Turkey, Oman and Bahrain among ‘bondfire’ fragile five

Turkey, Oman and Bahrain among ‘bondfire’ fragile five
A man feeds seagulls on the Bosphorus in Istanbul. Rising borrowing costs could hurt indebted countries such as Turkey. (Reuters)
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Updated 02 March 2021

Turkey, Oman and Bahrain among ‘bondfire’ fragile five

Turkey, Oman and Bahrain among ‘bondfire’ fragile five
  • Emerging markets to ramp up debt sales this year
  • But global borrowing costs are rising too fast

DUBAI: Just when developing economies were ready to bask in the post-COVID rebound in global growth, in sweeps a bond market blaze to scorch them again.
Most major investment banks were predicting a stellar 2021 for emerging market assets as long as one crucial snag — global borrowing costs rising too fast — was avoided. Well guess what, they are on a tear.
February saw their steepest monthly gain since Donald Trump’s shock 2016 US presidential election win and, though the move comes from record low levels, for emerging markets now carrying nearly $80 trillion worth of debt it has been painful few weeks.
The widely-tracked JPMorgan Emerging Market Bond Index (EMBI) is having its worst start to a year for a quarter of a century, currencies have recoiled and MSCI’s EM stocks index has just suffered its biggest weekly drop since peak COVID panic last March.
The carnage has been described as a bond bonfire by ING analysts and prompted some of those bullish investment banks like JPMorgan and Morgan Stanley to curtail their bets.
Rising developed market bond yields sting emerging markets in two main ways.
Firstly they push up borrowing costs. BofA estimates emerging markets will sell over three quarters of a trillion dollars worth of debt this year — $210 billion by governments and over $550 billion by corporates. Higher rates mean adding to government debt ratios that soared 15.5 percentage points across the top 60 emerging markets last year and have left 13 such countries with debt-to-GDP in excess of 100 percent.
Secondly, it cuts the premium existing emerging debt offers investors compared to ultra safe and liquid US Treasuries.
If the risk-reward calculation no longer adds up, money managers can quickly sell as was seen during the 2013 ‘taper tantrum’ when the Federal Reserve’s hints at ending its easy-money policies triggered an estimated $25 billion emerging asset selloff in just two months.
The effects of that episode were particularly severe in the “Fragile Five” of Brazil, India, Indonesia, South Africa and Turkey that had built-up large current account deficits that were funded by short-term capital inflows.
This time, investors are worried about at least some of those.
“Brazil and South Africa are countries whose combination of persistent weak growth, rising public debt, very steep yield curves with very high long-term real interest rates has become a big source of concern,” said David Lubin, Citi’s managing director and head of emerging markets economics. “Mexico might also be on that list.”
Still, the alarm bells aren’t ringing as loud now.
For one reason, US “real” yields, adjusted for inflation, remain low by historical standards, at about negative 80 basis points which keeps emerging market assets looking attractive.
By comparison, during the original taper tantrum, “real” US 10-year yields rose steeply from negative 75 basis points at the end of 2012 to positive 50 basis points by mid-2013.
And despite the huge rise in debts, last year’s recessions have helped to mostly eliminate current account deficits, limiting many emerging markets’ reliance on capital inflows and acting as a shock absorber against rising US yields.
A punchy recovery in global growth and fast-rising commodity prices should further help developing economies and even dig some out of a hole.
Moody’s last week cranked up its pan-EM growth forecast for the year to 7 percent from 6.1 percent, led by upward revisions to China, India and Mexico, and with $1.9 trillion of US stimulus now coming most institutions are doing the same.
“We could be at the door of a big, big economic boom,” said head of Barings’ sovereign debt and currencies group Ricardo Adrogué. “Some of these countries that seem hopeless today could actually be ok.”
Others will not be so lucky though.
Ethiopia is about to become a test case for the new G20 ‘Common Framework’ debt relief plan which stipulates private creditor debt must also be restructured, meaning the government has to default.
Others are expected to follow. S&P Global warned last week Belize was “virtually certain” to default in May. Laos and Sri Lanka have key payments in June and July, while JPMorgan lists 16 at-risk countries from Cameroon to Tajikistan sitting on a combined $61.4 billion of debt.
Tellimer’s senior economist Patrick Curran has dubbed the new group of vulnerable countries the ‘Fragile Frontiers’. It includes Jamaica, Tunisia, Ecuador, Sri Lanka, Belarus, Ethiopia, Laos, Bahrain and Oman.
Adding to the risks, not all emerging markets have started rolling out COVID vaccines yet. In Africa, for example, only a minority of countries are currently vaccinating and more variants are still breaking out.
Countries like Mexico, Jamaica, Panama, Mauritius, Montenegro, Jordan and Fiji where tourism accounts for close to 10 percent of GDP will wonder whether vaccines will come quickly enough to save their busy seasons this year.
“Virus mutations are a real thing I worry about,” said Raza Agha, head of emerging markets credit strategy at Legal & General Investment Management. “There’s already been several and there’s no way of predicting how many more there will be.”

