Aurelia Butler

SAO PAULO (Reuters) – Global X, one of the world’s top exchange-traded funds (ETF) providers, is optimistic about Brazil’s prospects as Latin America’s largest economy drives a monetary easing cycle and sees its economic growth overshoot forecasts.The company, which manages some $48 billion worldwide, dubs the country one of the most attractive cyclical opportunities in emerging markets at the moment, and says it has been catching more attention from international investors.”There are a lot of good things going on. Brazil’s checking a lot of boxes right now,” Global X’s Head of Emerging Markets, Malcolm Dorson, told Reuters on Monday.He cited strong momentum and still discounted equity valuation – even after a recent rally – as factors behind the call by Global X, whose funds include the actively managed Brazil Active ETF.Brazil’s central bank, meanwhile, started an interest rate-cutting cycle in August after holding borrowing costs at 13.75% for nearly a year to tame high inflation.It has so far reduced rates by a total 200 basis points but already flagged two more 50-basis-point cuts ahead, a pace Dorson sees as good as inflation hovers around 4.5%.”You still have significant amount of room to go while maintaining positive real rates,” he said. “I think as long as they stay on the steady path, they can continue helping the economy.”Longer duration and consumer plays tend to benefit from the environment marked by falling interest rates and low unemployment, Dorson said, naming local banks and companies such as Localiza, Vamos and Rumo among potential outperformers.POSITIVE SURPRISESBrazil’s economic growth beat expectations in 2023 and is likely to have reached 3% in the period, the central bank estimates, well above the 0.8% forecast by economists polled by the bank at the beginning of last year.Many worried that leftist President Luiz Inacio Lula da Silva’s policies would not be investor-friendly, but in his first year in office markets were surprised by the effectiveness of Finance Minister Fernando Haddad, Dorson said.Haddad helped persuade Congress to pass a new fiscal framework and a tax reform, and has backed efforts to erase the country’s fiscal deficit this year.At the same time, Dorson noted, checks and balances were in place as Brazil’s conservative-leaning Congress prevented Lula from doing “anything very radical” but did not refrain from passing government-backed measures to increase revenues.Brazil moving back towards investment grade within the next few years, Global X believes, is not out of question. All three rating majors currently place the country two notches below that level.”This is a big goal, but I don’t think it’s too far away,” Dorson said. “As long as they stay on the course that they’ve set out, potentially by the end of Lula’s mandate we could get back to investment grade. And that is massive.” More

The currency bloc’s manufacturing sector had been in recession for most of 2023, partly due to rapid ECB rate hikes, which were part of the central bank’s efforts to contain runaway inflation. But demand for services remained relatively robust, boosting overall growth and puzzling some.This may change, however, as services activity tends to mirror manufacturing with a two-quarter lag, the ECB concluded.”The dynamics in manufacturing contain information relevant to the near-term dynamics in services, and thus for the rest of the economy,” the ECB said in an Economic Bulletin article. “Manufacturing appears to lead services… whereas no clear leading relation can be established in the other direction.”The ECB raised interest rates from deep in negative territory to a record high 4% in just over a year as an unexpected surge in inflation reverberated through the economy, pushing up costs for everything from energy and foods to services. Capital intensive industry responded quickly, as early as the third quarter of 2022, even when services seemed resilient.Still, the ECB also noted that the overall impact of the downturn on services is likely to be smaller. “Monetary policy shocks have an impact on manufacturing that is almost twice as strong and around two quarters faster than their impact on services,” the bank added. More

His comments come after the Office of the Council of State, an independent panel that provides legal advice to governments, found no reason that would prohibit Srettha’s cabinet from borrowing to fund the scheme. The programme to give away 10,000 baht (around $285) to 50 million Thais to spend in their local communities was the signature election campaign policy of the ruling Pheu Thai party.The handouts, which the government has termed ‘digital wallet’ programme as Thais will be able to receive the funds via a mobile app, are aimed at spurring consumption and overall growth.The government wants to boost growth in Southeast Asia’s second-largest economy to at least 5% each year, with last year’s growth forecast at 2.4%.The handout plan has come under fire from economists and some former central bank governors who say it could be fiscally irresponsible and fuel inflation. Srettha, who is also finance minister, said he would meet the country’s central bank governor on Wednesday to discuss the stimulus plan and other