Aurelia Butler

MUMBAI (Reuters) – Foreign investors have bought more than $10 billion of Indian government bonds that will be included in a widely-followed JPMorgan debt index on June 28, taking their ownership of such papers to a record high.In the nine months since JPMorgan said India’s sovereign debt will be included in its emerging market debt index, foreign investors have bought 841 billion rupees ($10.08 billion) of eligible bonds on a net basis. More chunky inflows are expected at the end of this month.Overseas buyers now own 1.79 trillion rupees of Indian bonds included in the so-called fully accessible route, which allows unfettered foreign purchases. A majority of these notes will be a part of the JPM index. Foreigners’ ownership of these Indian bonds has risen to an all-time high of 4.45% of total from 2.77% before the inclusion announcement. Their share of ownership of all outstanding government bonds remains low at 2.4%, below the peak of 4.6% in 2017.Foreign investors have been shifting from shorter duration bonds to longer ones with maturities of nine years and above.Western Asset Management, which manages around $250 million of debt under its Asian opportunities Fund, is overweight on longer duration Indian government bonds, Wontae Kim, a research analyst said last month. The government’s emphasis on fiscal consolidation and inflation remaining within the central bank’s targeted range have been major positives, he said. Increased foreign activity has pushed up trading volumes in the government bond market, with three of the nine months through May witnessing volumes of more than 10 trillion rupees, a first in four years. Traders expect volumes to surpass the 10-trillion-rupee milestone in June. India’s strong macroeconomic fundamentals and stable currency outlook have encouraged investors to buy bonds without hedging their forex exposure.”Unhedged flows are all about rupee stability, and if we hedge, the investment is not that attractive. The Reserve Bank of India has kept the volatility compressed, incentivising unhedged flows. There is not much incentive for the RBI to change this pattern,” Adarsh Sinha, co-head, Asia FX & rates strategy at Bank of America said.($1 = 83.3840 Indian rupees) More

BRUSSELS (Reuters) -The European Commission said on Wednesday that France and six other countries should be disciplined for running budget deficits in excess of EU limits, with deadlines for reducing the gaps to be set in November.The move by the European Union’s executive arm is likely to constrain any plans for extra spending by the French government that emerges from a June 30-July 7 election.That would make it more difficult for the National Rally of Marine Le Pen, which leads in opinion polls, to deliver on promises of more public expenditure and a lower pension age. The snap vote, called by President Emmanuel Macron after poor results for his party in European Parliament elections, has thrown the EU’s second-biggest economy into political turmoil and pushed up its cost of borrowing in bond markets.The other countries singled out by the EU executive arm, which is the enforcer of EU laws, are Belgium, Italy, Hungary, Malta, Poland and Slovakia. Their deficits are mainly a legacy of the COVID pandemic and the energy price crisis that followed Russia’s invasion of Ukraine in 2022. Markets closely watch Italy, the 27-member EU’s third-biggest economy, because of its very high debt of around 138% of GDP and slow growth of less than 1%, and Rome was quick to reassure markets it would do the right thing.”We are aware that, given the context we find ourselves in, it is necessary to maintain a responsible approach in planning and managing budget policy,” Economy Minister Giancarlo Giorgetti said.The European Union will use its excessive deficit procedure for the first time since it suspended its fiscal rules, aimed at preventing excessive borrowing, in 2020 as governments struggled with the impacts of COVID-19. It has since reformed the framework to take into account the new economic realities of high post-pandemic debt. France had a budget gap of 5.5% of gross domestic product in 2023, forecast to narrow only slightly to 5.3% this year – still well above the EU deficit limit of 3% of GDP.French public debt was 110.6% of GDP in 2023 and the Commission expects it to increase to 112.4% this year and 113.8% in 2025. That is almost twice the EU limit of 60%.Talks between Paris and the Commission on how quickly to reduce France’s deficit and debt will take place in the coming months after the EU executive proposes to Paris a seven-year programme to put debt on a downward path. PROPOSALSThe Commission will kick off discussions this Friday by sending its own proposals for possible fiscal consolidation to governments, which will each respond with their own scenarios until a deal is reached. “Whatever government is formed after the election on July 7 will face the obligation to work with the Commission to define a medium term strategy,” a French finance ministry official said.”Eventually it will have to produce a strategy coherent with the new