Aurelia Butler

An index that measures the business outlook for the manufacturing sector dropped to 66 for February, on a seasonally adjusted basis, from 71 for January, according to the Bank of Korea’s survey of 3,255 companies, conducted during Jan. 10-17 nationwide. It was the lowest reading since October 2020.In the survey, 26.5% of manufacturing firms cited uncertain economic conditions as a major difficulty, up from 22.0% a month before. The second biggest increase in worry was centred on weak domestic demand, with 12.4% firms citing it, up from 10.8%.An index for the non-manufacturing sector fell to 72 from 76. It also marked the lowest level since December 2020.The survey result follows data released on Thursday that showed the South Korean economy contracted for the first time in 2/1-2 years and faced a possibility that it was in recession. More

Investors are piling into emerging market stocks and bonds at a near-record rate, as falling inflation and the reopening of China’s sprawling economy help reverse last year’s slide. Emerging equity and debt markets have attracted $1.1bn a day in net new money this week, according to high-frequency data tracking 21 countries from the Institute of International Finance. The speed of cross-border flows is now second only to the surge that followed the lifting of coronavirus lockdowns in late 2020 and early 2021, surpassing previous peaks over the past two decades.The strong inflows underscore a big shift in sentiment this year after a grim performance for developing markets for much of 2022. Falling global inflation has led many market participants to bet that major developed market central banks, including the US Federal Reserve, will soon stop increasing interest rates — relieving a major source of pain for emerging markets. Jahangir Aziz, an analyst at JPMorgan, said there was “a lot of gas in the tank” for a further rebound in inflows now that key economic uncertainties that weighed down emerging markets “are lifting”. The threat of recession has receded. Data released on Thursday showed that the US economy grew more than expectations in the last quarter of 2022, expanding at an annualised rate of 2.9 per cent, while unemployment claims remained low.China’s decision to scrap its zero-Covid policy has also had a big impact. The country’s inflows account for $800mn of the $1.1bn daily flows for all emerging markets, IIF data show, while other developing countries are benefiting from the knock-on effect of Beijing’s move.Emerging market assets have been further helped by investors’ expectations that developing countries will outgrow advanced economies this year. JPMorgan expects gross domestic product in emerging markets to grow by 1.4 percentage points more than the rate in advanced economies in 2023, up from zero in the second half of 2022.Stocks in the benchmark MSCI Emerging Markets index have risen by nearly 25 per cent since their low in late October. A rise of more than 20 per cent from a recent low is deemed a bull market.Despite the strong start to 2023, some investors and analysts warned that the rate of inflows was unlikely to be sustained.Paul Greer, portfolio manager for EM debt at Fidelity International, said much of the rally in EM assets may be behind us.“The first and second quarters [of 2023] will see an uplift in China, there’s no doubt about that,” he said. “But much of that is now priced in by markets . . . We may have seen the lion’s share of the rally in this cycle.” Greer said the rally was partly explained by investors returning to EM assets after cutting their exposure drastically over much of the past decade, and especially during the first three-quarters of last year.

Many developing economies previously struggled to deliver fast rates of growth in the wake of the financial crisis of 2008-09, and were hit especially hard by the surge in global inflation and in the US dollar during much of 2022.Greer added that despite the recent rebound, investors were unlikely to be optimistic about growth in emerging markets in the future. Rising levels of debt, greater fiscal strains across much of the developing world and the increasingly negative impact of demographics would reduce potential growth, he said.“It is hard to be as rosy about emerging markets as it was before Covid,” he said. More

The government of President Gustavo Petro wants to move Colombia away from its reliance on extractive industries, sectors which generate the largest income for Latin America’s fourth-largest economy in exports, taxes and royalties. Petro wants to boost agricultural production in the country of 50 million people to increase food output by giving land to poor farmers and use tourism to generate employment and bring in foreign currency. “We’re proposing a conversation that has to start today to be able to transition towards an economy that’s much more diverse in the coming years,” Tomas Bermudez, head of the IDB’s Andes section, said at a press conference. The transition will “have to be financed and leveraged with what Colombia produces today, which are hydrocarbons and mining,” he said, adding that the new IDB report on transforming productivity in the Andean region did not propose ditching these industries. The country’s agricultural industry demonstrated its resilience during the COVID-19 pandemic in 2020 when it grew 2%, while Colombia’s economy contracted 6.8% overall. Colombia’s services sector has the potential to bring an additional 1.7 million jobs to the country by 2050, of which 90,000 would include the modern services sector, such as computer programming, the IDB study found.The global energy transition and process of decarbonization has potential to increase demand for metals including copper, nickel and graphite, the report said, adding that exploration projects for these metals could benefit Colombia.Colombia’s government forecasts economic growth of 8.2% in 2022, but will slow to 1.3% this year. More

