Emerging Markets Monitor - October 4
Brazil Markets Jump on Bolsonaro Showing, EM in Record Bear Market, Biden Admin and Latin America's Left, China Smartphone Sales Cool, Iran Students in Revolt
The Top 5 Stories Shaping Emerging Markets from Global Media - October 4
Brazil Markets Jump on Strong Showing by Right-Wing Bolsonaro
Axios
“A stronger-than-expected showing for Brazil's far-right President, Jair Bolsonaro, in Sunday's presidential vote appeared to buoy Brazilian markets Monday. As a powerhouse producer of commodities such as soybeans, iron ore and petroleum, Brazil has Latin America's largest economy and population.”
“Brazil's benchmark Bovespa stock index jumped over 5%. Brazil's currency, the real, rose nearly 5% against the dollar. The country's bonds rose too, pushing interest rates, which move in the opposite direction of bond prices, down and lowering the country's borrowing costs.”
“Bolsonaro's opponent, the leftist former president Luíz Inácio Lula da Silva, who is known as Lula, took 48.4% of the votes in Sunday's election but was unable to settle the contest in one fell swoop — Bolsonaro fared much better than expected, with 43.2% of the vote.”
“Analysts think Bolsonaro's better-than-expected showing — some polls showed him trailing by more than a dozen percentage points — could force Lula to moderate some of his opposition to the deregulation and privatization programs Bolsonaro had pushed.”
“Brazilian utility giant Eletrobras — which is majority-owned by the government but the focus of a privatization plan — was one of the best-performing stocks in Brazilian markets Monday.”
“The performance of Brazil's markets on Monday was also influenced by news that OPEC+ was considering a large production cut for crude. The news drove oil prices sharply higher and lifted shares of Brazilian oil giant Petrobras by more than 13%.” Matt Phillips reports.
Emerging Markets In Record Bear Market
Bloomberg
“Emerging market stocks have been in a record stretch of bear market, surpassing their rough patch during the dot-com era and likely in for more pain given a surging dollar and China’s growth uncertainties.”
“It has been 594 days since the MSCI Emerging Markets Index closed at its peak in February 2021, the longest such period ever, according to Bloomberg-compiled data. The previous record was 589 days that ended in September 2001, according to an analysis by Morgan Stanley.”
“There are enough reasons to suggest that the weakness may last for a while, given an unapologetically hawkish Federal Reserve that will continue to boost the dollar’s value and draw funds away from emerging markets. Uncertainties also linger over the outlook of Chinese companies, which carry the biggest weighting in the index, due to the country’s rigid Covid policy and escalating tensions with the West.”
“‘EM equities will continue to face pressure from dollar appreciation and weak US equity markets,’ Jon Harrison, managing director for emerging-market macro strategy at TS Lombard in London, wrote in a note Monday. ‘EM outflows are set to accelerate as external conditions deteriorate.’” Bloomberg reports.
Biden Administration Woos Latin America’s Leftist Leaders
Wall Street Journal
“Secretary of State Antony Blinken arrived in South America as part of an effort to engage some of the continent’s new leftist leaders who are shaking up traditional alliances at a time when China is increasingly offering itself as an alternative to Washington.”
“Mr. Blinken made his first stop in the Colombian capital on Monday and met with newly elected President Gustavo Petro, a former guerrilla who has pledged to end the drug war and redesign other hallmarks of his country’s close relationship with the U.S. Mr. Blinken is also scheduled to visit Chile and Peru later this week, where some miners put investments on hold after leftist politicians won power in elections last year.”
“Western governments have struggled to constructively connect with a new crop of leaders in Mexico, Central America and South America who are more receptive to engagement with China and Russia and less prone to align with American policies, including counternarcotics strategies, the fight against corruption and migration.”
“Mr. Blinken’s five-day trip began a day after a leftist icon in Latin America, Luiz Inácio Lula da Silva, earned the most votes in the first round of Brazil’s presidential election. If Mr. da Silva wins the runoff on Oct. 30 against right-wing President Jair Bolsonaro, every major country in Latin America, from Argentina to Mexico, would have a leftist government, some of which are openly antagonistic toward Washington.” WSJ reports.
China’s Hot Smartphone Makers Show Signs of Cooling Amid Slowing Demand
South China Morning Post
“Few industries more exemplify China’s central role in global supply chains than smartphone manufacturing: in 2021, for every three smartphones produced in the world, two were made in China.”
“China is also the world’s single largest smartphone market – one out of every four phones sold last year was bought by a consumer in China, giving local brands such as Xiaomi, Huawei Technologies Co, Oppo and Vivo a big home market in which to grow first before venturing overseas to take on the likes of Apple and Samsung Electronics.”
“But a prolonged cooling of China’s smartphone market is sending shivers across supply chains as factories face cutbacks in production orders and local smartphone brands struggle to convince consumers to buy their latest models amid an economic downturn.”
“The usual buzz around smartphone brands and suppliers has faded, according to an executive at a handset supplier in southern China’s Guangdong province, with clients now making very conservative estimates about upcoming orders after reviewing forecasts for the year ahead.”
“‘Now we don’t know how many [handsets] we are supposed to produce for the next month until the last minute, since our clients have no clarity on how many they can sell either,’ said the executive, who declined to be named as he is not authorised to talk with the media. ‘Their forecasts now are purely symbolic, and it really depends on how consumption power will change under future Covid-19 policies.’”
“Orders at the executive’s manufacturing company have been cut by 20 to 30 per cent this year. The factory’s clients, which include some of the biggest domestic smartphone brands in China, had been optimistic about 2022 shipment volumes only to have their confidence shattered by the Russian invasion of Ukraine and the strict Covid-19 lockdown in Shanghai in March, the executive said.” Iris Deng reports.
Iran Students in Revolt After Crackdown on University
Iran International
“An organized violent government attack on protesting students in Tehran’s Sharif University Sunday has heightened tensions in Iran that can lead to more unrest.”
“After the fog of battle cleared Monday morning, the extent of what security forces planned and executed in Sharif University became clear. The emerging picture shows maneuvers and deception by security forces to corner the students and beat and arrest many.”
“The university’s Islamic Student Association Monday issued a call for a general, national student strike and early reports and images already show protests in many universities including in Esfahan, Mashhad, Sanandaj, Semnan and Kermanshah.”
“After more than two weeks of unrest, Iran’s hard-liners loyal to Supreme Leader Ali Khamenei, who is often the target of derogatory slogans by protesters, are simply caught in a typical ‘no-win’ situation. The more they crack down, the more anger will grip young people who drive and lead the protests. And if they show little reaction, crowds will become more emboldened and perhaps march on government buildings.”
“Sharif University students had gathered Sunday morning inside the main gate chanting slogans when a group of pro-government Basij militants showed up and taunted them. Student slogans became more radical to the degree of profanities against Khamenei, who is the favorite target of protesters.” Iran International reports.
“Power is not a means, it is an end. One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship.” - George Orwell