Emerging Markets Monitor - October 19
EM Under Pressure Amid MidEast Conflict, India: The Next Big Thing?, Transsion Fueled by EM, S. Korea Rising, EU to Push for Fossil Fuel 'Phase Out'
The Top 5 Stories Shaping Emerging Markets from Global Media - October 19
Emerging Markets Under Heavy Pressure as Middle East Conflict Escalates
Bloomberg
“Emerging-market assets were under pressure Wednesday as soaring oil prices and conflict in the Middle East overshadowed any optimism generated by forecast-beating Chinese growth data.”
“Stocks fell to the lowest in more than a week as a wave of risk aversion gripped markets as traders worried about an escalation of the conflict in the Middle East. The Mexican peso sank 1.3% versus the greenback, leading losses among all but three of the 23 developing-world currencies tracked by Bloomberg.”
“Dollar bonds issued by Middle Eastern sovereigns were among the worst performers, with Dubai’s notes due in 2043 sliding to 84 cents on the dollar, the lowest in 11 months. Israel’s bonds due 2043 fell for a fifth-consecutive day.”
“Oil prices surged above $90 per barrel as Iran called for an embargo against Israel after a massive bombing at a Gaza City hospital killed at least 500 people, leading Israel and Hamas to trade blame for the attack. Concern that the conflict will escalate remained high, even after President Joe Biden’s 7.5-hour trip to Tel Aviv.”
“Some Asian assets briefly rallied earlier in the session after data showed China’s economy gained momentum last quarter. The gains, however, faded rapidly as focus returned to the Middle East and China’s real estate woes. With developer Country Garden Holdings Co. appearing headed for its first-ever debt default, a Bloomberg Intelligence gauge of developer shares closed at a 14-year low.” Bloomberg reports.
Is India the Next Big Emerging Market Growth Story?
Financial Times - Unhedged
”…At Unhedged, our focus is the investment story. It is powerfully appealing. It has been a bitterly disappointing decade for emerging market investors. But the desire to allocate a meaningful slice of portfolios to the emerging world, as a source of both diversification and growth, remains.”
“And the strongest reason for weighing this slice towards India is not just that the country has averaged real GDP growth of more than 6 per cent a year for the past 30 years; that growth has also translated into stock market returns in a way that China’s growth, for example, has not.”
“Over the past 30, 20, 10 and five years, the Sensex has performed as well or better than the S&P 500, leaving other big markets far behind: India’s growth story is built on its remarkable increase in total factor productivity, the economy’s ability to generate output from a given amount of labour and capital.”
“…the biggest improvement is undoubtedly from better basic infrastructure. The country has, for instance, seen a major buildout of seaports, railways, roads and airports, in no small part overseen by the Adani Group.”
“…Favourable demography is also lifting India’s economy. On current population estimates, the working-age share of population is expected to rise (and dependency burden fall) for several years. This helps offset India’s dismal female labour force participation and underemployment.”
“Should those improve, growth could accelerate further. And even when the demographic dividend fades, India’s working-age population is poised for a ‘long plateau’ that could last decades.” The FT reports.
Report of Note: Views from the Ground: India
This report by a friend of Emerging World, Malcolm Dorson, and Paul Dmitriev caught our eye this week. It’s an insightful trip report on India that describes it as “the best structural growth opportunity in emerging markets.”
Excerpt below:
“We continue to see India as the best structural growth opportunity in emerging markets (EM), if not the world. Our recent due diligence trip to Mumbai consisted of over 40 meetings with management teams, local investors, political experts, sector consultants, and economists. We worked closely with our affiliate, Mirae Asset’s, 14 person on-the-ground investment team and walked away enthusiastic on India’s near- and long-term investment prospects.”
“As a sign of momentum, on the eve of our arrival in Mumbai, JPMorgan announced it would begin including India in its widely tracked JPMorgan Chase Government Bond Index – Emerging Markets from June 28, 2024, on. If the same move is replicated by FTSE and Bloomberg, we estimate that the potential U.S. dollar (USD) inflow to India could add up to USD 45bln over the next two years. This would likely support the currency, keep inflation in check, and provide additional liquidity to boost the ongoing capex cycle. To us, this is a clear signal that capital markets are deepening, investment will likely continue, wages are apt to grow, and consumption could increase exponentially. With over 15 years on the ground, we were also encouraged to see Mirae Asset and Global X’s brand maintain a leadership position in the Indian asset management landscape.”