Stability and Growth Pact,” the official, who asked not to be named, said. But with the far-right National Rally (RN) leading in polls, the Commission is likely to be facing a strongly eurosceptic government in Paris that wants to loosen, rather than tighten, fiscal policy.Le Pen’s protectionist “France first” economic stance is also a concern for financial markets already worried about the country’s public finances.”The gradual fiscal consolidation planned by the current government will be the first casualty of the political crisis,” Oxford Economic economist Leo Barincou said in a note.”A divided parliament is unlikely to be able to agree on politically difficult spending cuts, which would result in a higher deficit than our current baseline. Meanwhile, the implementation of the RN platform as it currently stands would add to the public deficit,” he said.Investors dumped French assets last week because of the political uncertainty, with French bond yields recording their biggest weekly jump since 2011 and bank stocks tumbling.Pressure from investors is likely to be decisive for governments to stick to consolidation paths agreed with the Commission, because the EU executive has already signalled it would not revert to imposing penalties for missing targets.In theory, if a government does not consolidate its finances as agreed, the Commission could move to cut it off from EU post-pandemic funds and money to equalise standards of living in the bloc, which could mean billions of euros.But EU officials said that because the deficits and high debt were all a result of external shocks to the whole EU, not individual policy mistakes, the possibility of fining any government did not apply. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.All eyes have been on Beijing since the EU’s decision to place curbs on Chinese electric vehicle exports last week. Retaliation is coming. Raising tariffs on imported European gasoline-powered cars is a possibility, according to state media. But European automakers may not be the ones that are hit the hardest. Chinese car companies and industry groups have suggested that authorities raise tariffs on vehicles imported from the EU, according to China’s state-backed Global Times newspaper on Wednesday. Last month it reported that a government-affiliated auto research centre suggested that Beijing increase its import tariffs on large gasoline-powered cars to 25 per cent, up from the current 15 per cent.China is the third-largest market by value for EU vehicle exports after the US and the UK: cars worth €19.4bn were exported from the EU to China last year, according to the European Automobile Manufacturers Association. That is double the value of battery electric vehicles that were imported into the EU from China.But while China accounts for as much as a third of total unit sales for Europe’s top automakers, many are well hedged against the risk of a tariff increase. BMW, for example, holds a majority stake in a joint venture with a local automaker, which would help it avoid most damage. Volkswagen and Renault also operate joint ventures with local peers. Sales of Ferraris and Porsches, which have a higher percentage of imports relative to their sales in China, would be exposed. But for these brands, their reliance on the Chinese market in terms of total group sales is limited.The bigger risk for European automakers is indirect. China’s patriotic consumers have increasingly championed domestic brands in recent years. Previous boycotts of companies including Burberry, Dolce & Gabbana, Canada Goose, H&M and Nike, sparked by a nationalist backlash concerning a wide range of issues, have taken a toll on earnings. Some companies have even shut down stores due to the lasting effects.For now, Beijing has European farmers in its sights instead of automakers, launching an investigation into EU pork imports, a sector that is not hedged nearly as well as automakers: more than $3bn in imports a year — which rises to nearly $8bn in peak years — are on the line.If automakers escape relatively unscathed, that could increase the risks to Europe’s other export industries — such as pharmaceuticals, aircraft, cosmetics and brandy — when Beijing chooses to act. [email protected] More

BERLIN (Reuters) -German Economy Minister Robert Habeck set off on Wednesday for a visit to China to try to deepen economic ties while helping manage the fallout of the EU’s threat to impose steep tariffs on Chinese cars that has raised fears of a trade war. Habeck, who has personally spoken out against punitive tariffs as a last resort, took with him a low-key business delegation and will address trade relations while also pressing China on hot-button issues such as Russia’s war in Ukraine.Germany is seeking to broaden access for its companies to the vast Chinese market, while also trying to “de-risk” its economy from being too reliant on any one country. Habeck’s trip comes a week after the European Commission proposed tariffs of up to 38.1% on electric vehicle imports from China, marking a new low point in economic relations and prompting China to threaten