matters. The premier this week criticized the Bank of Thailand for its interest rate hikes, saying they hurt small businesses at a time when inflation is low. “There might be disagreements, but there must be a conversation,” Srettha said, adding that it was a routine discussion.On Tuesday, the Thai Chamber of Commerce said it expected the economy to grow at least 3% year-on-year in the first quarter of 2024, and at a 3.2% pace for the full-year, helped by tourism and exports.The digital wallet scheme, if implemented as planned, could add a further 1.0-1.5 percentage points to 2024 growth, the chamber said, adding it also hoped the central bank would cut interest rates to support the economy.Thailand’s headline consumer price index (CPI) dropped 0.83% in December, staying below the central bank’s inflation target of 1% to 3% for the eighth straight month. More

SEOUL (Reuters) – South Korea’s credit market is showing signs of stability less than two weeks after officials pledged to expand a $66 billion program if needed to limit the fallout from a builder’s debt woes, analysts said, but added that it was still early days. An announcement by Taeyoung Engineering & Construction, the country’s 16th largest builder, on Dec. 28 to reschedule its debt has fuelled concerns about a credit crunch in money markets, as many real estate projects rely on the short-term debt market to finance construction projects.On Tuesday, the yield on 91-day commercial paper was quoted at 4.24%, down from a 10-month high of 4.31% in early December. It compares with a 14-year high of 5.54% in late 2022, when a missed bond payment by a local government-backed developer of theme park Legoland caused a credit crunch in financial markets. “We cautiously do not see systematic risks from the event as we believe the government and authorities are likely to recycle policy tools from 4Q22, if necessary,” Citi economists Jiuk Choi and Jin-wook Kim said in a report. “Market impact has been limited as financial authorities are proactively announcing policy support and expanding when needed,” said Choi Seong-jong, a credit market analyst at NH Investment Securities. Authorities have been quick to limit any spillover from Taeyoung’s debt troubles, and have urged the builder to fulfil creditors’ demand to inject more liquidity into the company by selling its assets, including its stakes in local broadcaster SBS.Finance minister Choi Sang-mok has vowed multiple times to “expand market stabilisation measures sufficiently as needed,” although he has ruled out injecting taxpayers’ money to bail out Taeyoung.Shares of Taeyoung dropped 37% in December, hitting their lowest since early 2005, but have rebounded nearly 50% so far in January. South Korea’s property market, a key sector driving growth and affecting financial markets, has been sluggish since mid-2022 as demand dampened due to the central bank’s aggressive rate hikes to tame inflation.”Policymakers are approaching the issue with targeted measures, separating interest rate policy and liquidity support. They might consider lowering interest rates if market jitters worsen, but not pre-emptively,” said Cho Yong-gu, a fixed-income analyst at Shinyoung Securities.”There is still some worry about Taeyoung as the trouble is still at the early stage and may pick up pace after general elections in April,” Cho said. ($1 = 1,314.8200 won) More

LISBON (Reuters) – Buying property in Portugal is no longer a route to a “golden visa” giving residency rights but foreigners who want to secure one can still put their money into investment funds, which now anticipate a boom in inflows. The Portuguese government has tightened the rules after initially saying in February 2023 that it would scrap the golden visa scheme, which has been blamed for exacerbating a housing crisis. It had already sought to redirect property investments from big cities to depopulated areas.The scheme, which offers wealthy non-EU nationals who invest in Portugal the right to live in the country, has attracted 7.3 billion euros ($8 billion) of funds since its 2012 launch. Most participants are from China, Brazil and the United States. Around 90% of that money went into real estate, sparking complaints it was driving up house prices in one of western Europe’s poorest nations. The European Commission has meanwhile called for an end to such programmes, citing security risks. Putting money into investment funds has been an option under the Portuguese scheme since 2015, but is now expected to be its principal channel. Other routes include donating to cultural or research projects. “Real estate has always taken the focus away from the other options,” said lawyer Vanessa Lima, from Prime Legal, which among other services helps foreigners apply for the visa. “The main type of investment will (from now on) be in funds – there is no doubt.”To be eligible, applicants must transfer 500,000 euros to one or more qualifying funds. Portuguese stock market regulator CMVM, which certifies funds, said it could not provide a list of those eligible for golden visa investments. Lima estimated there were around 40, although some may not still be open for investment. Among those hoping to benefit is sustainable agriculture investment fund