Emerging markets defy Washington woes, make weekly gains

In this June 21, 2017 photo, the Foot Locker logo appears above a trading post on the floor of the New York Stock Exchange. (AP)
Updated 19 August 2017
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Emerging markets defy Washington woes, make weekly gains

LONDON: Emerging stocks and some currencies ended the week on a sour note as investors fretted over US political turmoil on Friday, but many assets were still in line for solid weekly gains.
MSCI’s emerging market index eased 0.4 percent as Asian stocks tracked a steep overnight selloff on Wall Street.
The losses were caused by doubts that President Donald Trump can deliver promised tax cuts and stimulus as rumors swirled that chief economic adviser Gary Cohn would resign and business leaders deserted the administration over Trump’s handling of white supremacist violence.
Confidence was shaken further after a van plowed through crowds in Barcelona on Thursday, killing at least 13 people and injuring more than 100 in what police suspect was one of a planned wave of militant attacks.
“Risk aversion dominates the global market overnight after the terror attack in Barcelona,” Commerzbank wrote in a note.
“Risk-off is also triggered by the rumor that Trump’s main economic adviser Gary Cohn was set to quit in disgust at the president’s response to the Charlottesville racial violence.”
However, solid gains at the start of the week meant emerging stocks were on track for a 1.5 percent weekly gain — the best in a month. China mainland stocks enjoyed some of the steepest gains, with the Shanghai Composite on track for a near 2 percent rise — its best week since early April.
Indexes in Seoul, Johannesburg and Moscow were all poised for weekly rises.
On currency markets, Mexico’s peso, China’s yuan, Russia’s rouble and Turkey’s lira weakened on the day against a softer dollar.
Yet South Africa’s rand was in line for sharp weekly gains, adding 1.6 percent after Moody’s delayed its ratings decision last Friday and a court affirmed the central bank’s mandate on Tuesday.
While the dash for defensive assets has weighed down Treasury yields, emerging dollar debt yield spreads have also come in by 4 basis points from last Friday’s close to 307 points.
“In spite of the recent dovish newsflow, it is too early to count the Fed out for December,” Citi’s Dirk Willer wrote in a note to clients referring to expectations of a rate rise.
“Investors may therefore stay long emerging markets rates for longer, while waiting for an upside inflation surprise.”
In other news, data out of China showed home price growth slowed in July, reinforcing expectations that property price growth in the world’s No.2 economy may stagnate over the course of the year.
However, Malaysia reported that the economy grew 5.8 percent in the second quarter, expanding at a faster clip than expected, thanks to domestic demand and robust exports.
— Reuters


Malaysia reviews China infrastructure plans

Malaysia’s former PM Najib Razak (AFP)
Updated 18 June 2018
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Malaysia reviews China infrastructure plans

  • Malaysia's scandal-mired former PM Najib Razak signed a string of deals for Beijing-funded projects, including a major rail link and a deep-sea port.
  • New Prime Minister Mahathir Mohamad has announced a planned high-speed rail link between Kuala Lumpur and neighboring Singapore will not go ahead as he seeks to reduce the country’s huge national debt.

KUALA LUMPUR: Malaysia has been a loyal partner in China’s globe-spanning infrastructure drive, but its new government is to review Beijing-backed projects, threatening key links in the much-vaunted initiative.

Kuala Lumpur’s previous regime, led by scandal-mired Najib Razak, had warm ties with China, and signed a string of deals for Beijing-funded projects, including a major rail link and a deep-sea port.

But the long-ruling coalition was unexpectedly voted out last month by an electorate alienated by allegations of corruption and rising living costs.

Critics have said that many agreements lacked transparency, fueling suspicions they were struck in exchange for help to pay off debts from the financial scandal which ultimately helped bring down Najib’s regime.

The new government, led by political heavyweight Mahathir Mohammed, has pledged to review Chinese deals seen as dubious, calling into question Malaysia’s status as one of Beijing’s most cooperative partners in its infrastructure push.

China launched its initiative to revive ancient Silk Road trading routes with a global network of ports, roads and railways — dubbed “One Belt, One Road” —  in 2013.

Malaysia and Beijing ally Cambodia were seen as bright spots in Southeast Asia, with projects in other countries often facing problems, from land acquisition to drawn-out negotiations with governments.

“Malaysia under Najib moved quickly to approve and implement projects,” Murray Hiebert, a senior associate from think-tank the Center for Strategic and International Studies, told AFP.

Chinese foreign direct investment into Malaysia stood at just 0.8 percent of total net FDI inflows in 2008, but that figure had risen to 14.4 percent by 2016, according to a study from Singapore’s ISEAS-Yusof Ishak Institute.

However, Hiebert said it was “widely assumed” that Malaysia was striking quick deals with China in the hope of getting help to cover debts from sovereign wealth fund 1MDB.

Najib and his associates were accused of stealing huge sums of public money from the investment vehicle in a massive fraud. Public disgust at the allegations — denied by Najib and 1MDB — helped topple his government.

Malaysia’s first change of government in six decades has left Najib facing a potential jail term.

New Prime Minister Mahathir Mohamad has announced a planned high-speed rail link between Kuala Lumpur and neighboring Singapore will not go ahead as he seeks to reduce the country’s huge national debt.

The project was in its early stages and had not yet received any Chinese funding as part of “One Belt, One Road.” But Chinese companies were favorites to build part of the line, which would have constituted a link in a high-speed route from China’s Yunnan province to trading hub Singapore, along which Chinese goods could have been transported for export.

Work has already started in Malaysia on another line seen as part of that route, with Chinese funding — the $14-billion East Coast Rail Link, running from close to the Thai border to a port near Kuala Lumpur.

Mahathir has said that agreement is now being renegotiated.

Other Chinese-funded initiatives include a deep-sea port in Malacca, near important shipping routes, and an enormous industrial park.

It is not clear yet which projects will be amended but experts believe axing some will be positive.

Alex Holmes, Asia economist for Capital Economics, backed canceling some initiatives, citing “Malaysia’s weak fiscal position and that some of the projects are of dubious economic value.”

The Chinese foreign ministry did not respond to request for comment.

Decoder

What is the "One Belt, One Road" initiative?

The “One Belt, One Road” initiative, started in 2013, has come to define the economic agenda of President Xi Jinping. It aims to revive ancient Silk Road trading routes with a network of ports, roads and railways.