Emerging Markets Monitor - May 9
Global Stock Rout, Ambani's Reliance Crosses $100 Billion Revenue Mark, US Seeks to Boost Lat-Am Economies, Luckin Coffee Plots Comeback, Russia Sberbank Meltdown
The Top 5 Stories Shaping Emerging Markets from Global Media - May 9
Global Stocks Suffer Worst Day Since June 2020 Amid Slowdown Fears
Financial Times
“Global stocks on Monday suffered their worst one-day decline since the early months of the coronavirus pandemic in 2020, as investors fret about signs of slowdowns in the world’s large economies at a time when central banks are reining in crisis-era stimulus measures.”
“The FTSE All-World barometer of global equities dropped 3 per cent, its sharpest fall since June 2020, and hit its lowest level since December 2020. Worries over rising rates have been compounded by indications that growth in big global economies could be slowing.”
“Chinese export growth fell to its lowest level in two years last month, according to data released on Monday, which followed reports last week pointing to slowdowns in the German and French manufacturing sectors.”
“Wall Street’s blue-chip S&P 500 index slid 3.2 per cent and the tech-focused Nasdaq Composite dropped 4.3 per cent. Europe’s regional Stoxx 600 index fell 2.9 per cent, while China’s CSI 300 fell 0.8 per cent and Tokyo’s Topix fell 2 per cent.”
“‘It’s difficult to say if everything is low enough and bearish enough,’ said Joost van Leenders, equity strategist at Kempen Capital Management, adding that investors no longer expected the Fed to prioritise stabilising financial markets, as it did during the start of the coronavirus pandemic.”
“Brent crude, the international oil benchmark, dropped almost 6 per cent to $105.94 a barrel, reflecting concerns about weaker demand…The Fed last week lifted its main interest rate by 0.5 percentage points, and signalled that more increases of the same magnitude were on the horizon as it attempts to cool scorching inflation.” The FT reports.
Mukesh Ambani’s Reliance First Indian Firm to Cross $100 Billion in Revenue
Geo News
“Asia's richest man Mukesh Ambani’s Reliance Industries became the first Indian company to cross $100 billion in annual revenues after the oil-to-telecoms giant reported strong quarterly results across its energy, telecoms and retail businesses.”
“The conglomerate reported a net profit of 162.03 billion rupees ($2.1 billion) between January and March, 22.5% higher than the same period last year.”
“…Revenues from Reliance´s oil refinery and petrochemicals business -- which accounts for more than half of total income -- benefited from higher crude oil prices, rising 44.2% year-on-year to 1.46 trillion rupees.”
“But India intervening to keep domestic fuel prices low even as global oil prices skyrocketed in the quarter hurt Reliance´s nascent petrol pump partnership with British oil and gas major BP, the company said.”
“Net profit from telecoms arm Reliance Jio rose 22.9% to 43.13 billion rupees, boosted by tariff hikes undertaken in December 2021, even as its customer base shrunk by 10.9 million subscribers in the quarter.” Geo News reports.
U.S Seeks to Bolster Latin America Economies to Curb Migration
Bloomberg
“The Biden administration is working on a proposal to bolster economies in Latin America and strengthen U.S. ties ahead of a key regional summit the U.S. will host next month to help confront the challenge of fast-increasing migration.”
“The proposed economic framework, still in the early stages, will address issues including so-called nearshoring and supply-chain vulnerabilities revealed by the pandemic, according to people familiar with the process, who asked not to be identified because the plans aren’t public. The U.S. has started to discuss the initiative with countries in the region, and the White House is working on ideas with the U.S. Trade Representative’s office and the Commerce Department, the people said.”
“The framework would seek to set a new course for economic integration with the region and create an environment of stability to help attract private investment in countries where a lack of development and opportunities have spurred millions of people to migrate to the U.S.”
“The proposal also would counter China’s growing role in the area, where the U.S.’s top geopolitical rival has increased economic ties through its Belt and Road Initiative, according to the people.”
“The framework would boost the focus on trade and economic cooperation at the Summit of the Americas that the U.S. is hosting for the first time in almost three decades in Los Angeles June 6-10. While summit discussion topics include the pandemic response and promoting a green and equitable recovery, the gathering is widely expected to focus on migration.” Bloomberg reports.
Luckin Coffee Plots Comeback After Nasdaq Expulsion, Mulls Hong Kong Listing
South China Morning Post
“Luckin Coffee is considering a Hong Kong listing, as China’s Starbucks challenger charts a comeback from its 2020 Nasdaq expulsion after it overhauls its business of selling coffee.”
“The chain, headquartered in the Fujian provincial city of Xiamen, obtained a so-called ‘light touch provisional liquidation’ approval from the Cayman Islands that allowed a new management team to work with its liquidator to keep its business growing in China after firing three senior executives for fraud.”
“That helped Luckin expand its network of coffee kiosks – where takeaway orders are made via smartphone apps, with no dine-in space – by 26 per cent in two years to 6,024 all over China at the end of 2021, surpassing the 5,400 outlets operated by Starbucks. Fourth-quarter revenue jumped 81 per cent to 2.44 billion yuan (US$362.83 million), and Luckin even received the endorsement of the Olympic freestyle skiing double-gold medallist Eileen Gu.” SCMP reports.
Russia’s Sberbank Facing Meltdown
BNE IntelliNews
“Russia’s largest lender, is facing a meltdown from the collapse in its commercial real estate loan book, which is estimated at RUB1.8 trillion ($28bn).”
“The entire market, which Sberbank has a three-quarter share of, breached its loan-to-value (LTV) covenants after valuations slumped by at least 20-30% in the wake of Russia’s invasion of Ukraine in February, senior real estate sources in Moscow told bne IntelliNews.”
“If Sberbank demands repayment of loans or tries to tighten terms, it could set off a wave of property sales that might depress prices even further. The bank, which is run by President Putin’s former Economy Minister Herman Gref, also has the option to seize the underlying assets, which are believed to be mainly shopping centres, offices, hotels and warehouses. However, the assets are worth about half the cost of the debt, so the write-offs would be unimaginable.”
“‘Basically, all of their loan book is in breach of LTV covenants,’ a senior Moscow real estate banker told bne Intellinews. ‘It must be. They are in breach even if there has only been a 20-30% drop in market value, which is the minimum that has happened, so they are under water, as the real estate is worth less than the debt.’”
“The real estate source believes the Central Bank of Russia (CBR), under Governor Elvira Nabiullina, will be accommodating when it comes to assessing reserves against restructured loans due ‘to the behaviour of non-friendly state tenants pulling out.’” Bne Intellinews reports.
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