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Tuesday, 4 September 2018

What we’re tracking on 04 September 2018

Well, that was nice while it lasted: The nation’s news coma ends with a bang today amid reports of possible curbs on foreign borrowing by the state, a USD 2 bn arbitration order in favour of a gas company that could help debottleneck exports, the competition authority bluntly warning Uber and Careem against a merger, and the possible return of M&A activity to the banking sector. And that’s just for starters.

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A welcome this morning to new subscribers. Joining us in recent days are senior folks from places including Apache, Corplease, Daimler, Reuters, EFG Hermes, GB Auto, the embassies of the US, Switzerland, Japan, Korea and France, Subsea7, the UNDP, the Egyptian Foreign Ministry, White & Case, P&G, Harvard, Hassan Allam, CIB, AAIB, Shahid Law, Orange, Shell, BNY Mellon — and dozens and dozens more.

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It’s PMI day: The Emirates NBD purchasing managers’ August 2018 index for Egypt, the UAE, and Saudi Arabia covering will be released today. You’ll find it here once it lands at around 6:15am CLT

It’s the start of fall conference season as Euromoney getting underway today. The EFG Hermes London conference, the fall’s top gathering of frontier and emerging markets fund managers, starts next Monday.

President Abdel Fattah El Sisi concludes his Asian tour in Uzbekistan today, Ittihadiya said in a statement. El Sisi is expected to ink tourism and education agreements, according to Azer News. It’s the first visit by an Egyptian president to the former Soviet republic.

The emerging markets selloff isn’t over yet — but presents opportunities for investors who are willing to ride-out the storm. The global business press is trying to sort out what the EM Zombie Apocalypse means, where it might spread, when it might end and what a winning strategy might be for investors.

The only piece you need to read is by Mohamed El-Erian for the Financial Times. An advisor to Allianz, thinker and the noted author of The Only Game in Town, El Erian argues that the selloff is largely the result of a “technical and liquidity phenomenon” that tends to have a temporary impact, “provided the general contamination to economic fundamentals is contained.” With that in mind, the drop in EM asset and currency prices presents investors with an opportunity “to gain exposure not just to extreme overshoots but also to other fundamentally stronger names selling at bargain-floor prices.”

Investors should consider two things in deciding whether (and when) to ramp up their exposure to EM assets, El Erian cautions. First, that several “crossover” investors and funds are probably still be waiting for opportunity windows of favorable conditions to exit their respective markets. Meaning that, “rallies in prices may be short-lived, keeping several fundamentally driven long-term buyers on the sidelines until this phenomenon abates.” Second, that the exit of of some long-term EM investors can amplify the impact of crossover outflows, which could lead local currency funds to take on some “structural damage.”

The latest developments in EM: Turkey’s central bank is signaling that it may have to raise interest rates to curb inflation that now stands at nearly 18%, and Argentina “unveiled a sweeping new austerity programme to win over international investors and bailout lenders, admitting the country faced an ‘emergency’ in the wake of market panic after the” collapse of its currency.

What are others saying? The Wall Street Journal wades into the topic with a predictably facile front-page (web edition) story declaring that “emerging markets look increasingly chaotic, with plummeting currencies, messy politics and the biggest-ever IMF bailout capturing headlines.” The Journal asks and answers its own question in the headline: Buy Turkey and Argentina? Emerging markets aren’t bargains they seem. Bloomberg opinion, meanwhile, thinks we’re looking at a “textbook emerging-market crisis,” warning that while Turkey and Argentina “look like outliers, the rot could spread fast.”

Time for only one piece other than El-Erian’s? Read Bloomberg, there the angle is clear from the nut graf: “The textbook recipe for an emerging-market crisis requires a large dose of debt and an associated domestic credit bubble, including misallocation of capital into uneconomic trophy projects or financial speculation. Then add: a weak banking sector, budget deficits, current-account gaps, substantial short-term foreign-currency debt and inadequate forex reserves. Season with narrowly based industrial structures, reliance on commodity exports, institutional weaknesses, corruption and poor political and economic leadership.”

Trump wants to do away with quarterly earnings releases, moving to a London Stock Exchange-like six-month reporting cycle that would see companies required to release only 1H and FY figures. The move, he argues, would be an antidote to the short-termism of markets. We make a living, in part, by helping public companies communicate with their shareholders (and privately-held institutions report internally, to boards and to PE investors). We’re also very pleased that we don’t have to call a referendum every three months on our own financial and operational performance. So we get both sides of the equation. But former US treasury secretary Larry Summers thinks Trump’s suggestion is a really bad idea, writing for the Financial Times a move to require less information of companies won’t meet its goal, but will favour better-connected investors, particularly institutions.

Elsewhere this morning:

Abu Dhabi is looking to create the fifth-largest lender in the GCC with assets of USD 110 bn in a merger of three banks driven in part by the need for consolidation in a sector with 50 banks serving a population of 9 mn (against 28 lenders serving 33 mn people in KSA).

What’s up with oil? CNBC is covering all of its bases, looking at how China’s slowing demand for oil is bad for the Mideast, quoting Oman’s oil minister as saying oil won’t break north of USD 80 / bbl, and talking with an analyst who is fairly certain prices will surge above USD 90 / bbl.

Look for plenty of teeth-gnashing and grandstanding in Amreeka today as the US Senate begins confirmation hearings on conservative Supreme Court justice nominee Brett Kavanaugh, who the New York Times argues has a once-in-a-generation ability to swing the court to conservatives.

Need a break from all of the EM gloom and sundry politics? Go hit up the same WSJ about which we sneer above for a nice package of 16 stories headlined A lifestyle guide for overachievers. Among the highlights:

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