Emerging Markets Monitor - March 3
Emerging Asia Stocks Lose Shine, Adani Gets $1.87B Boost From US Investor, Iran Rial Plummets, UAE Targets 26 Free Trade Agreements, Brazil Economy Slows
The Top 5 Stories Shaping Emerging Markets from Global Media - March 3
Emerging Asia Stocks Lose Luster After Rough February
“In just one month, emerging Asian assets have gone from a buy to sell. And all signs point to continued caution in March.”
“Outflows from north Asian stocks gathered pace, regional currencies languished at multi-month lows and global funds dumped local bonds in a particularly brutal February. The optimism evaporated as a repricing of US rate-hike bets eroded appetite for risk assets and sent investors back to the safety of the dollar.”
“The brief rally in developing-nation assets highlights the difficulty in calling the peak in US rates, as robust data dash hopes for a Federal Reserve pivot. Most analysts don’t see a recovery just yet, with Goldman Sachs Group Inc. warning that emerging-market debt may face a repeat of the risks seen in 2022.”
“…The outlook is a reversal of the euphoria seen in January when virtually every emerging Asian asset was a buy. Regional stocks gained more than 8% and currencies rallied while bonds posted one of their best months based on data going back to 2008.”
“A ray of hope remains: Beijing may unveil more stimulus at the National People’s Congress meeting in March, a gathering which typically sets the tone for major economic policies. A pro-growth stance would provide a fillip to regional assets, in much the same way that China’s reopening late last year generated a rally in risk assets.” Bloomberg reports.
India’s Embattled Adani Group Gets $1.87 Billion Boost From U.S Investor
“U.S. boutique investment firm GQG Partners Inc has bought shares worth $1.87 billion in four Adani group companies, marking the first major investment in the Indian conglomerate since a short-seller's critical report sparked a stock rout.”
“Seven listed Adani companies have lost some $135 billion in market value since Jan. 24, when Hindenburg Research accused it of improper use of offshore tax havens and stock manipulation. The group, led by billionaire Gautam Adani, denied the allegations. It later called off a $2.5 billion share sale.”
“…The group has been trying reassure investors with road shows and calls with bond holders. According to sources, Adani has told creditors it has secured a $3 billion loan from a sovereign wealth fund.”
“U.S.-based, Australia-listed GQG has, through block deals, bought shares worth 154.46 billion rupees in four Adani group companies, including the conglomerate's flagship firm Adani Enterprises, a regulatory filing showed. The shares were sold by an Adani family trust, using Jefferies as a broker.”
“Based in Fort Lauderdale, Florida, GQG manages $88 billion in assets, in global, U.S. and emerging markets equities funds. In early Australian trade, GQG Partners shares were down 2.3% while the S&P/ASX200 was up 0.4% on Friday.”
"‘We believe that the long-term growth prospects for these companies are substantial,’ said Rajiv Jain, GQG's chairman and chief investment officer, adding the firm's investments take into account a five-year horizon. Before founding GQG, Jain spent 22 years at Vontobel Asset Management.”
“GQG took a 3.4% stake in Adani Enterprises for about $662 million, 4.1% in Adani Ports for $640 million, 2.5% in Adani Transmission for $230 million, and a 3.5% stake in Adani Green Energy for $340 million, according to the filing.”
“Before investing, Jain said GQG did a ‘deep dive on our own’ as part of due diligence, including conversations with the group's vendors, bankers and partners. ‘We actually disagree with (Hindenburg's) report,’ he said, adding that infrastructure companies are subject to tight regulation and therefore the risk of fraud is low.”
“In the run-up to the announcement, Adani group shares rallied, with Adani Enterprises climbing nearly 35% over the last three sessions, Adani Ports 11% and Adani Green Energy 16%. Adani Transmission rose 10% in the previous two sessions.”
"‘For the short-term, this will definitely be a big positive for the sentiment for Adani stocks,’ said Avinash Gorakshakar, head of research at Profitmart Securities. ‘But in the longer term, the market is going to look at how growth is going to come.’” Reuters reports.
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Iran Currency Tumbles in New Challenge to Clerical Leadership
Wall Street Journal
“Iran’s currency has plunged to record lows, posing a new challenge for the country’s clerical leadership following nationwide protests late last year.”
“The Iranian rial has lost a fifth of its value since last week, hitting a low of 601,500 to the U.S. dollar on Sunday. The slide has made the import of vital goods far more expensive and sapped the purchasing power of ordinary Iranians.”
“Iranians are rushing to buy dollars, driven by fears that crippling U.S. sanctions are likely to remain as talks to revive the 2015 nuclear deal collapse. A U.S. money-laundering crackdown in neighboring Iraq has also sharply curtailed the supply of dollars being smuggled into Iran, prompting panic buying, analysts say.”
“…The currency plunge marks another economic blow for Iranians who were already struggling with a deepening economic crisis, high unemployment and the rising cost of living. Urban inflation hit 52.7% in January, up 2.1 percentage points from December, according to Iranian government statistics.”
“…The currency woes pose a fresh test to the stability of the ruling establishment following widespread unrest that broke out in September following the death in police custody of a 22-year-old woman. Demands for more rights broadened into calls for an overthrow of the Islamic Republic, which was founded after the revolution in 1979.”
“Political analysts say the rising cost of living could trigger new unrest, but Iranians may believe that paying bills and preserving their savings amid currency fluctuations is more important than protesting a government that has repeatedly shown its ability to weather such demonstrations.” WSJ reports.
UAE Working on 26 Free Trade Agreements Worldwide
“The UAE is working towards signing 26 comprehensive economic partnership agreements (Cepas) as it seeks to attract more investments and diversify its economy, said Abdulla bin Touq, UAE Minister of Economy.”
“We have already signed Cepas with India, Indonesia and Israel. We are signing the agreement with Turkey, Cambodia, Georgia and Vietnam. We are going east and south-south”, he said, at the investment conference Investopia in Abu Dhabi on Thursday.”
“…The UAE, the Arab world’s second-biggest economy, is exploring future investment opportunities. This comes after the Covid-19 pandemic transformed economies, paved the way for new sectors, hastened the use of advanced technology and raised the need for sustainable growth.”
“It has announced a number of new initiatives to promote economic growth and attract foreign direct investment.” The National reports.
Economic Challenges Mount for Lula in Brazil
“Brazil’s economy stagnated in the final quarter of 2022, underlining the challenges facing president Luiz Inácio Lula da Silva as he aims to boost living standards and reduce poverty following a divisive election.”
“Gross domestic product contracted by 0.2 per cent in the last three months of the year from the previous quarter, when it expanded 0.3 per cent, according to official data released on Thursday.”
“The weak performance, driven by shrinking industrial output and a cooling of services sector activity, interrupted five consecutive quarters of growth. Alexandre de Ázara, chief economist at UBS BB in São Paulo, said the deceleration reflected the lagged effect of monetary policy.”
“…Latin America’s largest economy grew by 2.9 per cent overall in 2022, buoyed by the lifting of Covid-19 restrictions and stimulus measures, including fuel tax cuts and extra welfare payments, implemented under previous president Jair Bolsonaro in his failed re-election bid.”
“However, it was a decrease from the growth rate of 5 per cent recorded in 2021 as the country recovered from the coronavirus pandemic. As high interest rates weigh on activity, the outlook is gloomier for Lula’s first year in office. Analysts predict annual economic expansion below 1 per cent for 2023.” The FT reports.
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