- Weak Links in Emerging-Market Chain Show Where Selloff May Start
There’s probably just one headline that could end the party in emerging markets, and it’s likely to come from the Federal Reserve.
If a rebound in U.S. inflation prompts the central bank to chip away at its wall of money sooner and faster than expected, then the rally that boosted returns in developing-nation stocks, bonds and currencies since January 2016 will be under threat.
While money managers don’t see a selloff any time soon, there are some assets that are more vulnerable than others.
A key beneficiary of central-bank stimulus, ETFs are among the most-owned assets in the world today. BlackRock Inc., the largest money manager, says it has received twice as much inflows into its passive funds than its actively managed funds. ETFs are bound to the fortunes of their underlying indexes and investors can do little to hedge against changing dynamics.
“ETF investors tend to be highly price sensitive,” says Guillaume Tresca, a senior emerging-market strategist at Credit Agricole SA in Paris. “They could be the first guys to take the exit door.”
Bonds Sensitive to Politics
Hard-currency bonds in countries where politicians make headlines for all the wrong reasons could test investor patience. Idiosyncratic risks may not cause a selloff across emerging markets, but their impact on local markets can be brutal.
“External bonds are currently separated into those that are facing political noise and those that are less affected,” said London-based Simon Quijano-Evans, a strategist at Legal & General Investment Management. “They are trading at what I call a P-spread to emerging-market peers. The likes of Brazil, South Africa, Turkey, Mexico and Gulf Cooperation Council countries would be the first to be hit by any induced selloff.”
Overweight Stock Markets
Paying $18 to own a stock that may earn $1 of profit in the next 12 months is a daring bet, but par for the course in Mumbai. Foreign investors accept the high valuation in India because the dominant local investors are willing to pay it.
But it’s one market that can change direction quickly. Prime Minister Narendra Modi’s government has come under criticism for mishandling the economy and the International Monetary Fund has cut growth estimates for both 2017 and next year. Philippine stocks are even more expensive and dependent on foreign-investor money than India’s.
Both markets might “suffer more” than others, said Charles Robertson, Renaissance Capital’s London-based global chief economist.
No other asset has consistently topped investors’ doomsday lists in recent years as much as the Turkish lira. The poster child of unpredictable politics, Turkey has a current account that hasn’t seen a surplus in 15 years, with foreign reserves in their fourth year of decline. Tighter monetary policy to combat double-digit inflation is sustaining a carry-trade opportunity, but that’s diminishing too.
Mexico’s peso, the world’s best-performing major currency in the first half, has suffered one of the biggest losses in emerging markets since June. Andres Manuel Lopez Obrador, who opposes changes to labor laws and has promised to increase public spending, is now the frontrunner in the July 2018 election. Talks to renegotiate the North American Free Trade Agreement are under strain, with both the U.S. and Mexico threatening to quit.
South Africa’s economy may have bounced back from recession and inflation may have eased, but consumer spending and industrial investment remain impaired due to a lack of confidence, pressuring the rand. President Jacob Zuma isn’t the markets’ favorite, and the highly-traded currency may be a casualty.
“Countries with the highest current-account deficits will be the most vulnerable to potential capital outflows,” said Piotr Matys, a London-based strategist at Rabobank. “Turkey and South Africa are good examples.”
Oil Price Gains on Lower US Oil Inventories
Oil Price Rise to $45 Per Barrel on Lower US Oil Inventories
Oil price expanded on Wednesday following a better than expected lower crude oil output from producers in the United States.
The data released by the Energy Information Administration showed that crude oil output from the world’s largest economy declined from 11 million barrels per day to 10.7 million barrels per day last week.
While U.S. fuel demand rose to the highest since March. The demand hits 19.37 million barrels per day in the week, highlighting a gradual increase in demand with the opening of the economy.
Also, crude oil inventories declined by 4.5 million barrels, better than the 2.9 million decline predicted by Reuters’ expertise.
The low oil inventories bolstered the price of Brent crude oil, Nigerian type of oil, by 2 percent to $45.35 per barrel as at 11:30 am Nigerian time.
However, OPEC newly released projection revealed that crude oil demand will drop than initially projected in 2020. This, coupled with the International Energy Agency revised projection that oil demand will now be 91.1 million barrels per day in 2020, around 8.1 million bpd year-on-year decline, stalled crude oil price movement on Thursday as investors and traders now doubt sustainability given the new predictions.
“OPEC released a bearish monthly forecast which indicated that world oil demand will fall more steeply in 2020 than previously forecasted due to the coronavirus and there are doubts about next year’s recovery,” said Avtar Sandu, senior manager commodities at Phillip Futures.
Nigeria to Become Leading Gold Producer in West Africa – Adegbite
Adegbite Says Nigeria to Become Gold Hub in West Africa
The Minister of Mines and Steel Development, Olamilekan Adegbite, has said Nigeria is on its way to becoming a leading gold producer in West Africa.
Adegbite made the statement in Abuja while taking stock of his first year in office as minister.
He said, “Indeed, the international roadshows we have had in the past have produced fruits. Today, we have Thor exploration in Osun State through the Segilola Gold project.
“The exploration firm is projected to start producing (gold) in the first half of next year. The project is expected to create about 400 direct jobs and 1,000 indirect jobs.”
According to Adegbite, the Federal Government has licensed two gold refineries that would refine in line with the London Bullion Market Association standard.
He added, “Numerous industries will spring up when our gold economy becomes full-fledged. Some of them will include equipment leasing and repairs, logistics and transport, as gold requires a specialised means of transport, security, insurance, aggregators, and so on.”
The minister noted that for the first time, the country had mined, processed and refined gold under the Presidential Artisanal Gold Mining Development Initiative for use as part of Nigeria’s external reserves.
Adegbite also stated that the mines ministry had initiated a process that would lead to local capacity development in the production of barite.
“Presently, the barite that is used in the oil and gas industry is imported. But we are resolved to reverse this trend. As you may know, barite is a critical weighting material in drilling fluids due to its high specific gravity,” he said.
NUPENG, Lagos State Agree to Call Off Strike
NUPENG Agrees With Lagos State, Call Off Strike
The Nigeria Union of Petroleum and Gas (NUPENG) has ordered Lagos State Petroleum Tanker Drivers (PTDs) to call off its ongoing strike.
This was disclosed in a joint communique signed by the Lagos Commissioner of Energy and Mineral Resources, Olalere Odusote, and the NUPENG Deputy National President, Solomon Kilanko.
It would be recalled that Investors King had reported that NUPENG directed all PTDs to withdraw their services from Lagos State effective from Monday 10 August 2020 because of the persistent extortions and harassments of PTDs by both uniform security agencies and touts.
However, on the 10th of August, the commencement day of the strike, Lagos State government met with the leadership of NUPENG to address the union concerns and eventually agreed on a way forward.
Part of the communique reads “The Lagos State Government met today with the representatives of NUPENG, which agreed to call off its strike immediately.
“Other decisions taken at the meeting are security – the state government will meet the heads of all security agencies and secure their commitment to ensure the free passage of petroleum products vehicles given their importance to the economy.”
“Area boys’ – the menace of ‘area boys’ will be handled by relevant government agencies and a dedicated phone number will be established, within the next week to ensure the petroleum products transporters have prompt access to security agencies.”
The communique also stated that the Lagos State government will set up a standing committee to communicate with the union on an ongoing basis, saying it will help address a similar issue going forward. See the complete communique below.
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