Emerging Markets Monitor - July 19

India Rupee Hits All-Time Low, IMF Warns of Europe Recession, Yellen Calls for 'Friend-shoring,' Tehran Summit and Ukraine War, Egypt and Renewable Energy

The Top 5 Stories Shaping Emerging Markets from Global Media - July 19

Indian Rupee Hits All-Time Low Against the Dollar

Channel News Asia

“The Indian rupee fell to more than 80 per United States dollar for the first time on record on Tuesday (Jul 19), as the greenback extended its rally and foreign capital outflows intensified.”

“The rupee was 80.0600 against the greenback soon after trading started, Bloomberg data showed. High inflation and rising interest rates in the US coupled with fears of an impending recession in the world's biggest economy have fuelled a broad dollar rally in recent weeks as investors turn increasingly risk-averse.”

“Tighter US monetary policy has exacerbated outflows from emerging markets such as India, where foreign investors have withdrawn a net US$30.8 billion in debt and equity this year.”

“Data released last week showed US consumer price inflation hit a fresh four-decade high in June, exceeding market forecasts and stoking expectations of another large Federal Reserve rate hike next week.”

“In a written statement to the Indian parliament on Monday, finance minister Nirmala Sitharaman attributed the rupee's sharp fall to external reasons. ‘Global factors such as the Russia-Ukraine conflict, soaring crude oil prices and tightening of global financial conditions are the major reasons for the weakening of the Indian Rupee against the US dollar,’ she said.” Channel News Asia reports.

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IMF Warns of Sharp European Economic Hit From Russia Gas Embargo

Financial Times

“A Russian gas embargo would lead to severe recessions in eastern Europe and Italy if countries around the world hoarded their own scarce supplies, the IMF warned on Tuesday in a bid to encourage solidarity between nations.”

“The fund predicted that unless liquid natural gas was shared and prices were artificially held down, any Russian action to stop supplying Europe would trigger economic contractions of more than 5 per cent over the next year in the Czech Republic, Hungary, Slovakia and Italy.”

“Forty-two per cent of the EU’s gas imports come from Russia, according to the IMF. Russian flows provide more than 50 per cent of gas imports for eight EU countries. A Russian gas embargo has become increasingly more likely following its invasion of Ukraine.”

“Moscow has restricted deliveries through its Nord Stream 1 pipeline, which runs from Russia under the Baltic Sea to Germany, by 60 per cent in June. Fears are mounting that it will not turn supplies on again this Thursday after planned maintenance.”

“European gas consumption has already fallen 9 per cent this year, knocking 0.2 percentage points off EU GDP, according to the IMF, but its simulations warned that without mitigations, the pain could become much worse in the winter. Brussels is next week set to tell member states to cut consumption ‘immediately’.” Chris Giles reports.

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Yellen Calls for Trade Overhaul to Diversify Away from China

Wall Street Journal

“Treasury Secretary Janet Yellen called for a reorientation of the world’s trading practices in the wake of Russia’s invasion of Ukraine, pushing again for countries to become less reliant on China for critical components like semiconductors.”

“Speaking at an LG Group research facility in South Korea’s largest city and capital, Ms. Yellen explored so-called ‘friend-shoring,’ a proposed paradigm shift that would have the U.S. and its allies trade more closely with one another and less with geopolitical rivals. Supply disruptions during the Covid-19 pandemic, as well as the war in Ukraine, have exposed the danger of depending too heavily on a single producer, Ms. Yellen said.”

“…South Korea, a longtime U.S. ally and the world’s 10th largest economy, is a critical partner in the Biden administration’s efforts to prevent China from dominating key technological industries such as semiconductors and electric-vehicle batteries. Ms. Yellen is attending a series of meetings on Tuesday in Seoul—with President Yoon Suk-yeol, the country’s central-bank governor and deputy prime minister—in what marks the end of her first trip to Asia as Treasury secretary.” Andrew Duehren reports.

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Geopolitics: Turkey, Russia, Iran Summit to Focus on Syria and Ukraine

Bloomberg

“The leaders of Iran, Russia and Turkey hold summit talks in Tehran on Tuesday, formally on the conflict in Syria but with the turmoil caused by President Vladimir Putin’s war in Ukraine far more in focus.”

“Putin is making his first trip outside republics of the former Soviet Union since Russia’s Feb. 24 invasion to join Iranian President Ebrahim Raisi and their Turkish counterpart Recep Tayyip Erdogan for the so-called Astana Format discussions on Syria. The agenda includes security inside Syria and the return of displaced Syrians to their homes, according to Iran’s foreign minister.”

“While the three leaders plan a joint statement on Syria, bilateral talks on the war in Ukraine may draw greater international attention. Turkey has been negotiating with Russia and Ukraine on a possible deal to unblock exports of millions of tons of Ukrainian grain from Black Sea ports to help ease soaring global prices and a deepening hunger crisis in many poorer countries.” 

“The US also warned last week that Iran is preparing to send Russia hundreds of drones, including ones capable of carrying weapons, amid significant losses by Putin’s military as his war approaches its sixth month.”

“Putin and Erdogan will ‘100%’ discuss Ukrainian grain exports and work on the issue is proceeding ‘very actively,’ Kremlin foreign policy aide Yuri Ushakov said Monday, according to the state-run Tass news service. With Russia’s economy under unprecedented international sanctions over the war, Ushakov said the two sides will also discuss ‘the widest range of economic issues,’ including payment in national currencies.” Bloomberg reports.

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Egypt’s Infinity to Become Africa’s Largest Renewable Energy Company

The National

“Egypt’s Infinity Group will become Africa’s largest renewable energy company when it, along with Africa Finance Corporation, acquires Lekela Power in an undisclosed deal that is expected to close this year, the parties said on Monday.”

“British private equity firm Actis and Mainstream Renewable Power agreed to sell their stakes of 60 per cent and 40 per cent respectively in Lekela. Lekela, founded in 2015, is Africa’s largest independent power producer.”

“The proposed acquisition includes Lekela’s 1-gigawatt portfolio of operational wind power projects in Egypt, Senegal and South Africa, and a 1.8-gigawatt pipeline of projects in development across the continent. It is subject to regulatory approvals and customary closing conditions.”

“‘The acquisition of Lekela is a milestone for us at Infinity, as it not only becomes the largest such acquisition in the history of the continent, but also signifies the continuous growth and expansion of Infinity’s efforts to create a sustainable supply of clean green energy,’ said Infinity co-founder and chief executive Nayer Fouad.”

“Africa’s installed renewable energy capacity is set to grow from more than 54 gigawatts in 2020 to more than 530 gigawatts by 2040, according to the International Renewable Energy Agency. Solar photovoltaic technology will rise to 340 gigawatts and wind to 90 gigawatts.”

“…Egypt, which is to host the UN climate change conference Cop27 in Sharm El Sheikh in November, has committed to sourcing 42 per cent of its total electricity from renewable energy by 2035. Its installed renewable energy capacity was at 31 per cent last year, surpassing its 20 per cent target.” Nada El Sawy reports.

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