Pela Terra, which is already helping to regenerate nearly 1,000 hectares of farmland in the Alentejo region. “The new regulations are wind in our sails,” said Pela Terra’s Alex Lawry-White.He described the changes as a “correction” of rules that had created problems such as higher house prices, adding: “The golden visa programme should have the community … at the centre of its focus.”Jim Davidson, a Pela Terra investor from the United States, said real estate was still an option when he started the golden visa process but that he had been aware of growing negative sentiment toward the scheme. He said Pela Terra was more aligned with his values and ethics.Another fund, Sharing Education, invests in international schools in Portugal. “We have noticed an increase in interest from investors … because they are looking for something different,” its head of investor relations Goncalo Santos said. NECESSITYAlthough there is no official data yet, three lawyers specialising in golden visas told Reuters they expected funds to soon represent 80-90% of all such investments. But with property closed off, some said less money was likely to make its way to Portugal overall.”People are doing it not out of a desire to invest but out of necessity … to get the golden visas,” said Francisco Barata Salgueiro, a senior partner in charge of the foreign investment department at EDGE International Lawyers.Contributing at least 250,000 euros to cultural projects or 500,000 euros to scientific research – or generating 10 jobs – can also help secure a golden visa. Applicants must allow criminal records checks and show they have no outstanding debts.Prime Legal’s Lima believes more funds will be created now that real estate is no longer an option – and that some existing funds will reorient themselves away from property – and that donations towards cultural projects will become more popular.But Nuri Katz of advisory firm Apex Capital Partners said excluding real estate investments would make Portugal less attractive to investors, who would turn to other countries’ golden visa schemes. Neighbouring Spain is among those that still allow property investments.The fact that eligible funds need only invest 60% of their cash in Portugal would further reduce the scheme’s benefits for the nation, Katz said. Lawyers and advisory firms have long complained the golden visa process is slow and bureaucratic, and some wanted more clarity about the new rules, which bar both direct and indirect real estate investments. “If a fund wants to invest in a factory … is this indirect investment in real estate or not?,” EDGE’s Salgueiro asked. “We don’t think so, but these uncertainties have come up.”Lawyer Raquel Cuba Martins said some of her clients were also concerned about political risk. Portugal will hold a snap election in March after the government collapsed following a series of scandals. “We’ve already had (application) withdrawals because of legislative instability and the lack of certainty,” Martins said. “(Others) prefer to invest now and start the process rather than wait for a change a new government might make.”($1 = 0.9111 euros) More

In Jiaxing, a manufacturing town on the outskirts of Shanghai, 400 steel industry executives and engineers gathered last November to tackle an enormous task: weaning the world’s biggest steel producer off coal-fired blast furnaces. The subject is of burning political urgency. The Chinese government is trying to decarbonise a sector that relies heavily on coal — and quickly — or risk losing its dominance as countries with ambitious climate goals look elsewhere.The source of China’s predicament can be traced to Europe where the EU — one of its key export markets — has imposed the world’s first ever tax on emissions of carbon-intensive imports starting with cement, iron, aluminium, fertilisers, electricity, hydrogen and, of course, steel. The levy will come into force in 2026, but the transition is already under way. But there is a deeper concern. The EU’s decision could set into motion a wave of countries enforcing similar measures, and on a wider variety of products, delivering a devastating collective blow to Chinese industry. In December, the UK announced the introduction of its own carbon import tax by 2027. “Companies are watching this keenly,” says Gao Liqun, partner in carbon tariffs research for Deloitte China. “They are concerned that there will be many other countries — [most importantly] the US and Japan — taking on similar measures.”One guest at the Jiaxing event, organised by the state-owned Zhejiang Society of Metals, was feeling optimistic, however. Tan Weihan, chief executive of Xi’an Xinda Electrical Furnace Works, sees the challenge facing Chinese steelmakers as an opportunity for companies like his that are helping to create cleaner steel. “The government is signalling the need for large-scale research and industrial co-operation,” says Tan. “We’re talking to the government and we hope to receive support.”For Europe, the introduction of the Carbon Border Adjustment Mechanism (CBAM), has been heralded as a much-needed leveller for European companies in an increasingly fractious landscape for global trade. But it is also a major step towards broader carbon pricing, a