SANYA, China (Reuters) – China’s scrapping of travel curbs this month is expected to revive demand in the global luxury retail market, but many consumers see more reasons to do their high-end shopping locally on the tax-free island of Hainan.On Wednesday, thousands of travellers in Hainan’s Sanya city packed the CDF Mall, a shopping centre dedicated to duty free stores, where they stocked up on cosmetics and handbags while on break for the Lunar New Year Holiday.”The UK is quite far and it’s hard to buy tickets,” said Yu Shunxiao, a student who said he used to shop at Harrods in London. “In Sanya, we can come and leave whenever we want.”In early January, following a broader nationwide relaxation of COVID-19 prevention policies, Beijing ended a long-standing requirement that all inbound travellers go into quarantine at a hotel immediately upon arrival.As a result, Chinese residents have rushed to travel overseas. On Trip.com, a popular ticket-booking site, international flight ticket purchases shot up over 200% the day after the policy change was announced.Luxury brands and retailers are hoping that an upcoming outbound tourism boom from China will bring in strong sales in 2023, just as a post-pandemic frenzy in the United States and Europe cools down.Despite this, some experts argue that an increasing portion of China’s luxury spending will remain inside the country’s borders, even though consumers can now travel freely.Jonathan Yan, at consultancy Roland Berger in Shanghai, told Reuters that the three-year period of closed borders has caused Chinese shoppers to get more accustomed to buying foreign luxury goods in China.    “A portion (of luxury shoppers) will go back to the original pre-COVID overseas consumption,” Yan said. “But, I think the local (luxury market) will be also important for most of the brands.” More

When Chinese officials speak at Davos, they cater to their audience of global capitalist elites. Back in 2017, Xi Jinping, leader of the Chinese Communist party, quoted Charles Dickens and the Swiss founder of the Red Cross Henry Dunant to launch a defence of economic globalisation. “Pursuing protectionism is like locking oneself in a dark room,” he said then.This year, it was the turn of Liu He, a vice premier who is regarded as China’s “economic tsar”. His message at Davos last week was that after three years wrestling with the pandemic, “China is coming back”. He also pledged strong support for China’s beleaguered private sector and promised that the door to foreign investment will “only open up further”. Was Liu merely trying to win his audience? Probably not. Beijing’s renewed embrace of the private sector and foreign investors is consistent with recent high-level policy statements made in Beijing. Han Wenxiu, a senior official in the Central Financial and Economic Affairs Commission — a body headed by Xi himself — articulated similar undertakings for private capital and foreign businesses in a speech in late December.The outside world therefore should take China’s signals of a reset in economic policy seriously — even though doing so requires a leap of faith. A heavy-handed regulatory crackdown on 13 leading privately owned internet companies has wiped trillions of US dollars off the value of their shares over the past two years. Foreign multinationals have also had a torrid time. A survey of the 1,800 members of the EU Chamber of Commerce in China last year found that 23 per cent were considering shifting current or planned investments out of China — the highest ever recorded. A full 77 per cent also reported that China’s attractiveness as a future investment destination has decreased.Thus it is not charity that is inducing China to change its tune. An anaemic GDP growth rate of 3 per cent last year, an urban youth unemployment rate that stood at 17 per cent in December, a slumping property market, widespread debt stress at the local government level, a faltering export performance and several other frailties have convinced Beijing that it needs to court all potential sources of economic growth.Indeed, its chaotic pivot from “zero-Covid”, which started in December, was probably precipitated as much by frustration within China’s political and business hierarchies as it was by street demonstrations in more than 20 cities in November.However, it should be recognised that China’s plan to reopen and embrace the private sector does not signify a diminution in Xi’s obsession with control. State control over private companies has been stepped up. Alibaba and Tencent, for instance, have had to cede “golden shares” to state entities, which allow officials to take board seats and veto certain company decisions. In other evidence of bolstered state control, China is instituting a “traffic light” system to regulate share offerings. Private companies in sectors that align with Beijing’s strategic priorities — such as semiconductors — may get green lights to launch IPOs while others in less favoured sectors such as education and alcohol may be prevented from doing so, according to Gavekal Dragonomics, a consultancy.China should recognise that giving better treatment to the private sector and multinationals cannot be a matter of expediency. Such policies must be long-term and sustainable if Beijing wishes to build trust. If officials travel to Davos to express fealty to a creed of open markets only to reverse course once back home, it will inflict lasting damage to China’s reputation. More

