Emerging Markets Monitor - November 2
Saudi on Alert for Possible Iran Attack, Ex-China EM Funds Ramp Up, China Rumor-Fueled Volatility, Korea Inflation Up, Saudi Aramco's Bumper Profits
The Top 5 Stories Shaping Emerging Markets from Global Media - November 2
Saudi Arabia, US on High Alert After Warnings of Imminent Attack from Iran
Wall Street Journal
“Saudi Arabia has shared intelligence with the U.S. warning of an imminent attack from Iran on targets in the kingdom, putting the American military and others in the Middle East on an elevated alert level, said Saudi and U.S. officials.”
“In response to the warning, Saudi Arabia, the U.S. and several other neighboring states have raised the level of alert for their military forces, the officials said. They didn’t provide more details on the Saudi intelligence.”
“Saudi officials said Iran is poised to carry out attacks on both the kingdom and Erbil, Iraq, in an effort to distract attention from domestic protests that have roiled the country since September.”
“The White House National Security Council said it was concerned about the warnings and ready to respond if Iran carried out an attack…”
“Iran has already attacked northern Iraq with dozens of ballistic missiles and armed drones since late September, one of which was shot down by a U.S. warplane as it headed toward the city of Erbil, where American troops are based. Tehran has publicly blamed what it calls Iranian Kurdish separatist groups based there for fomenting the unrest at home.”
“Iranian authorities have also publicly accused Saudi Arabia, along with the U.S. and Israel, of instigating the demonstrations.” Dion Nissenbaum reports.
Bowing to Demand, Funds Ramp Up Ex-China EM Strategies
Reuters
“Money managers are launching emerging market or Asia products with no exposure to China to meet increasing demand for such strategies from global investors wary of rising policy and geopolitical risks in the world's second biggest economy.”
“Chinese equities make up 31% of the MSCI Emerging Market index, a popular stock index that many funds track and benchmark their performances against.”
“With Chinese equities floundering over the past two years due to a government crackdown on its technology sector, a real estate liquidity crisis, and rising U.S.-China tensions, broad emerging market funds have seen their returns eroded, resulting in investors clamouring for carving out their exposure to the world's biggest emerging market.”
“Matthews Asia, a U.S. based asset manager that specialises in Asian investments and manages more than $14 billion, is among the latest to have launched a new product with an Asia ex-China strategy, say two sources familiar with the matter who asked to stay unnamed as they are not authorised to speak to media.” Reuters reports.
China Zero Covid Rumors Spark Volatility in Stocks
South China Morning Post
“A rally spurred by speculation about China reassessing its zero-Covid approach signals that investors have to be prepared for wild swings ahead, analysts said.”
“The 10-day realised volatility of the CSI 300 Index jumped to its highest level since May on Wednesday, according to Bloomberg data. The swing coincided with a surge in stock prices fuelled by social-media posts that top policymakers would set up a reopening committee and aim to phase out zero-Covid by March.”
“The episode snapped weeks of calm in China’s US$9.3 trillion onshore market, reigniting trading interest and turning around cautious sentiment after President Xi Jinping’s tightened grip on power sent investors to the sidelines. Trade was brisk on Wednesday even after a foreign ministry spokesman said he was unaware of any such plan.” Zhang Shidong reports.
Korean Inflation Picks Up, Boosting Case for Tightening
Bloomberg
“South Korea’s inflation picked up again in October, highlighting resilient consumer demand and increasing pressure on the central bank to keep raising interest rates.”
“Consumer prices advanced 5.7% from a year earlier, quickening from 5.6% in September and matching economists’ estimates, the statistics office reported Wednesday. Core inflation accelerated to 4.8%, well above estimates of 4.5%.”
“The result reinforces the need for the Bank of Korea to keep tightening monetary policy. The central bank meets in three weeks’ time and will decide whether to deliver another half-percentage-point hike or revert to a more gradual pace of 25 basis points.” Bloomberg reports.
Saudi Aramco Reports $42 Billion in 3Q Profit as Cash Rolls in for Oil Giants
New York Times
“Saudi Aramco, the world’s largest oil company, said on Tuesday that it had earned $42.4 billion in net income in the third quarter. The figure was more than double the nearly $20 billion that Exxon Mobil earned for the period.”
“It also enabled Saudi Aramco, which is state-controlled and has a near-monopoly on Saudi Arabia’s oil output, to pay a large dividend — $18.75 billion — mostly to the country’s government.”
“Aramco is the latest oil company to report very large profits in an environment marked by high petroleum prices after Russia’s invasion of Ukraine in February.”
“On Tuesday, BP, the London-based energy giant, reported what it called underlying replacement cost profits of $8.2 billion for the quarter, down slightly from the previous quarter but more than double the $3.3 billion in the same period in 2021.”
“…For Aramco, the earnings reported on Tuesday were nearly 40 percent above profits from a year earlier. But they were down from the second quarter this year, when Aramco earned a record $48 billion.” Stanley Reed reports.
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