measure policymakers and environmentalists say is needed to cut emissions to 1.5C, the ideal goal of the Paris agreement.Western politicians are acutely concerned about an over-reliance on China for the raw materials necessary to support the green transition. Steel, among the world’s most commonly used metals, is one of the most politicised sectors in that debate.The EU, which is facing pressure from member states to regain its competitive edge, wants to ensure that the billions of euros being invested by steel heavyweights such as ArcelorMittal and Thyssenkrupp into their European plants to reduce emissions will not be undercut by low-cost competitors using dirtier energy sources.Yet unease over the first measures of its kind abounds from all sides. Some European producers themselves worry that CBAM could lead to higher costs that will erode the region’s appeal and their own. Further afield, officials and executives in countries including China, India Turkey and Brazil fear that CBAM will disrupt trade flows and create a two-tier system, with products made using clean energy sent to the EU and those produced with coal power being exported to poorer countries with less stringent climate laws.To that end, CBAM offers an early preview of what happens when the race to decarbonise is taken at different speeds by different countries.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The EU defends its policy as a necessary measure to drive down emissions. But for Beijing, CBAM is an example of green protectionism, says Qin Yan, a carbon analyst at London Stock Exchange Group. “The overall trend is towards trade fragmentation because of concern about supply-chain risks: everyone is afraid of being dominated by China,” she adds. “The carbon pricing mechanism gives Europe an opportunity to reshore its manufacturing.”This shift could accelerate the deepening wedge between the Chinese economy and those in the west — and pave the way for retaliatory measures. The cost of pollutingPersuading its trade partners of the benefits of the carbon border tax has required some effort on the EU’s part. To win support, Brussels has been hosting a series of seminars and outreach sessions. At one such gathering of Chinese executives and officials in Beijing last November, the EU’s climate commissioner Wopke Hoekstra pressed his case: “You will see that CBAM, regardless of what people try to push for, is not a ‘penalty’ for importers to the EU, but an incentive for decarbonisation.”He urged any Chinese exporters present “to take mitigation action and get ready to report the carbon content of their products”.For EU officials, CBAM is the logical development of the bloc’s emissions trading system (ETS), through which European companies buy permits corresponding to the number of tonnes of Co2 they emit. But since its introduction in 2005, the carbon price — which fluctuates according to demand — has steadily increased. As the cost of polluting rises, EU-based manufacturers already facing high energy prices worry that their greener, more expensive production will be undercut by low-cost imports from countries using coal power for fuel. EU heavy industries currently receive some free ETS permits in help them stay competitive but these will be wound down in coming years.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.“The reality is that we pay for steel at a much higher price than some of our competitors,” says Luca de Meo, chief executive of French carmaker Renault. “We have seen a rise in the price of steel which is probably 8 to 10 per cent the cost of the car in Europe.”Assofermet, the Italian steel industry body, warned at a conference in September that CBAM could push up the price of steel by 15 per cent.But EU policymakers argue that the measure is essential to prevent “carbon leakage”, the risk that EU companies will outsource carbon intensive production elsewhere.As she sought to win over business, European Commission president Ursula von der Leyen said last year that “making sure that a price is paid for the embedded carbon emissions generated in the production of certain goods imported into the EU” would mean their carbon price matches that of domestic production “ensuring that the EU’s climate objectives are not undermined”. The seven sectors that policymakers have singled out as most at risk of carbon leakage will be subject to CBAM first, although the EU expects that the levy will ultimately cover a much larger number of industries.Importers will be charged for the carbon emissions related to the production of their goods according to the EU’s ETS price with first payments due to be made in 2026. During a trial period that started in October, companies must report their emissions to the customs authorities, but will not be taxed. The first reports must be made in January 2024 and those that do not report will face a small fine. Countries that have a carbon price similar to that of the EU will either be exempt or will be charged relatively less according to their domestic carbon price.A steel plant in Shanxi province, China. Beijing is trying to decarbonise the sector, which relies heavily on coal, or risk losing its dominance as countries with ambitious climate goals look elsewhere More