retaliation.”China is an indispensable partner for global challenges, such as combating climate change,” Habeck said before leaving.”It is therefore important that we remain in dialogue and we talk about fair and equal competitive conditions.” As Europe’s largest economy, Germany’s voice carries particular weight, and its leading car manufacturers have vociferously opposed the EU tariffs. It has urged dialogue while also expecting China to compromise. For their part, Chinese automakers have urged Beijing to hike tariffs on imported European gasoline-powered cars in retaliation, the state-backed Global Times said on Wednesday.”Habeck should act as a mediator between the EU and China here and resolve a trade dispute early in the interests of German small and medium enterprises,” said Patrick Schoenowski, from the German Association for SMEs, DMB. “The aim of the negotiations with China should be to resolve the root causes of the punitive tariffs.”Habeck’s ministry has outlined the goals for the trip as explaining Germany’s trade and economic policy to China, including its need for energy diversification. But the car tariff issue is unavoidable. “Of course, the minister will have no choice but to address this issue, that is quite clear,” a ministry spokesperson said.”But he is not conducting talks on behalf of the EU Commission, that is the task of the Commission.”TARGETING EXCESSIVE SUBSIDIESThe European Commission said it would impose extra duties on Chinese electric cars from July to combat excessive subsidies.The state-backed China Daily newspaper expressed hope that “proper solutions” could be found during Habeck’s talks with Chinese officials before the tariffs come into force.Habeck said Germany did not want to separate from China but some issues should be addressed during the trip, particularly China’s support for Russia and human rights.”The experience of recent years is that, in critical areas at least, a high level of dependency on just one country, with which there is also a certain competitive or systemic rivalry, can become a problem,” Habeck told reporters. “The German economy has fully understood this.”German Chancellor Olaf Scholz, who visited China in April, has not criticised the EU tariffs directly but warned about the dangers of protectionism. Juergen Matthes, from the German economic institute IW, said the framing of the tariff issue would be crucial. “If the EU has sufficient evidence of unfair subsidies, imposing extra duties is not protectionism, but rather an attempt to establish a level playing field,” he told Reuters. Habeck, who comes from the Greens party in Scholz’s three-way coalition government, will also raise climate protection as well as long-standing trade bugbears such as fair competition for German firms and transparent public tenders.While Scholz took the CEOs of major German firms on his trip, Habeck’s delegation focuses “deliberately on SMEs in order to give this backbone of the German economy appropriate recognition abroad during such trips”, a ministry source said. More

Championed by the League party in the coalition government, the lower house passed the reform early on Wednesday after a session which ended with opposition deputies singing the national anthem and waving the Italian flag.League leader and deputy prime minister Matteo Salvini hailed “a victory for all Italians,” saying on X that the reform would help Italy become a more modern country with fewer wasted resources.League deputies brandished the yellow and red flag of the historic Venetian Republic, with its winged lion, as the reform was approved with 172 votes in favour to 99 against.With feelings running high on both sides, former Prime Minister Matteo Renzi joined calls to gather the 500,000 signatures needed for a referendum on the issue.”It’s a measure that does not help the north and harms the south. It’s institutional madness,” Renzi, a member of the upper house (Senate), said on X.Prime Minister Giorgia Meloni’s right-wing coalition pushed through the reform as part of a wider shake-up of the Italian state, including plans for a directly-elected head of government.”This is a step forward towards building a stronger and fairer Italy, to overcome the differences that there are today between the various parts of the country,” Meloni said.The new law enables regions to claim broader powers on key public services such as health and education, and to have a bigger say on how taxes are spent. The League hopes the law will revive its fortunes in its traditional northern strongholds.Right-leaning Lombardy and Veneto, as well as left-leaning Emilia-Romagna, are among the northern regions expected to seek more autonomy. The extent of powers devolved to them will depend on negotiations with the central government.Elly Schlein, leader of the centre-left opposition Democratic Party, attacked the measures as divisive and bound to increase inequality.”This vote sanctions the existence of first and second class citizens,” Schlein told parliament.Italy’s north-south divide is exemplified by the economic gap between the southern Calabria region, where gross domestic product per capita is about half of the EU average, and the northern Bolzano province, where GDP per capita stands at around 150% of the EU average. More