The US dollar has wilted against its peers in the opening month of 2023 as the Federal Reserve fades as the key driver in currency markets and investors focus on the policies of other major central banks. The Fed’s campaign of big rate rises captivated investors in the first nine months of 2022, igniting a rush into the dollar. But as the US central bank has slowed its increases in borrowing costs, the currency has slid against its peers. The dollar has fallen 1.4 per cent in January against half a dozen major currencies, leaving it on track to record its fourth-straight monthly decline. It is now trading at levels last seen in May 2022. “The Fed is no longer in the driver’s seat — and you see that playing out across the foreign exchange space,” said Mazen Issa, senior foreign exchange strategist at TD Securities. Once the Fed had signalled it would end its pace of 0.75 percentage point increases in December, “the Fed effectively decided to cede policy leadership to its global peers”.Central banks elsewhere have picked up the mantle, most notably the European Central Bank and the Bank of Japan. The ECB is expected to stick with extra-large rate rises while the Fed downshifts. For the BoJ, raising interest rates may still be some way off, but December’s relaxation of its policy of pinning long-term bond yields near zero has fanned speculation that the era of ultra-loose monetary policy in Japan is drawing to a close.That more hawkish outlook has helped bolster both the yen and the euro, which have returned to their strongest levels since the spring of 2022. Monetary policy decisions next week from the Fed, ECB and Bank of England could provide further clues on whether the Fed will surrender its leadership position this year. “2022 was the year where everything aligned for the dollar. The Fed was leading the charge with interest rates, and the war in Ukraine and zero-Covid policies in China amounted to favourable terms-of-trade shocks. All these things have unwound at the same time,” said Alan Ruskin, chief international strategist at Deutsche Bank. High costs for raw materials like natural gas and oil made 2022 hard for economies that depend heavily on commodity imports like Europe, the UK and Japan. Their ratios of import prices to export prices — known as the “terms of trade” — were dismal, showing ever more capital leaving those markets, weakening their exchange rates. But this year’s winter has been warm and that trend didn’t progress as far as had been expected, keeping demand for natural gas in check.“The terms-of-trade story has turned very much in favour of Europe, UK, Japan — commodity-importing countries. They now have much better prospects than they did before,” said Shahab Jalinoos, global head of foreign exchange strategy at Credit Suisse. Lower commodity prices have also shifted expectations for growth outside the US. Deutsche Bank on Tuesday revised its forecast for European growth upwards, from expectations for a 0.5 per cent contraction to a 0.5 per cent expansion in 2023. “Gas storage is up and gas prices are down. Inflation is falling and uncertainty is declining. As such, we can remove the recession from our 2023 forecast, adjust headline inflation lower and pare back the deficit,” said Deutsche Bank economist Mark Wall.Conditions are also improving in China, where the government has abandoned its zero-Covid policy, a move expected to bolster its economy after last year saw one of its weakest performances on record. The effects of the reopening on the currency market are likely to be mixed, however, as stronger growth may also push demand for commodities higher, driving global inflation up.The greenback’s central place in global finance meant that when it rose last year, it placed pressure on economies around the world, particularly developing markets which often pay for imports in dollars and borrow in the currency. Its reversal this year has helped to stoke a turnround, with an MSCI basket of developing market currencies up 2.4 per cent in 2023. “The dollar doom loop that markets were so worried about last year has turned into the dollar boom loop,” said Karl Schamotta, chief market strategist at Corpay. More