From Global X by Mirae Asset - India: Views from the Ground
Emerging Markets Fuel Growth of China’s Smartphone Maker Transsion
Forbes
“Transsion isn’t a household name in smartphones in much of the world. The Chinese manufacturer’s focus is emerging markets, especially Africa. Yet those international sales are helping the company to its increase market share and profits this year, according to two reports on Monday.”
“Net profit for the third quarter at Shenzhen-headquartered Transsion soared by 195% from a year earlier to nearly 1.8 billion yuan, or $247 million; earnings were helped by sales that increased by 39% to 18 billion yuan, Transsion said in a stock filing on Monday. For the first nine months of the year, net profit climbed by 72% year-on-year to 3.9 billion yuan, on sales that gained 19% to 43 billion yuan.”
“Transsion is led by Chinese billionaire Zhu Zhaojiang — also known as George Zhu, The entrepreneur is worth $1.8 billion on the Forbes Real-Time Billionaires List. The company went public at the Shanghai Stock Exchange in 2019 at 35.15 yuan a share. Its stock closed at 141.54 yuan today, and have risen by 131.7% in the past 12 months. Transsion’s brands include Tecno, itel and Infinix, as well as Carlcare for after-sales services, Oraimo for smart accessories, and Syinix for home appliances, according to the company’s website. Transsion has factories in China, Ethiopia, India and Bangladesh.”
“Transsion was the only top-five smartphone vendor in the world to gain market share in the third quarter, according to a report yesterday by research firm Canalys. Its share market share increased to 9% from 6% a year ago, tied for No. 4 globally during a time when overall smartphone shipments fell by 1%.”
“Samsung was No. 1 with a 20% share, Apple came in No. 2 with a 17% market share. China’s Xiaomi was third with a 14% market share and OPPO was fourth also with about 9%.” Russell Flannery reports.
S. Korea Projected to be Among Top Seven Economies by 2040: McKinsey
Korea Times
“Korea is forecast to grow into the world's seventh-largest economy by 2040, with per capita gross domestic product (GDP) expected to surpass $70,000, according to the head of McKinsey & Company in Korea on Thursday.”
“Under the presentation title of ‘Korea's Next S-Curve,’ Song emphasized that Korea has now entered a new period of economic growth in which Korea needs to focus on high-tech industries, such as semiconductors, bio and artificial intelligence (AI), to implement a necessary transition to a value-added economy.”
“McKinsey suggested that Korea implement eight major tasks, including industrial structure reform, business model reform, conversion to new businesses centered on original technology and AI, among others, under the three axes of reorganization, transformation and construction.”
“‘If Korea boldly implements the key tasks with a growth mindset, it will be possible for Korea to become the world’s seventh-largest economy by 2040 with achieving a per capita GDP of $70,000,’ Song said during the session.” Korea Times reports.
EU to Push for COP28 Deal on Phasing Out Fossil Fuels
Reuters
“EU countries' climate ministers on Monday approved the bloc's negotiating position for this year's U.N. COP28 climate summit, agreeing to push for a world-first deal to phase out CO2-emitting fossil fuels.”
“The agreement sets up the 27-country European Union to be one of the most ambitious negotiators at the annual United Nations climate talks, where nearly 200 countries negotiate efforts to fight global warming.”
"‘We will be at the forefront of the negotiations to show the EU's strongest commitment to the green transition and encourage our partners to follow our lead,’ Spain's Climate Minister Teresa Ribera said.”
“A central decision will be whether countries at the COP, which begins on Nov. 30 in Dubai, agree for the first time to phase out fossil fuels. Burning coal, oil and gas produces greenhouse gases that are the main cause of climate change.”
“The EU's 27 member countries agreed unanimously to call at COP28 for a phase-out of ‘unabated’ fossil fuels. That leaves a window for countries to keep burning coal, gas and oil if they use technology to ‘abate’ - meaning capture - the resulting emissions.”
However, the EU deal noted that emissions capturing technologies ‘exist at limited scale and are to be used to reduce emissions mainly from hard to abate sectors.’ The use of these technologies ‘should not be used to delay climate action’, said the deal, seen by Reuters.” Kate Abnett reports.
“As is a tale, so is life: not how long it is, but how good it is, is what matters.” - Seneca