Emerging Markets Monitor - May 21
Global Economy Leans to Recession, Lagarde Says Crypto Worth 'Nothing,' Saudi Growth Sizzles, China Rate Cut Boosts EM Stocks, EU Looks to Africa for LNG/Hydro
The Top 5 Stories Shaping Emerging Markets from Global Media - May 21
Global Economy Headed for Recession? The ‘Everything Sell-off’ Scenario Mounts
Financial Times
“If Leo Tolstoy were writing about today’s business conditions, he might have noted that happy economies are all alike but every unhappy economy is unhappy in its own way.”
“China’s growth prospects have been hammered by strict Covid-19 lockdowns in a bid to quell its Omicron outbreak; the US Federal Reserve risks turning an American boom into bust; Europe’s households are enduring a cost of living crisis; and the situation is worse in many poorer emerging markets, where food crises and even famines beckon.”
“These four different but imposing problems each stalk the global economy as it recovers from the pandemic and it is not surprising the mood is darkening. According to Robin Brooks, chief economist of the Institute of International Finance, the confluence of these shocks suggests the world economy is already in trouble. ‘We’re in another global recession scare now, except this time we think it’s for real,’ he says.”
“Financial markets have taken fright. The MSCI world index of equities fell more than 1.5 per cent in the past week, more than 5 per cent in May and more than 18 per cent since a peak in early January.”
“Dhaval Joshi, chief strategist at BCA Research, notes that on top of a torrid time for stocks, there has been a sell-off in bonds, inflation-protected bonds, industrial metals, gold and crypto assets. ‘The last time that the ‘everything sell-off’ star alignment happened was in early 1981 when Paul Volcker’s Fed broke the back of inflation and turned stagflation into an outright recession,’ Joshi says.” Chris Giles reports.
Lagarde Says Crypto is Worth ‘Nothing” and Should be Regulated
Bloomberg
“European Central Bank President Christine Lagarde said crypto-currencies are ‘based on nothing’ and should be regulated to steer people away from speculating on them with their life savings.”
“Lagarde told Dutch television that she’s concerned about people ‘who have no understanding of the risks, who will lose it all and who will be terribly disappointed, which is why I believe that that should be regulated.’”
“The comments come amid choppy times for crypto markets, with digital currencies Bitcoin and Ether down 50% from last year’s peak. At the same time, the asset class is facing tougher scrutiny from regulators worried about the dangers it may pose to the broader financial system.”
“Lagarde said she’s skeptical of crypto’s value, contrasting it with the ECB’s digital euro -- a project that may come to fruition in the next four years. ‘My very humble assessment is that it is worth nothing, it is based on nothing, there is no underlying asset to act as an anchor of safety,’ she said. Cagan Koc reports.
Saudi Growth Set to Sizzle Above 10%, Capital Economics Says
Arab News
“Saudi Arabia’s gross domestic product is expected to grow by 10 percent this year, driven by increased activities in the oil and non-oil sectors, according to a recent note from Capital Economics.”
“The London-based independent research firm said it will be the highest annual growth rate in over a decade, if this happens. Capital Economics expects the Kingdom to achieve the projected 10-percent growth due to a significant increase in oil output combined with an expected loosening of fiscal policy that is set to encourage growth in the non-oil sector.”
“This projection follows the flash estimate for the first quarter GDP released earlier this month which showed the economy grew 2.2 percent since the last quarter of 2021, and 9.6 percent year-on-year — the highest growth rate in 11 years.”
“In regards to performance on a quarter-on-quarter basis, the growth is attributed to a 2.9 percent rise in oil GDP due to increased output on the back of the OPEC+ deal and a 2.5 percent growth in non-oil activities.”
“The increase in energy prices, which has been the largest since the 1973 oil crisis, together with the war in Ukraine — which altered the global patterns on trade, production and consumption — have contributed to this record GDP growth.” Arab News reports.
China Rate Cut Boosts EM Stocks; Currencies Recover as Greenback Eases
CNBC
“China stocks led emerging market stocks higher on Friday after Beijing’s larger-than-expected cut to a key borrowing rate, while a softer dollar sent an index of currencies to their highest level in two weeks.”
“China’s main share indexes added 1.6% and 2% after Beijing lowered the five-year loan prime rate by 15 basis points (bps) to 4.45% to aid the ailing economy, more than the five or 10 bps tipped by analysts in a Reuters poll.”
“That boosted MSCI’s index of stocks .MSCIEF up 2% and more than 3% on the week to track its best weekly performance since mid-March. Most other EM Asian indexes gained between 1% and 2.2% while those in Turkey and South Africa gained 0.4% and 0.5%.”
“Still, stocks have clocked losses every month in 2022 and were eyeing their fifth in May as investors remain fearful over the impact of surging inflation, China’s COVID-19 lockdowns and monetary tightening in developed economies.”
“‘I’m not looking at a strong recovery from here – some stability in (China’s) renminbi has provided some temporary support this week, but the fact is we’ve got the strong dollar and concerns over European and Chinese growth very much still with us,’ said Chris Turner, global head of FX Strategy at ING.”
“Meanwhile, EM currencies looked set for their first weekly gain in seven, lifted by a glum week for the dollar USD which lost steam after a breathless 14-week surge and amid a retreat in U.S. Treasury yields.” CNBC reports.
EU Unveils Plans to Boost African Hydrogen and LNG Links
African Business
“A European Union plan to make Europe independent from Russian fossil fuels before 2030 calls for renewed dialogue with African producers of LNG and hydrogen.”
“As part of its approved REPowerEU Plan, first commissioned by the European Council two months ago, the EU aims to conclude a trilateral agreement with Egypt and Israel on supplying Europe with LNG. In addition, the European Commission says it wishes to restart the energy dialogue with Algeria and is considering the untapped LNG potential of West African countries such as Nigeria, Senegal, and Angola.”
“REPowerEU Plan includes immediate measures on energy savings, diversification of energy supplies, and accelerated roll-out of renewable energy, in a bid to end Russian gas imports while tackling the climate crisis.”
“The EU has already secured record levels of LNG imports from international partners since the beginning of the year. From January to April 2022, 42 bcm of LNG were delivered to the continent, representing approximately 10% of EU gas consumption in 2020. Although most of these deliveries come from the United States, the EU’s REPowerEU Plan looks progressively southward for alternative partners. The new strategy outlines Brussels’s short-term objectives to develop new partnerships with gas producers’ countries, as well as enhance cooperation in the hydrogen sector.” African Business reports.
“In a gentle way, you can shake the world.” — Mahatma Gandhi