FASTFACTS

The widely-tracked JPMorgan Emerging Market Bond Index (EMBI) is having its worst start to a year for a quarter of a century


Jeddah Economic City: 90% of road, landscaping work done

Jeddah Economic City: 90% of road, landscaping work done
Updated 24 June 2021

Jeddah Economic City: 90% of road, landscaping work done

Jeddah Economic City: 90% of road, landscaping work done
  • The project will consist of three sectors: A financial district, a residential district and Al-Balad

JEDDAH: Jeddah Economic City — one of Saudi Arabia’s flagship megaprojects, which will include the world’s tallest tower — is nearing completion on all road construction and landscaping work, according to a senior executive on the project.

Speaking at the Urban Landscape Saudi 2021 event this week, Fady Nassim, executive head of urban planning for Jeddah Economic City, said the main goal of the 5.3-million-square-meter project is to create a habitable, economically beneficial and environmentally friendly space. “Ninety percent of the work on road construction and landscaping in the city is done,” he told delegates.

The city will consist of 210 towers that will be over 30 floors high, the centerpiece being Jeddah Tower, which will be around 1 km tall and will take over from Dubai’s Burj Khalifa as the world’s tallest building.

The project will consist of three sectors: A financial district, a residential district and Al-Balad, which will be a contemporary recreation of the old quarter of Jeddah.

Nassim said the landscaping will be done in a way that ensures plenty of green space and room for pedestrians, with less emphasis on cars and traffic.

Also speaking at the event, which was organized by the Saudi Contractors Authority, was Abdurahman Medallah, general manager for urban studies and policies at the Sharqia Development Authority.

He highlighted the fact that the rapid expansion of urban areas in the Kingdom is impacting agricultural land.

Medallah also highlighted the recently announced Saudi Green initiative, which aims to enhance rural areas and expand green areas in the Kingdom.

“Some of these targets are to increase the share of renewables, to reduce carbon emissions, to plant around 50 million trees, and to raise the percentage of protected areas to around 30 percent,” he said.


Egypt-UK trade up 8% to $722m in Q1 2021

Egypt-UK trade up 8% to $722m in Q1 2021
Updated 24 June 2021

Egypt-UK trade up 8% to $722m in Q1 2021

Egypt-UK trade up 8% to $722m in Q1 2021

CAIRO: Trade between Egypt and Britain increased 8 percent year-on-year to £519 million ($722 million) in the first quarter of 2021, said Nasser Hamed, director of the EU Administration at the Egyptian Commercial Office.

Egypt’s exports to the UK during the first quarter of 2021 amounted to about £219 million, down 1.8 percent year-on-year, while its imports from Britain amounted to about £300 million, down about 14 percent, according to the Middle East News Agency.

Hamed said British investment in Egypt amounted to about $5.3 billion, accounting for 33 percent of total European investments.

He added that Britain is the third-largest investing country in Egypt after the UAE and Saudi Arabia.

Hamed said despite the impact of the coronavirus pandemic on exports over the last year, Egyptian food exports to Britain surged by about 76 percent to £24 million, consisting mainly of molasses, vegetable oils and fats, chocolate, vegetables, fruits, nuts and spices.

He added that with gross domestic product of about £1.9 trillion and total imports in 2020 of £493 billion, the British economy offers great potential for Egyptian exporters.

Hamed said following Brexit, the terms of the Egyptian-British partnership agreement is the same as those of the European partnership agreement, except for minor differences on issues related to quotas or export seasons for some products such as grapes and strawberries.


Catalyst Partners ready to raise more funds: CEO

Catalyst Partners ready to raise more funds: CEO
Updated 24 June 2021

Catalyst Partners ready to raise more funds: CEO

Catalyst Partners ready to raise more funds: CEO

DUBAI: Mubadala-backed fund Abu Dhabi Catalyst Partners is ready to raise more capital after investing close to $1 billion over the last 18 months, its chief executive said.

The fund was set up by Abu Dhabi state fund Mubadala and US alternative asset manager Falcon Edge Capital in 2019 with $1 billion in capital.

CEO James Munce told Reuters Catalyst Partners had so far made 21 investments with an average ticket size of $50 million, with some deals investing up to $100 million.

