Emerging Markets Monitor - Sept. 2
Europe Recession Looms, Billionaire Adani Notches Another Win, Arab-Africa Trade Rising, Markets Eye More Fed Hikes, IMF-Sri Lanka $2.9B Loan Deal
The Top 5 Stories Shaping Emerging Markets from Global Media - September 1-2
Warning: Europe is Headed for Recession
The Economist
“Every single warning light is flashing red. Russia’s war on Ukraine, an uneven recovery from the covid-19 pandemic and a drought across much of the continent have conspired to create a severe energy crunch, high inflation, supply disruptions—and enormous uncertainty about Europe’s economic future. Governments are rushing to try to help the most vulnerable. Amid the nervous confusion, there is broad agreement on one thing: a recession is coming.”
“Quite how bad the downturn will be depends on how the energy shock plays out, and how policymakers respond to it…Because gas is the marginal fuel in most European electricity markets, it sets the price for power more broadly.”
“…things will look considerably gloomier in a few months for three reasons. First, industry is under pressure. In the spring, the leaders of Europe’s largest manufacturers argued that cutting off Russian gas supplies too swiftly would bring economic crisis to the continent…The second reason for gloom is that consumer spending on services will struggle to hold up the continent’s economy…Last, Europe will almost certainly see the energy shock coincide with rising interest rates.”
“…All this suggests that the European economy is certain to enter a recession, led by Germany, Italy and central and eastern Europe. Analysts at JPMorgan Chase, a bank, expect annualised growth rates of -2% for the euro area overall in the fourth quarter of this year, -2.5% for France and Germany and -3% for Italy. Italy’s troubles and high debts could trigger jitters in Europe’s bond markets. European politicians have so far spent a lot of time thinking about how to respond to surging energy prices. They could soon have a broader crisis on their hands.” The Economist reports.
Billionaire Adani’s Flagship Enters Key India Index
Bloomberg
“Adani Enterprises Ltd., the flagship company of Asia’s richest man, Gautam Adani, has become the second unit of the ports-to-power conglomerate to be included in one of India’s key equity gauges as the group expands.”
“The firm will join the NSE Nifty 50 Index, the most tracked stocks gauge in the country, replacing Shree Cement Ltd., according to a statement on Thursday from National Stock Exchange of India Ltd.’s index-management firm.”
“It’s a boost for the billionaire, whose firms’ weightages have been adjusted on the MSCI India Index in recent months. The group is surging ahead with a string of acquisitions even as some analysts flag concerns about its level of leverage.”
“The inclusion of Adani Enterprises on the Nifty 50 could result in a net inflow of around $213 million for the stocks counter, while Shree Cement will see an outflow of $87 million, according to Edelweiss Securities Ltd. analyst Abhilash Pagaria.”
“Shares of Adani Enterprises have risen 89% this year, while all seven listed companies have rallied, led by a 310% surge in Adani Power Ltd. The group has grown rapidly, announcing plans to push into multiple new businesses, including media, healthcare and digital services.” Ashutosh Joshi reports.
After Years of Underperformance, Arab-Africa Trade Ties on the Rise
African Business
“While there has always been a strong desire to boost Arab-Africa trade, the rhetoric has largely failed to match the delivery.”
“Arab-Africa trade has been static at 17% of the continent’s total trade for the last seven years, with China and the EU by far its two largest trading partners. Continental trade with its Arab neighbours according to Afreximbank is estimated at a mere $80bn in 2021.”
“But the signs are that the trade and investment winds of change are blowing over the continent from the north-eastern enclave of Arab countries centred around Egypt, the new gateway to sub-Saharan Africa (SSA).”
“Companies such as the ports and logistics giant, DP World, renewable energy and construction trendsetter Elsewedy Electric, and power company ACWA are already established in Africa but keen to expand operations and investments.”
“The WTO’s World Trade Report 2021 shows that global trade has been more resilient during the pandemic than the 2008-09 financial crisis. Similarly, Africa’s merchandise trade, says the IMF, contracted by 12.3% in 2020 and has expanded by more than 28% in 2021.”
“The accession of Algeria as the 52nd member of Africa’s largest multilateral trade finance institution, Afreximbank, and the National Bank of Egypt’s (NBE’s) commitment to participate in Afreximbank’s General Capital Increase are two examples of the new urgency in Arab-Africa trade and the investment direction of travel.”
“NBE’s total investment of $326.6m, of which $130.6m is paid-in, makes it the largest non-sovereign shareholder in the Bank. Prof. Benedict Oramah, President of the Bank, called this investment “momentous”.”
“Cairo’s export and investment drive into targeted SSA markets is underpinned by the government’s new plan to increase exports to Africa to $10bn by 2025.” Mushtak Parker reports.
Markets Expect Continued Fed Tightening, Sapping Stocks Momentum
Wall Street Journal
“Investors are heading into Friday’s jobs report with a sense of unease, with many now convinced the Federal Reserve will keep tightening monetary policy even if economic data take a turn for the worse.”
“U.S. stocks have fallen four of the past five sessions and chipped away at the late-summer rally that had helped them bounce off their lows for the year.”
“Investors say the market’s malaise is in part due to worries that, rather than slowing down its pace of interest-rate increases at the first sign of slowing growth, the Fed will keep charging ahead to tamp down inflation.”
“Ordinarily, a strong economic report should be viewed as good news by investors. But this time around, many investors fear that an impressive read would only give the Fed more resolve to keep raising interest rates.” Akane Otani reports.
IMF and Sri Lanka Reach Preliminary $2.9 Billion Agreement
The National
“The International Monetary Fund and Sri Lanka reached a preliminary $2.9 billion agreement to restore the stability of the economy and help the country manage its debt as it presses forward with structural reforms.”
“Debt relief from Sri Lanka’s creditors and additional financing from multilateral partners will be required to help ensure debt sustainability and close fgton-based lender said.”
“The new arrangement is subject to the approval of the fund's management and executive board.
“;Sri Lanka has been facing an acute crisis. Vulnerabilities have grown, owing to inadequate external buffers and an unsustainable public debt dynamic,’ said the IMF's Peter Breuer and Masahiro Nozaki, who held talks with authorities in Colombo from August 24 to September 1.”
“Faced with its worst economic crisis since independence in 1948, as well as dwindling foreign currency reserves and a shortage of fuel and medicine, the island nation of 22 million people said in April that it was defaulting $51bn of external debt for the first time and missed interest payments on some of its sovereign bonds.”
“In 2021, Sri Lanka’s foreign debt was equal to 64.2 per cent of its gross domestic product and total debt was equal to 119 per cent of the country's GDP.”
“Sri Lanka's economy is expected to contract by 8.7 per cent in 2022. Inflation recently exceeded 60 per cent, affecting mostly the poor and vulnerable, according to the fund.”
“‘The authorities’ programme, supported by the fund, would aim to stabilise the economy, protect the livelihoods of the Sri Lankan people and prepare the ground for economic recovery and [the promotion of] sustainable and inclusive growth,’ the fund's officials said.”
“Sri Lankan authorities will need to raising fiscal revenue and consolidate their finances. The IMF programme mandates that the country put in place major tax reforms that will help to reduce income inequality.” Massoud A Derhally reports.
“Smooth seas do not make skillful sailors” - African proverb