Emerging Markets Monitor - July 5
China Stocks Look Attractive, Yellen's Upcoming China Visit, Xi to Putin: No Nukes in Ukraine, Africa and Solar Energy, S. Korea Firms See Vietnam Opportunity
The Top 5 Stories Shaping Emerging Markets from Global Media - July 5
China Stocks Look Attractive Relative to Bonds
South China Morning Post
“Chinese government bonds’ long streak of outperformance may be drawing to a close and gains could moderate as investors eye cheap valuations in the stock markets with the lure of a potential stimulus likely to drive an equity rally.”
“The performance divergence between the two asset classes could be ending as stocks become more appealing on prospects of supportive measures to revitalise growth in the world’s second largest economy. The CSI 300 gauge has slipped 0.1 per cent this year, while the 10-year government bond yields have dropped 19.9 basis point to a near three-year low of 2.639 per cent.”
“‘China’s government bonds have outperformed stocks since 2010,’ said Alpine Macro analysts in a report. ‘As for stocks, they could bounce back after being beaten down badly since 2021. Nevertheless, a sustainable rally in Chinese shares would first require aggressively pro-cyclical fiscal policy and persistent monetary stimulus.’”
“Such policy support has already triggered a bout of profit taking in the government bond market with analysts at Citigroup expecting the 10-year bonds to move sideways in the 2.55-2.75 per cent range.”
“‘Stock valuations are at a relatively low level now and sentiment is very skittish,’ said Yang Chao, an analyst at China Galaxy Securities in Beijing. ‘But going forward, we are going to see more policy support that is expected to prop up the economy and that will boost stocks’ performance.’”
“Signs of the recent easing of the China-US tensions may add to the tailwinds for stocks.” Zhang Shidong reports.
Yellen China Visit Seeks to Further Ease Tensions
Bloomberg
“US Treasury Secretary Janet Yellen visits China this week with the goal of finding areas of common economic ground and opening communication channels amid an increasingly turbulent relationship between the world’s two biggest economies.”
“It will be the first major test of a policy she outlined in April that’s geared toward defending and securing US national security without trying to hold China back economically.”
“Yellen’s arrival Thursday comes days after China imposed restrictions on exporting two metals that are crucial to key technology industries, the latest escalation in a trade war that ramped up last year with US export controls on semiconductors and chipmaking equipment.”
“She happens to touch down in Beijing exactly five years after the Trump administration imposed tariffs on the first wave of more than $300 billion of goods from China — duties that President Joe Biden has kept in place despite Yellen’s criticism of them.”
“‘Relations have not improved but the US has increasingly realized – so has Europe – that the degree of economic interdependence with China is such that decoupling is impossible,’ said Alicia Garcia Herrero, chief Asia Pacific economist at Natixis. ‘In other words, there is no way out through the back door: dialogue is needed.’”
“Yellen’s trip follows that of State Secretary Antony Blinken last month and adds to broader efforts by the Biden administration to re-engage with its chief geopolitical rival amid an uncertain global economic outlook that could also suffer from fragmentation.” Bloomberg reports.
Geopolitics: Xi Warned Putin Against Nuclear Attack in Ukraine
Financial Times
“Xi Jinping personally warned Vladimir Putin against using nuclear weapons in Ukraine, indicating Beijing harbours concerns about Russia’s war even as it offers tacit backing to Moscow, according to western and Chinese officials.”
“The face-to-face message was delivered during the Chinese president’s state visit to Moscow in March, the people added, one of Xi’s first trips outside China after years of isolation under his zero-Covid policy.”
“Since then, Chinese officials have privately taken credit for convincing the Russian president to back down from his veiled threats of using a nuclear weapon against Ukraine, the people said.”
“Deterring Putin from using such a weapon has been central to China’s campaign to repair damaged ties with Europe, said a senior adviser to the Chinese government. Russia’s full-scale invasion of Ukraine in 2022 has placed Moscow and its ally Beijing at odds with much of the continent.”
