Business Maverick

Business Maverick

Emerging Marekets Review: Stocks Soared by Most in 8 Years on Signs of Growth

The vast majority of emerging markets, whether measured by population, GDP or market capitalisation, will benefit from the oil price collapse despite the near-term negative market reaction, says the writer. (Photo: EPA-EFE / STR)

Emerging-market stocks posted their biggest gains in more than eight years last week as investors looked past U.S.-China tensions and protests in America to focus on the rolling back of economic lockdowns. Better-than-expected U.S. jobs data on Friday helped solidify the new-found optimism over economic growth. Developing-nation currencies posted their biggest weekly advance since March 2016.

The following is a roundup of emerging-market news and highlights for the week through June 7:

Highlights:

  • U.S. Trade Representative Robert Lighthizer said he feels “very good” about the progress of the phase one trade agreement with China, which he said is honoring the pact amid the coronavirus pandemic
  • The U.S. economy added a record 2.5 million workers in May, compared with a median projection for a loss of 7.5 million jobs, fueling optimism the economy will bounce back quicker than previously forecast
  • OPEC+ agreed to a one-month extension of its record oil-production cuts and adopted a stricter approach to ensuring members don’t pump more than they pledged
  • China vowed to protect the legal rights of 33 Chinese companies that were added to a U.S. trade blacklist
  • The Trump Administration, in the latest move ratcheting up tensions in U.S.-China trade, said Friday that the nation had continued to violate airlines’ rights by restricting flights and ordered new limits on its carriers
  • The U.S. is starting investigations into digital services taxes being considered by several trading partners from the European Union to India that could lead to tariffs being imposed on exports to America
  • U.K. Prime Minister Boris Johnson said he will give as many as three million Hong Kong residents the chance to seek refuge and a new life in Britain if China presses ahead with plans to impose a new security law on its former colony
    • Two British institutions that dominate Hong Kong’s banking system backed Beijing in the standoff over a proposed new security law, joining Jardine Matheson Holdings Ltd. and some of the city’s biggest developers
  • Chinese officials and state media needled the Trump administration over race-related protests and looting that have engulfed U.S. cities in recent days, after weathering criticism and threats from Washington over Beijing’s own moves to quell unrest in Hong Kong
  • The European Central Bank intensified its response to the “unprecedented contraction” facing the euro area with a bigger-than-anticipated increase to its emergency bond-buying program
  • debt-relief initiative for poor nations is losing momentum as credit premiums narrow and lenders balk at the complexities of a concerted halt in payments
  • The global pandemic will have a lasting impact on emerging market and developing nations, particularly those that suffer financial crises and are energy exporters, the World Bank said
  • Saudi Arabia’s reserves fell for a second month after the kingdom said it had transferred 150 billion riyals ($40 billion) to finance an investment spree by its sovereign wealth fund
    • The kingdom unveiled a $13.3 billion stimulus package to protect banks against an expected drop in profits and increase in bad loans as they confront the double whammy of the coronavirus and lower oil prices
    • Saudi Arabia made some of the biggest increases in pricing for its crude exports in at least two decades, doubling down on its strategy to bolster the rally in oil a day after OPEC+ producers extended historic output cuts
  • South Korea’s government unveiled a 76 trillion won ($63 billion) “new deal” spending plan to reshape the economy after slashing this year’s growth forecast
  • Malaysia unveiled 35 billion ringgit ($8.2 billion) in additional stimulus to help the economy recover from the coronavirus
  • Asia’s factory managers remained downbeat about the world’s trade engines in May, even as battered economies start to re-open across the region
  • The riskier parts of the developing world are again flirting with international debt markets, and Asian companies are leading the charge
  • Brazil tested international debt market appetite with a $3.5 billion bond sale that was well received, despite coming shortly after the country reported a record slump in industrial production
    • The country reported a record number of daily coronavirus deaths, surpassing Italy to become the third in the world in number of fatalities from the disease
  • As the pandemic sweeps across Latin America, the coronavirus is devastating Mexico’s medical community, with health-care workers making up more than 20% of all cases
    • A top World Health Organization official declared Latin America the new epicenter for Covid-19
  • Egypt and the International Monetary Fund reached a staff-level agreement on a $5.2 billion stand-by arrangement that aims to alleviate the economic impact of Covid-19
  • African economies could swing into a depression without a debt moratorium of at least three years, Ghana’s finance minister said
    • The killing of an unarmed African-American by a Minneapolis police officer and resulting civil upheaval have set back U.S. efforts to strengthen its tenuous relationship with Africa and counter China’s growing influence
Asset moves last week: Weekly
MSCI EM stocks index +7.8%
MSCI EM FX index +1.8%
Bloomberg Barclays Global EM Local Currency bonds index +1.1%

Asia:

  • China’s trade surplus surged to a record in May as exports fell less than expected, helped by an increase in medical-related sales, and imports slumped along with commodity prices
    • A gauge of China’s manufacturing activity slipped in May, underlining the slow recovery from the first-quarter slump
    • China is considering using about 200 billion yuan ($28 billion) in proceeds from government bond sales to help address risks in the banking sector, according to people familiar with the matter
    • China’s central bank said it will temporarily purchase loans made to small businesses from some local banks to help boost the supply of lending to the real economy
    • Donald Trump threatened tariffs on China, saying China must drop tariffs on U.S. lobster
    • U.S. soybean exporters sold several cargoes to Chinese state-run buyers, according to people familiar, showing that some transactions are still going through even after officials in Beijing ordered a pause
    • Thousands gathered across Hong Kong to commemorate victims of China’s military crackdown in Tiananmen Square in 1989, defying an unprecedented ban on congregating for this year’s vigil
    • China’s central bank said it will “unswervingly” support Hong Kong’s role as an international financial center, in a statement backing the Beijing government’s controversial move to introduce a national security law for the territory
    • A slump in China’s government bonds is set to deepen as traders’ optimism over aggressive monetary easing evaporates
    • China’s success in luring foreigners to its domestic debt market faces a new test as officials try to drum up interest in a record wave of bonds from local authorities
  • India’s credit rating dropped one step closer to junk after Moody’s Investors Service downgraded the nation to the lowest investment-grade level and surprised economists by keeping it on a negative watch
    • India’s monetary policy makers are prepared to provide more stimulus to buoy Asia’s third-largest economy amid the Covid-19 pandemic, minutes of their latest meeting showed
    • India is open to taking more measures on top of an already announced massive package to steer its economy out of the coronavirus crisis, junior finance minister Anurag Thakur said
    • India’s most ambitious step to get a tighter grip on rupee trading, which has been shifting to markets like London and Singapore, is being put to the test as the nation’s banks start trading the currency in offshore markets
  • South Korea plans to issue 23.8 trillion won in government bonds in its third extra budget to shore up a slumping economy and lay the groundwork for post-pandemic growth
    • The nation’s exports posted another double-digit decline in May in a sign of continuing pain from the coronavirus pandemic
    • South Korea became the latest country to report deflation amid slumping oil prices and pandemic-hit demand
  • Indonesia’s economy may grow even less than already reduced estimates, and the fiscal deficit will widen further, as the government ramps up its response to the Covid-19 pandemic, the finance minister said
    • Indonesia received a record amount of orders for its bond sale in a sign investor appetite was returning to emerging-market debt as economies reopen from their coronavirus lockdowns
    • Jakarta’s government may begin lifting coronavirus restrictions within weeks amid a push to reopen the economy
    • Indonesian companies are warning investors of plunging revenue and profit as the coronavirus pandemic ravages the economy
    • Indonesian lenders should be able to pass on lower interest rates on the back of a move by policy makers to pay 1.5% for funds held in the central bank’s vault, part of an effort by authorities to bolster the economy, Bank Indonesia Governor Perry Warjiyo said
  • The Bank of Thailand is concerned about the baht’s strength and will consider additional measures to reduce the impact on foreign exchange, Deputy Governor Mathee Supapongse said
    • A shakeup at the political party leading Thailand’s ruling coalition spurred talk of a possible Cabinet reshuffle in the wake of criticism of the its response to the coronavirus pandemic
  • Malaysia’s economy is about to feel the full brunt of the coronavirus pandemic. After posting its slowest growth since the global financial crisis, the economy is set to slip into a recession in the next four to six months, the country’s top statistician said
    • The pandemic has left Malaysia’s palm oil industry without enough workers, a shortage that could cost farmers as much as 25% of their annual production
    • Sales of Malaysia’s local corporate bonds have slumped to the lowest in five years as companies refrain from borrowing even as yields near record lows
    • Malaysia will double online trading limits this year as the rush of small investors into stocks helped push the market into bull territory
  • Philippine central bank governor Benjamin Diokno said the monetary easing implemented against coronavirus was appropriate, and further action will depend on the economic recovery
    • The central bank has reassured investors that its government bond-buying program which started in March is legal and won’t create risks to the economy, Diokno said
    • Gross domestic product may rise 8% to 9% in 2021, faster than an earlier estimate of 7.1% to 8.1%, the Budget Department said. President Rodrigo Duterte is asking for a 4.34 trillion peso ($87 billion) budget for next year, higher than the 4.18 trillion initially planned
    • The Philippines has suspended its decision to end a 22-year old agreement that facilitates joint military exercises with the U.S., amid tensions in the South China Sea
    • The number of jobless Filipinos surged to 7.3 million in April as lockdowns to contain the coronavirus outbreak shut businesses
  • Taiwan is dangling incentives to attract more than NT$40 billion ($1.3 billion) of annual investments in research and technology, creating a seven-year blueprint to safeguard its lead in semiconductors and other cutting-edge fields

EMEA:

  • Turkey will no longer allow investors to set up hedge funds that invest primarily in foreign-exchange assets and will start taxing existing ones, the latest measures designed to clamp down on local demand for hard currency
    • Turkish policy makers are pumping money into the economy at the fastest pace in more than a decade to contain the fallout of the coronavirus pandemic, a move that risks weakening the currency and stoking inflation
    • The nation vowed to defend its interests in the eastern Mediterranean, where it’s preparing to issue new energy exploration licenses over the objections of Greece and the European Union
    • Turkey’s President Recep Tayyip Erdogan canceled plans to reimpose lockdowns in major cities to avoid further damage to the economy
  • Poland will hold its presidential election on June 28 after postponing a contested May ballot due to the coronavirus
  • Faced with a budget deficit that’s likely to reach wartime levels, South African Finance Minister Tito Mboweni is rebuffing suggestions that the central bank help plug the hole
    • An index measuring South African manufacturing sentiment rose above 50 for the first time in 10 months in May as some lockdown restrictions aimed at curbing the spread of the coronavirus were eased
    • South Africa’s banks are facing political pressure to adjust the rate they use as a reference to determine interest charges after measures to contain the coronavirus roiled the economy, according to the nation’s bank regulator
  • Estonia attracted more than 7.7 billion euros ($8.8 billion) of demand for its debut benchmark euro bond, allowing it to reduce the spread by about half and secure cheaper funding to fight the coronavirus
  • Facing the worst recession in more than a decade, Russian President Vladimir Putin plans to roll out a spending plan to rival stimulus packages in other major economies
  • Kuwait is guiding a new effort to broker an agreement between feuding Gulf states, according to a person familiar with the matter
    • This round of negotiations is based on a U.S. proposal for Saudi Arabia and the United Arab Emirates to open their airspace to Qatar, the person said, asking not to be identified
    • Kuwait said there is progress in resolving a three-year standoff between Qatar and its Gulf Arab neighbors
  • Business conditions in the Arab world’s three largest economies deteriorated at a slower pace in May as governments began to lift some lockdown restrictions, while companies adjusted by trimming staff and cutting salaries
  • Oman has emerged from distressed-debt territory to become a bond-market star this quarter, offering the sultanate a window of opportunity to borrow again after almost a year
  • Sharjah hired banks to raise as much as $1 billion from international debt markets, joining wealthier Gulf states to shore up its finances against the fallout from the coronavirus
  • Angola is in talks with some of its crude-importing partners to reprofile its debt and has joined a separate initiative to negotiate the suspension of bilateral debt payments
  • The rebound in oil prices has given Nigeria’s naira a reprieve, easing concern that a steep devaluation may be unavoidable
    • Nigeria’s economy is likely to contract in the second quarter, according to three gauges of business activity that highlight the difficulties the central bank faces in trying to stave off a recession

Latin America

  • In Mexico, daily deaths from the coronavirus passed the 1,000 mark Wednesday and the Health Ministry said the number of cases is likely higher than the official tally
    • Streets in Mexico City are coming to life after residents ignored coronavirus concerns as President Andres Manuel Lopez Obrador began a cross-country tour
    • A violent protest against police brutality began following the alleged murder of a man at the hands of police
    • Twelve million Mexicans lost or were suspended from their jobs in April
    • Investment in Mexican factories and equipment fell the most in March since the global economic crisis of 2009
  • Brazil’s industrial output fell the most on record in April as the economy was impacted by the coronavirus crisis
    • The nation’s political turmoil turned theatrical as President Jair Bolsonaro turned up at an anti-congress rally on a horse
    • In a rare bright spot among tumbling economic indicators, Brazil’s current-account deficit is narrowing fast and could become a surplus this year
    • China’s ambassador to Brazil urged a friendlier relationship between the two countries, calling the pandemic impacts transitory
  • Chile extended the quarantine period in the Metropolitan Region for an extra week after the health ministry reported 4,942 new cases on Wednesday alone
    • The country’s central bank will begin reducing FX hedge operations; Chile began the intervention program in November, aiming to reduce FX volatility
    • The central bank also requested lines of credit from the New York Federal Reserve and the People’s Bank of China
    • Even as the country’s economic outlook dims, Chile’s local-currency sovereign bonds have led global peers this year
  • Argentina won’t stop its monetary expansion for some time, Foreign Minister Felipe Sola said
    • The gap between the government and its creditors over a debt restructuring is narrowing, though they are still at odds on points including how much debt relief the country will get over the next four years
    • Virus chaos at U.S. meat-processing plants has presented Argentina’s beef industry with an opportunity
    • Argentina’s Rio Negro province plans to use a grace period to delay a $11.6 million interest payment
    • President Alberto Fernandez announced a lockdown extension to June 28 in areas with community spread of Covid-19
    • Lawmakers called on the government to nationalize the troubled agricultural trader Vicentin
  • Colombian oil output fell to the lowest since 2010 as the collapse of crude prices and the pandemic forced the shutdown of some wells
  • Ecuador began debt talks amid mounting economic pressures
    • The country declared force majeure on oil production intended for transport through a now-halted pipeline
    • A group of Ecuador creditors hired UBS Investment Bank and BroadSpan Capital as financial advisers
  • Costa Rica’s government won’t ask investors for haircuts as it seeks to extend maturities on its local debt
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