Aurelia Butler

LONDON (Reuters) – A $30 billion gush of debt issuance by developing countries since the start of the year is sparking hope that some of the more pressed emerging market nations might be able to regain market access in 2024.Recent falls in global interest rates combined with a relatively lean couple of years for EM borrowers has seen the usual January parade of governments embarking on their funding rounds turn into something of a frenzy. Oil-rich Saudi Arabia has already issued $12 billion of dollar-denominated bonds and the world’s largest EM borrower, Mexico, scored its biggest ever debt sale at a punchy $7.5 billion.Poland, Indonesia and Hungary have all been in the market too while companies have been busy flogging nearly $20 billion of their own debt, taking overall EM issuance past the $50 billion mark.The eagerness to frontload issuance highlights uncertainty over how fast and furiously the Federal Reserve, European Central Bank and their peers will cut interest rates, and also sets the stage for some big year-end numbers. Analysts at Morgan Stanley estimate almost $165 billion of EM sovereign debt will be issued this year, roughly 20% – or $30 billion – more than in 2023.Apart from Saudi Arabia, at least five other countries are each expected to issue at least $10 billion, namely Indonesia, Poland, Turkey, Israel and Mexico, with the latter potentially reaching $18 billion. While the combined total will be well below 2020’s COVID-era record of $234 billion, the potential $125 billion just from ‘investment grade’-rated EM nations would be the second highest in history.”Calmer markets are always a good time for these countries to come and issue debt” said Victoria Courmes an emerging market portfolio manager at investment firm GMO. “With U.S. rates (bond yields) now lower there is obviously an opportunity for them to do that and they will do more as rates come down even further.” Though EMs are having to compete with richer governments for buyers, demand for their debt appears strong so far on hopes that it could be a good year to be invested in higher-yielding developing world bonds. Mexico could have sold as much as $21 billion last week while Saudi could have issued as much as $30 billion their order books showed.DIVIDE TO BE CONQUERED?Beyond the impressive numbers, the question is whether better market conditions will allow more stretched developing countries, that also have bond repayments coming due, to regain market access.Barely any sub-Saharan African countries or poorer ones in Asia and Latin America have been able to borrow on international markets since the pandemic, leaving them reliant on their own reserves or help from the IMF. But in many cases, their bond spreads – or the premium investors demand to buy their bonds rather than those of the United States – have improved substantially over the last 6-12 months.The prime contenders to test the market’s risk threshold and appetite for debt yielding 10% are Angola, Kenya, Nigeria and El Salvador, say analysts at Morgan Stanley. “While 10% would be expensive (for borrowing countries) versus history, alternative funding options are not always there,” they said in a note this week. “For all, we think it would be credit positive if they are able to issue.” Countries need to be able to borrow at manageable interest rates – traditionally judged to be below 10% at a bare minimum – to avoid the kinds of crises suffered by Zambia and Sri Lanka in recent years. Kenya has a $2 billion bond maturing in June which makes it a potential test case if market conditions remain conducive. Egypt is seeking additional IMF support as it also looks to refinance roughly $25 billion of external debt this year, with almost 75% of investors in a recent Citi poll viewing it as a major default risk in the next couple of years. Abdrn portfolio manager Viktor Szabo said he thought the market was “not there yet” for the riskier countries. But with the all-important ten-year U.S. bond yield below 4% again despite firmer-than-expected inflation figures on Thursday there could be a chink of light. More

BEIJING (Reuters) – New bank lending in China rose less than expected in December, but 2023 lending hit a new record as the central bank kept policy accommodative to support an unexpectedly shaky economic recovery.Chinese banks extended 1.17 trillion yuan ($163.31 billion) in new yuan loans in December, up from November but falling short of analysts’ expectations, according to data released by the People’s Bank of China on Friday.Analysts polled by Reuters had predicted new yuan loans would rise to 1.40 trillion yuan in December from 1.09 trillion yuan the previous month, and comparable with 1.4 trillion yuan a year earlier.For the year, new bank lending hit a record 22.75 trillion yuan — roughly equivalent to the gross domestic product of the UK and up 6.8% from 21.31 trillion yuan in 2022 — the previous record.Still, the world’s second-largest economy has struggled to regain traction, with a disappointing and short-lived post-COVID pandemic bounce. Consumer and business confidence remain weak, local governments are struggling under huge debts, and a protracted property crisis is weighing heavily on construction and investment.With demand weak, the economy is also facing persistent deflationary pressures heading into 2024, keeping alive expectations for more policy easing measures to shore up growth.”Monetary policy will be loosened as we face deflationary pressures,” said Zong Liang, chief of research at state-owned Bank of China.”Interest rates should be appropriately lowered given that real interest rates are relatively high.”Other data released by China on Friday reinforced views of a highly uneven economic recovery, with exports edging up but deflationary pressures persisting amid weak domestic demand.Next week, China will release data for December industrial output, investment and retail sales, along with fourth-quarter gross domestic product, which will give investors clues on whether the economy was able to regain some momentum heading into 2024 or will need further support.China’s economic growth is seen hitting the official target of around 5% in 2023, and the government is expected to stick with that target this