“The plan is to go again. I think we have gone faster than expected,” Munce said in reference to adding more capital.

No decision had been made on when or how much more capital would be committed, he said.

“My view on it is this can grow to be another $1 billion and we have $2 billion deployed over the next 18 months from here. That will be a four year-track record of a $2 billion fund and we would start to get some relevance in the region,” he said.

Catalyst Partners was set up to support the development of Abu Dhabi’s ADGM financial center, which opened in 2015, while also achieving financial returns, according to its website.

Its investments have included an American financial technology startup developing blockchain tools for banks and an Abu Dhabi-based aircraft leasing firm. 


Yemeni riyal drops as Houthis renew ban on new banknotes

Yemeni riyal drops as Houthis renew ban on new banknotes
Updated 24 June 2021

Yemeni riyal drops as Houthis renew ban on new banknotes

Yemeni riyal drops as Houthis renew ban on new banknotes
  • Economists are now warning that the Houthis will use the latest measures to snoop into exchange firms and people’s lives

ALEXANDRIA: Yemen’s currency on Thursday reached a new low after the Iran-backed Houthi militia renewed its ban on banknotes printed by the Yemeni government and banned people from moving cash from government-controlled areas to their territories, Yemeni officials and economists said.

Local currency dealers said the Yemeni riyal traded at 940 against the US dollar in the black market on Thursday compared to 930 last week, shortly after the Houthi-controlled Central Bank in Sanaa circulated an order that warned people against using new money that looks like the old banknotes available in their territories.

To evade the Houthi ban and address the shortage of cash in the market, the Aden-based Central Bank of Yemen has recently pumped into the market billions of large 1,000-riyal banknotes similar to the banknotes used by the Houthis.

Local media reported that the Houthis stepped up security at their checkpoints, searching for the new banknotes.

On Thursday, Hamed Rezq, a journalist loyal to the Houthis, accused the US of launching an economic war on the Yemeni economy by allowing printing and circulating new banknotes.

“This is part of the US economic war on Yemen after Washington ran out of military options and (its) deception and political pressures have failed,” he tweeted. 
In December 2019, the Houthis banned the use of banknotes printed by the legitimate and internationally recognized government, giving residents a month to hand over their cash or face punishment.

The Houthi decision sparked outrage across Yemen, pushed up transfer charges from government-controlled areas to Houthi-ruled areas, and led to a halt in the payment of salaries to thousands of public servants.

Travelers from government-controlled areas to Sanaa told Arab News that they were forced into buying Saudi riyals or exchanging the new banknotes with old ones at inflated prices.

Economists are now warning that the Houthis will use the latest measures to snoop into exchange firms and people’s lives.

“This step will allow the Houthi group to interfere more in the work of banks, exchange companies and even ordinary citizens. Using its security grip, the group will find a justification for confiscating money and interfering in people's privacy in search of ‘fake currency’ as it describes it,” Mustafa Nasr, director of the Economic Media Center, said.

He added that the current economic war between the legitimate government and the Houthis would have implications on the country’s troubled economy and people’s lives.

Nasr also criticized the Yemeni government for printing money without coverage and its loose grip on the exchange market in the liberated provinces.

“The injection of the new cash by the Central Bank aggravates the problem in terms of inflation and it weakens the currency,” he said, advising the government to increase revenues and curb speculative activities by local money dealers in areas under its control.

“The fall of the riyal in areas under the control of the legitimate government is caused by currency speculation and corruption, not due to a real demand for currency,” Nasr said.


Saudi bourse’s 2020 net profit surged ahead of listing

Saudi bourse’s 2020 net profit surged ahead of listing
Updated 24 June 2021

Saudi bourse’s 2020 net profit surged ahead of listing

Saudi bourse’s 2020 net profit surged ahead of listing
  • Net profit rose 227 percent in 2020 from a year earlier

DUBAI: Saudi Tadawul Group, the owner and operator of the country’s stock market, said its net profit rose 227 percent in 2020 from a year earlier, while revenue more than doubled with a boost from trading commissions.
It posted a profit after zakat or Islamic tax of 500.5 million riyals ($133.5 million), it said in a statement.
Unlisted Tadawul gave a peak of its earnings ahead of a planned initial public offering later this year that will allow it to expand and strengthen its position globally.
Saudi Arabia’s stock exchange has converted itself into a holding company ahead of the listing.
Tadawul is the ninth largest exchange in the world in terms of market capitalization which stood at around $2.6 trillion, partly boosted by the listing oil giant Saudi Aramco in 2019.