“China has consistently opposed the use of nuclear weapons in Ukraine in its public statements. But many of Kyiv’s backers have doubted Beijing’s commitment to such deterrence, given Xi’s ‘no limits’ partnership with Putin and a ‘peace plan’ that heavily overlaps with Russian talking points.”
“Nuclear weapons are the ultimate insurance Putin has against losing this war catastrophically Alexander Gabuev, director of the Carnegie Russia Eurasia Center Xi’s warning, however, has given them hope that China is backing up its public rhetoric behind closed doors — and potentially threatening consequences for their relationship that would be sufficient to stop Putin from using a nuclear weapon.” The FT reports.
Solar Energy is “Oil of the 21st Century” and Africa Must Play a Role
The East African
“Solar is the ‘oil of the 21st century,’ and the most powerful economies will be those that have the cheapest energy, says renowned African banker and entrepreneur Tidjane Thiam.”
“‘If we don't participate in that (solar) revolution, America is going to have the cheapest and the cleanest energy in the world. There's a revolution going on in the world economy,’said Mr Thiam, a former Group CEO of Credit Suisse and Prudential Plc and now executive chairman of Freedom Acquisition Corp 1.”
“He was speaking at the 2023 shareholders AGM of the African infrastructure lender Africa50 in Lome, Togo, on July 3. He compared the energy revolution with the internet one, noting that production has become decentralised and hence more accessible and much cheaper.”
“‘Energy production is becoming decentralised… and that's revolutionary, because it's cheap and it's clean… If you put up solar on the roof and you buy an electric car, you're going to drive for free,’ he said.”
“His sentiments were echoed by Dr Ajay Mathur, director-general of International Solar Alliance (ISA), a strategic partner of Africa50. Dr Mathur noted that Africa has the best solar potential in the world, with a practical potential of 4.5 kilowatt-hour peak per day, making solar a viable alternative to meet the continent's power needs.”
“But they noted that investment in the sector is still negligible. ‘Last year, even though globally $250 billion was invested in solar, only two percent of it came to Africa. Why? While the risk premium on Africa was relatively high, this is quite at variance with the reality: the default rates are less than two percent!’” Jackson Mutinda reports.
South Korean Retailers Eye Opportunities in Vietnam
VN Express Business News
“Retail firms of South Korea are stepping up efforts to tap into the Vietnamese market, which has huge growth potential thanks to its rapid economic growth and a high proportion of the working age population.”
“Lotte Group, one of the top two retail giants in the South Korea along with Shinsegae, is the most active in the scene. The company currently has 20 affiliates operating in Vietnam, including Lotte GRS, Lotte Shopping and Lotte Culture Works.”
“Lotte Shopping is set to open Lotte Mall West Lake Hanoi in the capital city in August. It will be Vietnam's largest shopping mall complex also consisting of a hotel and offices.”
“The retail giant is also investing about US$900 million to establish Thu Thiem Eco Smart City, which is a complex that will consist of a shopping mall, a hotel, offices, housing and a cinema. In August, Lotte World Aquarium is set to open in Hanoi as well.”
"‘Vietnamese retail market grew about 100 times in the past 20 years. It is an attractive business destination with a high portion of the young population, who love Korean food, K-pop and K-drama,’ a Lotte Shopping official said, as cited by The Korea Times.”
“Shinsegae plans to open a third Emart store in Vietnam under a master franchise contract with local THACO Group in the second half of this year. GS Retail has already opened over 200 GS25 convenience stores in the Southeast Asian country.”
“Apart from retail corporations, leading unicorn businesses in technology, tourism services, and hotels in the South Korea, such as Yanolja Cloud, are also targeting the Vietnamese market.” VNA reports.
Chart of the Day - The Sliding Yuan
“Experience is not what happens to you; it is what you do with what happens to you.” —Aldous Huxley
“Each day comes bearing its gifts. Untie the ribbon.” —Ann Ruth Schabacker