key investment destination for IHC,’ Syed Shueb, chief executive of IHC, told The National on Monday. ‘It is a large market that presents opportunities with monetary economic stability.’”
"‘Our trust in the Indian regulatory body for securities markets makes India an attractive destination for IHC. ‘IHC will be eyeing more acquisitions throughout this year, focusing on fast-growing economies, rapidly expanding equity markets and top investment destinations, it said.”
“It aims to increase its global acquisition by 70 per cent by the end of the year, with the clean energy and food processing sectors being a key focus. It will seek opportunities in Europe, Africa, Asia and South America, the company said.”
“IHC's investment comes as Adani Group is embroiled in a controversy after US investor Hindenburg Research last week said it was shorting the conglomerate's stocks.”
“In a January 24 report, Hindenburg accused companies controlled by Mr Adani, Asia’s richest man, of being involved in ‘brazen’ market manipulation and accounting fraud.”
“Shares of the companies under the Adani Group umbrella plummeted as a result, with losses continuing on Monday. Companies in the conglomerate have lost a combined $68 billion in market capitalisation since Wednesday.” The National reports.
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EV Maker BYD Sales Surge 10X in Fourth Quarter
South China Morning Post
“BYD, the world’s largest electric vehicle (EV) maker, has forecast a record quarterly profit for the final three months of 2022, with surging sales expected to lift earnings up to 13 times higher on a year-on-year basis.”
“The Shenzhen-based company backed by Warren Buffett’s Berkshire Hathaway expects profit for the October to December quarter to be between 6.7 billion yuan (US$992.4 million) and 7.7 billion yuan, compared with 602 million yuan in the same period a year ago, according to a statement filed to the Hong Kong stock exchange on Monday evening.”
“That would translate into a year-on-year profit between 10 and nearly 13 times bigger than that declared in the fourth quarter of 2021, and a sequential jump of between 17 and 35 per cent over the previous three-month period.”
“…In the fourth quarter, BYD’s sales of pure electric and plug-in hybrid cars surged 156.7 per cent from a year earlier to 683,440 units, 26.9 per cent higher than its delivery number in the third quarter of 2022.” Daniel Ren reports.
Geopolitics: Israel Drone Strike Hit Iran Weapons Facility
Wall Street Journal
“An Israeli drone strike inside Iran hit an advanced weapons-production facility in an attack that Israel believes achieved its goals, according to people familiar with discussions about the operation.”
“The operation early Sunday morning was executed by Israel’s intelligence agency, the Mossad, and targeted a Ministry of Defense site in Isfahan in central Iran, hitting a building in four different areas with precision strikes, the people said. Satellite photos showed what appeared to be minor damage to the site’s roof, but the people called the mission successful, without elaborating.”
“The account contradicts Iranian officials who have said the country’s air defenses had fended off an attempted attack on an ammunition depot that caused minimal damage.”
“The attack marked another chapter in the long-running conflict between Israel and Iran, with Israel using sabotage, assassination and drone strikes to target Iran’s nuclear program and its conventional weapons capabilities, and Iran arming militias along Israel’s borders.”
“The people said the Ministry of Defense site that was targeted Sunday was a weapons-production facility. It stands across the street from a site belonging to the Iran Space Research Center, which has been sanctioned by the U.S. for its work on Iran’s ballistic-missile program.”
“…On Monday, Iranian state media published fragments of the small drones used in the strike. If authentic, the depicted drones are most likely Chinese-made quadcopter drones with limited range that may have been launched from within Iran, given their small size and Isfahan’s location hundreds of miles from its country’s borders, said Tal Beeri, head of the Alma Center Research Department in Israel and a former Israeli military intelligence officer.” WSJ reports.
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