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Monday, 27 September 2021

The Evergrande crisis is on pause, but China is still posing a headache for emerging markets

China is worrying emerging markets: As fears of an abrupt Fed taper fade, Bloomberg suggests that a slowdown in China’s economy may pose the next big problem for emerging markets. Manufacturing indices due Thursday are expected to confirm a China-wide slowdown that goes well beyond the Evergrande saga, after the delta variant and a drop in consumer spending saw the country’s manufacturing sector record its first contraction in over a year in August.

A drop in commodity prices would be bad news for (commodity-driven) EMs: While Evergrande poses a contagion risk for property markets, “for the rest of emerging markets, what matters more is the negative impact on Chinese growth, and by extension commodity prices, and whether policy makers step in to offset those downside risks,” Goldman Sachs strategists said in a note last week. Chinese retail sales, industrial production and investment have slowed, leading to a knock-on drop in orders for emerging-market exporters of commodities like oil and copper. The longer-term fallout of the Evergrande crisis will also likely drag on growth.

But we could benefit from a China dip: Egypt’s high real interest rate puts it in a basket of countries, alongside Ghana, Indonesia, Vietnam and the UAE, that stand to do well in the context of a tighter US policy and a slower China, one Dubai-based researcher told Bloomberg.

Bahrain will double its VAT rate to 10% as it looks to raise revenues and overcome its huge budget deficit, sources tell Reuters and Bloomberg. The sources didn’t disclose when the government would hike the tax but said it was aiming to return to a balanced budget by 2024.

Bahrain isn’t the first GCC state to resort to VAT in response to covid: Saudi Arabia tripled the tax to 15% last year in response to falling oil revenues.

Up

EGX30

10,650

+0.1% (YTD: -1.8%)

None

USD (CBE)

Buy 15.66

Sell 15.76

None

USD at CIB

Buy 15.66

Sell 15.76

None

Interest rates CBE

8.25% deposit

9.25% lending

Up

Tadawul

11,352

+0.7% (YTD: +30.7%)

Down

ADX

7,774

-0.6% (YTD: +54.1%)

Down

DFM

2,832

-0.3% (YTD: +13.7%)

Up

S&P 500

4,455

+0.2% (YTD: +18.6%)

Down

FTSE 100

7,051

-0.4% (YTD: +9.2%)

Up

Brent crude

USD 78.09

+1.1%

Up

Natural gas (Nymex)

USD 5.14

+3.3%

Up

Gold

USD 1,751.70

+0.1%

Up

BTC

USD 43,523

+1.9% (as of midnight)

THE CLOSING BELL-

The EGX30 rose less than 0.1% at yesterday’s close on turnover of EGP 1.17 bn (26.1% below the 90-day average). Foreign investors were net sellers. The index is down 1.8% YTD.

In the green: Egypt Kuwait Holding’s EGP shares (+5.2%), Cleopatra Hospital (+3.1%) and Eastern Company (+2.9%).

In the red: Speed Medical (-2.4%), Ibnsina Pharma (-2.1%) and Ezz Steel (-1.7%).

Asian markets are largely in the green this morning, with only Shanghai being (barely) in the red at dispatch time. Futures suggest the FTSE 100 (LSE), CAC 40 (Paris), DAX (Frankfurt) will all open in the red later this morning. Wall Street looks on track for a mixed open right now, with futures showing the Dow and S&P opening in the green, while the tech-heavy Nasdaq could be down at the opening bell.

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