Semester 2 Week 6

Hey Legend!

Happy Monday! Hope you’ve been well 🥳, we’re almost half-way through semester 2. Keep on going soldier, 7 weeks left, we believe in you 💚

This marks the inaugural edition of the Emerging Markets Newsletter, where we bring you the latest insights across the developing world. Your inbox will be graced with our presence weekly on Mondays.

We will be making an appearance at the FBE Student Brunch 🍽️ on the 5th of September and have an exciting event coming up in Week 8 ☕. Keep your eyes on our socials for further details.

The Numbers

The Roundup

Stay updated with the latest economic 📈, financial 🏦, and political 🗳️ headlines from India and China, along with this week’s hot topic 🔥 in emerging markets.

India

India has been experiencing significant developments across various sectors in the past week, from a landmark fiscal policy 💰 to persistent inflation 😐 and geopolitical tensions 🗺️. Let’s dive right in.

• India's tech and renewable energy sectors are surging forward. The IndiaAI mission, with a $1.25 billion budget, aims to make India a global AI leader🌍. Simultaneously, renewable energy capacity has hit 191 GW as of May 2024, led by solar and wind. 🌞💨 Challenges like infrastructure gaps and regulatory issues still loom.

• Finance Minister Nirmala Sitharaman unveiled a stimulus package focusing on SMEs and infrastructure. 🏗️ This includes tax incentives and increased funding to boost domestic consumption💰. Short-term relief is likely, but long-term success hinges on effective execution.

• The Reserve Bank of India (RBI) has maintained the repo rate at 6.50%⚖️. This cautious approach balances growth with inflation risks. Future rate changes will depend on economic indicators and inflation trends.

• Tensions between India and Pakistan are rising, leading to increased military deployments along the LoC (Line of Control)🛡️. In addition, India is also pushing for a stronger international role, evidenced by the recent visit of PM Narendra Modi to Ukraine and Poland, reflecting its strategic focus on security and global influence🌐. This comes with the fact that after the Russia-Ukraine war, India is still buying cheap seaborne Russian crude 🛢️. Hence, playing neutral till date as it may seem!

China Coverage

This week, we examine China’s booming EV market⚡️, the CCP’s outlook for the future of social security and welfare👴👵💵, the latest in Chinese interest rate 🏦 announcements and further developments in tariff tensions with the EU🚚.

• Leading Chinese tech companies have boldly ventured into the electric vehicles market 🚙🔋with Baidu, Xiaomi and Huawei successfully entering an already saturated domestic market. This is in contrast with Western tech companies with Amazon, Alphabet, Apple and even Dyson, which have all failed to break through. However, the highly competitive Chinese EV market has created a vicious price war 🏷️📉, which despite being great for consumers 🛍️, also greatly reduces profitability prospects for these businesses 👔.

• Social security is getting a boost 💰, with CCP Secretary Ding Xuedong announcing last Monday that China will bolster its 2.88 trillion yuan ($599 billion AUD) National Social Security Fund (NSSF), responding to aging population fears, with estimates that up to 300 million Chinese people will retire over the next decade 👴👵. The NSSF acts as the “ballast of [China’s] social security system” that will help China respond to its future social security needs as the population ages.

• The People’s Bank of China’s (PBOC) 🏦 key lending benchmark rates remained unchanged on Tuesday, in line with market expectations. The one-year Loan Prime Rate (LPR, which influences regular loan rates) remained at 3.35%, whereas the five-year LPR (which influences mortgage rates) remained at 3.85%. The PBOC may deliver rate cuts in future to maintain its 5% annual GDP growth rate, after lending demand hit an almost 15 year low, placing downward pressure on domestic demand 📉.

•  China has opened an anti-subsidy probe on European Union dairy imports 🕵️🐄🚢 after the EU revised their import duty on Chinese EVs to 36.3% from an original 37.6% figure, failing to meet Beijing’s demands to abandon the policy entirely. Prior to this announcement, China had already announced other investigations into EU imports for pork 🐷, brandy 🥃 (primarily produced by France) and engineering plastics 📐. Ultimately however, the role of the EU in supporting China’s economy means that it is unlikely that we will see China exhibit any further retaliation.

Hot Topic 🔥

As hopeful rumours proliferate of Federal Reserve rate cuts, investors are flocking like seagulls to emerging market ETFs, anticipating a more favourable borrowing environment. However, this enthusiasm ceases at Chinese borders 🚫

The $15.9 billion iShares MSCI Emerging Markets Ex-China ETF (EMXC) attracted a substantial $352 million in inflows during the week ending August 16th, positioning it as the leading recipient among emerging market ETFs this year, with over $5 billion amassed, according to Bloomberg data.

Emerging market assets have surged in value 📈 over the past week, incentivised by hopes that the Fed will reduce borrowing costs as early as September. This optimism has encouraged investors to possess greater risk tolerance, leading to more intake of stocks and investments in emerging markets. However, while most emerging markets are benefiting from this trend, China is an exception.

Chinese government bonds, typically deemed as a safe-haven, have been tanking, partly due to recent interventions by the People’s Bank of China. The PBOC has taken measures to curb a relentless rally in government bonds, instructing rural banks to stop trading bonds and orchestrating sales by state-owned banks to raise yields slightly 🏦. These actions are seen as a response to the slowing Chinese economy, decreased borrowing, and evaporating inflation 📉. While the PBOC endeavoured to stabilise the bond market, its approach has sparked investor concern 😟.

This caution towards China is further amplified by its recent decision to obscure information about international flows into and out of its stock market, damaging investor confidence🚨. Disappointing economic data and a lack of robust stimulus from Beijing have also left investors searching for alternative markets 🌍.

In contrast to China’s slump, Taiwan is emerging as a significant beneficiary of the AI boom 🤖. Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) has seen a remarkable 66% surge in its stock value this year, drawing significant investor interest. Taiwan recorded the largest inflow last week, with $143 million channelled into the country, led by the EMXC fund.

Overall, inflows into U.S.-listed emerging-market ETFs targeting both multi-country and specific-nation investments totalled $19.6 million in the week ending August 16th, a stark contrast to the $2.7 billion outflow recorded the prior week. While emerging markets are gaining favour📈, China’s bond market interventions and economic slump is causing investors to look elsewhere.🧐

That’s all from us for now, stay happy, healthy and demure, see you next week!

Best regards,

EMN 💚