Emerging Markets Monitor - November 23
EM Bulls are Back, Egypt Stocks Sizzle, Malaysia King Steps in on Election Crisis, IMF Offers Relief to Kenya and Tanzania, Azerbaijan-Russia Gas Deal and Europe
The Top 5 Stories Shaping Emerging Markets from Global Media - November 23
Emerging Markets Bulls Are Back Again
Reuters
“After some of the biggest losses in emerging markets on record this year the bulls are back, betting that the time has come for a rebound.”
“With caveats that global interest rates stabilise, China relaxes COVID restrictions and nuclear war is averted, annual investment bank forecasts for 2023 suddenly have some pretty lofty predictions for emerging markets (EM).”
“UBS, for example, expects EM stocks and fixed income to earn between 8%-15% in total returns after a 15%-25% pummelling this year. A ‘bullish’ Morgan Stanley expects a near 17% return on EM local currency debt. Credit Suisse ‘particularly’ likes hard currency debt, while BofA's latest global fund manager survey shows ‘long EM’ is the top ‘contrarian’ trade.”
“The 15% loss currently racked up by local currency debt would be a record, while EM stocks have only had worse years during the financial crisis in 2008, the dotcom burst of 2000 and the Asian debt blowup in 1998.”
“It is the experience of those past routs that has led to the current wave of optimism. MSCI's EM equity index soared 64% in 1999 and 75% in 2009 after losing 55% during both the Asian and financial market crashes. EM hard currency debt saw a whopping 30% rebound too after its 12% GFC drop and local debt which had lost just over 5% went on to make 22% and then 16% the year after.” Reuters reports.
Egypt Stocks Sizzle on Devalued Pound, IMF Rescue
Bloomberg
“Egyptian stocks have gone on a furious bullish run since the country devalued its currency and agreed on a $3 billion loan from the International Monetary Fund last month, giving investors more confidence to capitalize on cheaper shares.”
“The benchmark EGX 30 Index has posted a run of weekly gains since the pound was devalued for the second time this year in October. The gauge has soared more than 47%, in local currency terms, from its July low and is the best performing benchmark globally since the devaluation late last month.”
“The North African nation has faced surging import bills and an exodus of foreign money due to the fallout from Russia’s invasion of Ukraine. Agreements with the IMF and other international partners to help finance Egypt’s external funding gap have fueled investor confidence in the nation’s equities.”
“Investments from Persian Gulf nations could also be supporting the market. Abu Dhabi wealth fund ADQ is snapping up stakes in key listed Egyptian companies. Also, Saudi Arabia’s sovereign wealth fund has started a company that will invest in swathes of Egypt’s economy.”
“Commercial International Bank of Egypt has led the rally with a gain of more than 30%. Citigroup Inc. analyst Rahul Bajaj said it will benefit from higher interest rates after the central bank lifted borrowing costs, while valuations are still ‘quite compelling,’ in a note earlier this month. Exporters such as Abou Kir Fertilizers & Chemical Industries have also topped gains, boosted by a weaker currency and as investors seek to protect their savings.” Farah Elbahrawy reports.
Malaysia King to Step in to Resolve Election Crisis
CNBC
“Malaysia’s king met with lawmakers Wednesday and will next consult other royal families in a continuing search for a prime minister after inconclusive general elections that saw the rise of Islamists sparked anxieties in the multiracial nation.”
“Opposition leader Anwar Ibrahim’s Pakatan Harapan, or Alliance of Hope, topped Saturday’s poll with 82 parliamentary seats, but failed to reach the 112 needed for a majority. Former Prime Minister Muhyiddin’s Malay-centric Perikatan Nasional, or National Alliance, won 73 seats. The hung parliament renewed a leadership crisis in Malaysia that saw three prime ministers since 2018.”
“The biggest winner was the Pan-Malaysian Islamic Party, the hard-line ally in Muhyiddin’s bloc, with 49 seats — more than double what it won in 2018. Known as PAS, it backs Islamic Shariah law, rules three states and is now the single largest party.”
“As the contest for the top job drags on, police have tightened security as posts on social media warned of racial troubles if Anwar’s multiethnic bloc wins. Malay Muslims form two-thirds of Malaysia’s 33 million people, who include large ethnic Chinese and Indian minorities.” CNBC reports
IMF Offers Temporary Reprieve to Kenya and Tanzania
The East African
“The International Monetary Fund has offered a temporary cushion to East Africa but with conditions attached. This week, IMF approved credit extensions to Kenya and Tanzania as they battle rising inflation.”
“Early last week, the IMF board approved $235.6 million worth of Extended Credit Facility (ECF) and Economic Fund Facility (EFF) for Kenya. It also approved an SDR 795.58 million (about $1,046.4 million) ECF arrangement for Tanzania, with about $151.7 million to be disbursed immediately.”
“However, the countries will have to adhere to certain fiscal policies, including eliminating fuel subsidies that have been running since last year. The IMF says subsidies are costly to the government and cannot lower prices in situations where other factors raise the price of fuel.” The East African reports.
Azerbaijan Russian Gas Deal Raises Tough Questions for Europe
Eurasianet
“Azerbaijan has begun importing gas from Russia under a deal which should enable Baku to meet its own domestic demand but which raises serious questions over its recent agreement to boost exports to Europe.”
“Russia's state gas producer and exporter Gazprom announced on November 18 that it had begun supplying gas to Azerbaijan's state gas company SOCAR on November 15 and would supply a total of up to a billion cubic meters through March 2023.”
“…The deal was signed just ahead of the mid-winter peak demand period, as Azerbaijan will be seeking to maintain supplies to its domestic gas customers while also meeting its export commitments to Georgia and Turkey, as well as its recently expanded trade with Europe.”
“Exports to Europe through the Southern Gas Corridor had been scheduled to reach 10 billion cubic meters this year, but under a new memorandum of understanding with the European Union signed in July, Baku agreed to increase exports to 12 billion cubic meters.”
“That increase was intended to help Brussels offset the loss of supplies of Russian gas, which have been cut by Moscow in retaliation for EU sanctions imposed following Russia's invasion of Ukraine.” David O’Byrne reports.
Another Stunner - Japan Beats Germany 2-1
Following Saudi Arabia’s stunning 2-1 victory of Argentina, another football powerhouse falls to a rising power as Japan knocks off Germany 2-1.
World Cup Results So Far
November 23
Morocco 0, Croatia 0
Japan 2, Germany 1
Spain vs Costa Rica
Canada vs Belgium
November 22
Saudi Arabia 2, Argentina 1
Denmark 0, Tunisia 0
Mexico 0, Poland 0
France 4, Australia 1
November 21
England 6, Iran 2
Netherlands 2, Senegal 0
USA 1, Wales 1
November 20
Ecuador 2, Qatar 0
November 24 Matches
Switzerland vs Cameroon
Uruguay vs South Korea
Portgal vs Ghana
Brazil vs Serbia
"I don't count the sit-ups. I only start counting when it starts hurting because they're the only ones that count. That's what makes you a champion." - Muhammad Ali