(Reuters) -Russia’s finance ministry on Thursday proposed scrapping liquidity restrictions for spending on “anti-crisis” investments from its National Wealth Fund (NWF), citing the need to support key sectors amid challenging geopolitical conditions.Russia’s fiscally conservative authorities have tended to be cautious in their use of NWF funds.Thursday’s move suggests they want to be more creative in the way they maintain Russia’s economic health, as Moscow ramps up spending on what it calls its “special military operation” in Ukraine.The ministry also said it would seek to reduce the threshold at which investments in other financial assets from the rainy day fund can be made to 7% of gross domestic product (GDP) from 10% currently, according to draft proposals.”Introducing amendments to article 9611 of the budget code is aimed at making it possible to finance high-priority, self-sustaining infrastructure projects using the National Wealth Fund and to make anti-crisis investments regardless of the size of the (fund’s) liquid assets,” the ministry said in an explanatory note.The ministry proposed that the total volume of such investments not exceed 4.25 trillion roubles ($61.24 billion). “These changes will ensure reliable support for key sectors of the Russian economy in the current challenging geopolitical and macroeconomic conditions,” the ministry said. The NWF is Russia’s sovereign wealth fund, built up through years of profits on the country’s oil and gas exports. As of Jan. 1, the fund stood at $148.4 billion, equivalent to 7.8% of GDP, having dropped by $38.1 billion in December, as the government took out cash to plug its budget deficit.But only $87.2 billion, or 4.6% of GDP, was in liquid assets, and the ministry has warned that could fall to as low as 1.4% of GDP by 2024, which the Accounts Chamber has said would be the lowest ratio for 20 years.As of Feb. 1 last year, three weeks before Russia sent troops into Ukraine, the total fund stood at $174.9 billion, or 10.2% of projected GDP.($1 = 69.3955 roubles) More

SYDNEY/SINGAPORE (Reuters) – China’s reopened borders and renewed focus on boosting the sagging economy have brightened the deals outlook, with bankers starting to field interest for mergers, acquisitions and fundraising involving the world’s second-largest economy.The prospect of a revival in deals comes as Chinese policymakers try to restore private-sector confidence and growth, which has been ravaged by the COVID-19 pandemic and a sweeping regulatory crackdown.Although consumer, retail and travel-related firms are expected to bounce back after an almost three-year lockdown, advisers say sectors linked to strengthening China’s economic prospects will be at the centre of dealmaking this year.”We see strategic sectors, hardcore industrial technology, automation, semiconductor-related to be a focus for outbound activity,” said Mark Webster, partner and head of Singapore at BDA Partners, an Asia-focused investment banking adviser.”Healthcare opportunities are proving of interest, both domestically and outbound, including in Southeast Asia,” he added. “Geographically, Indonesia in particular is attracting a lot of attention.”Australia has also already emerged on China’s radar amid hopes of a diplomatic thaw between the two countries. In one such deal, Tianqi Lithium and IGO’s joint venture are bidding for lithium miner Essential Metals.Outbound M&A involving companies in China halved last year to the lowest point since 2006, Refinitiv data showed, which pulled total Chinese company-led dealmaking to its lowest point in nine years.     Chinese companies’ capital markets deals slipped 44% in the same period, according to Refinitiv data. That slump crimped the fees earned by Wall Street banks and forced some of them to cut jobs, mainly those linked to Chinese deals, in the past few months.”We have had a lot more requests for proposals from companies in the past two to three weeks,” said Li He, a capital markets partner at law firm Davis Polk who travelled to Beijing to meet clients the day after China’s border reopened on Jan. 8.”That is not just because of travel but people think that a reopening is good for the economy, good for capital markets and good for deal execution,” He said.The reopening coincided with a thaw in regulatory scrutiny that had seen overseas Chinese IPOs grind to a halt in the past 18 months amid proposed rule changes, and the tech sector struggle with a range of new regulations.Until the border reopened, travel from Hong Kong into mainland China had been tightly restricted for about three years – a sharp change for advisers for whom weekly trips to China had been common. Opened borders could lead to a pick up in deals involving private equity funds later in 2023 as firms head to China to find buyers for their assets, according to Bagrin Angelov, head of China cross-border M&A at Chinese investment bank CICC.Chinese private equity activity was worth $24.1 billion in 2022, down from $57.8 billion a year before, Pitchbook data showed.”Six months or one year before the deal, private equity firms would already start meeting potential buyers to try to warm up the interest and try to understand who could be interested,” Beijing-based Angelov said.”For them certainty is very important, and they really need to meet buyers very early on,” he continued. “Because of opening up, we expect an uptick in overseas disposal of private equity to Chinese buyers.” More