In a closed-door meeting on Tuesday also attended by European car companies, China’s auto industry “called on the government to adopt firm countermeasures (and) suggested that positive consideration be given to raising the provisional tariff on gasoline cars with large-displacement engines,” according to the report.The meeting, organised by China’s Ministry of Commerce, was held in Beijing and attended by SAIC, BYD (SZ:002594) , BMW (ETR:BMWG), Volkswagen (ETR:VOWG_p) and its Porsche division, two people with direct knowledge of the matter said.The main aim of the meeting was to put pressure on Europe and lobby against the tariffs Brussels announced last week to shield its car industry from Chinese competition, they added.The meeting was also attended by Mercedes-Benz (OTC:MBGAF), Stellantis (NYSE:STLA) and Renault (EPA:RENA), two separate sources familiar with the matter told Reuters.The ministry did not immediately respond to a faxed request for comment.The European carmakers either declined to comment or did not immediately respond to requests for comment.Industry insiders say both Europe and China have reasons for wanting to strike a deal in the months ahead to de-escalate tensions and avoid the addition of billions of dollars in new costs for Chinese EV makers, as the EU process allows for review.The announcement to impose tariffs could trigger talks between Brussels and Beijing that are aimed at avoiding them, said Stefan Hartung, CEO of Bosch, the world’s largest automotive supplier.’TARIFF WAR’The European Commission said on Wednesday it was looking into the situation “with a view to discussing if a mutually agreeable solution can be found.”EU trade policy is turning increasingly protective amid concerns that China’s production-focused, debt-driven development model could see the 27-member bloc flooded with cheap goods, including electric vehicles, as Chinese firms look to boost sales overseas due to weak demand at home. The European Commission’s June 12 announcement that it would impose anti-subsidy duties of up to 38.1% on imported Chinese EVs from July followed a move by the United States to hike tariffs on Chinese cars in May, and opens a new front in the West’s trade war with Beijing.”Personally, I think it is unfair to start a tariff war solely on the basis of (China’s) capacity utilisation rate and insufficient demand for China’s new energy vehicles,” said Zhang Yansheng, chief research fellow, China Center for International Economic Exchanges.”We can see that China has adopted a package of policies to solve the ‘overcapacity’ problem, so this year, next year, and into the next four years, China’s capacity utilisation will continue to rise,” he added.The Global Times first reported late last month that a Chinese government-affiliated auto research centre was suggesting China raise its import tariffs on imported gasoline sedans and sport utility vehicles with engines larger than 2.5 litres to 25%, from the current rate of 15%.Chinese authorities have previously hinted at possible retaliatory measures through state media commentaries and interviews with industry figures.HOSTILE HINTSThe same newspaper last month also hinted that Chinese companies planned to ask authorities to open an anti-dumping investigation into European pork products, which China’s commerce ministry on Monday announced it would undertake. It has also urged Beijing to look into EU dairy imports.Exports of passenger vehicles with engines bigger than 2.5 liters from Europe to China totalled 196,000 units in 2023, up 11% year-on-year, according to data from China Passenger Car Association. In the first four months of 2024, exports of such vehicles from Europe to China stood at 44,000 units, down 12% from the same period a year ago. EU car exports to China were worth 19.4 billion euros ($20.8 billion) in 2023, while the bloc bought 9.7 billion euros of electric vehicles from China, according to EU statistics agency figures.China accounts for about 30% of German carmakers’ sales, and Germany is by far the largest exporter of vehicles with engines of 2.5 litres or above, having shipped $1.2 billion worth to China since the beginning of this year, Chinese customs data shows.Mercedes Benz (ETR:MBGn)’s big-sized GLE Class SUV, S Class sedans and Porsche’s Cayenne are the three most popular imported cars from Europe in China, the three of which accounted for more than one-fifth of the total 155,841 imported cars of European brands in the first five months, according to data tracked by China Merchants Bank International. Slovakia is China’s fourth-largest and the EU’s second-biggest provider of cars with large engines. This year it has exported $803 million worth of sport utility vehicles.The United States, the United Kingdom and Japan all also export large numbers of cars with engines bigger than 2.5 liters, and would presumably stand to benefit most from the proposed tariff increase.($1 = 0.9314 euros) More