year. Analysts expect the People’s Bank of China (PBOC) to unveil fresh easing steps soon to support the economy, amid concerns over deflationary pressures and questions over how long it will take the housing slump to bottom out.The central bank is expected to ramp up liquidity injections and cut a key interest rate when it rolls over maturing medium-term policy loans on Monday, as authorities try to get the shaky economy back on more solid footing.But the central bank faces a dilemma as more credit is flowing to productive forces than into consumption, which could add to deflationary pressures and reduce the effectiveness of its monetary policy tools.In 2023, household loans totalled 4.33 trillion yuan, or nearly 20% of the total new loans, while corporate loans amounted to 17.91 trillion yuan.Broad M2 money supply grew 9.7% from a year earlier – the lowest since March 2022, central bank data showed, well below estimates of 10.1% forecast in the Reuters poll. M2 grew 10.0% in November from a year earlier.Outstanding yuan loans grew 10.6% in December from a year earlier – hitting the lowest in over two decades, compared with 10.8% in November. Analysts had expected 10.8% growth.Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, quickened to 9.5% in December from a year earlier and from 9.4% in November.TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.In December, TSF fell to 1.94 trillion yuan from 2.45 trillion yuan in November. Analysts polled by Reuters had expected December TSF of 2.20 trillion yuan. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The diversion of container vessels away from the risk of attacks in the Red Sea is pushing up air freight costs as shippers try to keep Asian-produced goods on shelves despite delays to sea traffic. Logistics providers said the rerouting of ships from the Suez Canal to longer passages between Asia and the west following Houthi missile and drone attacks had generated intense interest in moving goods by a mixture of sea and air. One company said demand for this method was 25 to 30 per cent higher than normal for January.The shift in transport mode, mainly a result of decisions by big container shipping line to send ships around the Cape of Good Hope, has helped push up air freight costs. The average cost to fly 1kg of cargo from the Middle East to Europe has increased 35 per cent in the last month to $2.03, according to Freightos, a logistics information service.Eytan Buchman, Freightos’s chief marketing officer, said shippers were resorting to air because of the delays from the extended transit times via the Cape. “One strong argument for bridging part of a supply chain by air would be to avoid the delays and uncertainties,” Buchman said.He said supply chains that could be disrupted included those for the manufacture of computers and cars and even for the making of sauces that needed a single key ingredient sourced from Asia.Container ships are the main means of worldwide transport for finished and semi-finished goods.Mads Drejer, chief operating officer of Denmark-based logistics company Scan Global Logistics, said his company was “increasingly seeing” higher air freight demand. Such cargo can travel either on specialist freighter aircraft or in the holds of passenger aeroplanes.“While air freight remains significantly more expensive than ocean freight . . . our clear view based on dialogue with our customers is that the consequence of empty shelves or a halt to production far exceeds the additional cost of utilising airfreight,” Drejer said.Container shipping lines started diverting to the Cape route in late November, when Yemen’s Iranian-backed Houthi rebels began attacking ships travelling through the Red Sea on their way to and from the Suez Canal. The diversions have mainly affected services between Asia and Europe, although some services from Asia to the US east coast are also affected.Container ship traffic through the mouth of the Red Sea in the first week of January was 90 per cent down on a year before.There have also been big cuts to the capacity of the Panama Canal, a key route between Asia and the US East Coast, as a result of a drought that has lowered water levels in that canal.The Red Sea diversions have added up to two weeks to each journey between Asia and northern Europe, on top of the normal journey time of about 35 days.The re-routings and the Panama Canal delays have created the most severe disruption to international supply chains since the Covid-19 pandemic and raised the costs of moving goods by sea to the highest levels recorded outside that period.Several logistics providers said customers were showing particular interest in sea-air options, whereby goods move by sea to a big air freight hub and are then flown onwards.Kuehne & Nagel, the Switzerland-based logistics company, said it had used Dubai to move seaborne goods onwards by air to Europe, and was sending Asian goods destined for the Americas by sea to Los Angeles instead of using the Panama Canal to reach the US east coast. “We see much higher interest from our customers,” Kuehne & Nagel said of sea-air solutions.It said one customer had moved a shipment of flowers harvested in Kenya by sea to Dubai, from where it was flown to Rotterdam, in the Netherlands. The shipment had originally been due to make the whole journey by sea, via the Suez Canal.“Considering that your typical journey from the Chinese ports to the Northern European ports will now take between 40 and 50 days, some of the customers are now indeed looking at alternatives which include flying,” Kuehne & Nagel said.Moving goods part of the way by sea reduces overall airfreight costs. Freightos puts the current average cost to fly goods from Shanghai to Europe at $3.76/kg, 85 per cent higher than the cost from Dubai.There have been some concerns that the shipping disruption could raise inflation. Isabel Schnabel, a member of the European Central Bank’s executive board, said on Wednesday in a question-and-answer session on social media site X that geopolitical tensions were one of the “upside risks to inflation”.“They could drive up energy prices or freight costs,” she said. “That’s why we need to remain vigilant.”Additional reporting by Martin Arnold in Frankfurt More