WSJ Emerging and Growth Markets, June 13th 2020

Welcome to the latest edition of WSJ Pro Emerging & Growth Markets, our weekly review of key news affecting frontier and small emerging markets. This newsletter is a companion to Strategic Intelligence, an information resource focused on emerging markets that brings together the global news coverage of The Wall Street Journal with the analysis of market intelligence firm DuckerFrontier. 

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Global

Markets shrug off crisis. Just two-and-a-half months after markets around the world plunged in response to the breathtaking speed with which coronavirus was spreading the stock markets of many frontier and emerging markets have bounced back sharply. According to Daniel Salter, head of equity strategy at Renaissance Capital, the rally in emerging-market equities is stronger than the rebounds in the wake of other recent dramatic emerging market sell-offs—the others being in 1998, 2001, 2008 and 2016.

The recovery in the emerging markets is closely following the pattern established in previous market slumps and recoveries, Mr. Salter said, with gains concentrated in four sectors: materials, energy, consumer discretionary and IT. Companies in the healthcare sector have also seen strong investor interest.

Despite their strong performance—since their 2020 lows, Vietnam is up 31%, Pakistan 27%, Nigeria is up 22% and Argentina is up 97% in local currency terms—frontier markets are still lagging developed and emerging markets, a fact that is catching the attention of investors looking to tap into the market recovery play. “Investors are being forced up the risk curve in search of potential returns,” Mr. Salter said.

Millions expected to plunge into extreme poverty. The World Bank this week made starkly clear the scale of the economic damage that investors are tuning out as they climb the risk curve. In its latest assessment of the impact of the pandemic the multilateral said emerging and developing markets would suffer a 2.5% contraction this year. According to the bank, it would be the first time they’ve contracted as a group in at least 60 years.

For those at the bottom of the economic pyramid, the broad and deep decline in economic output will be devastating. “Per-capita incomes are expected to decline by 3.6%, which will tip millions of people into extreme poverty this year,” the World Bank said.

According to Kristalina Georgieva, the head of the IMF, almost 90% of the countries in the world will have lower per-capita incomes by the end of this year. “Never in our history have we seen such a tremendous reversal of fortunes for so many,” she said.

“Never…have we seen such a tremendous reversal of fortunes for so many”

Kristalina Georgieva, head of the IMF

Africa

Uganda breaks out bumper budget to boost economy. Uganda unveiled a $12.2 billion budget, its largest on record, including a surge in funding to aid struggling businesses as the East African nation seeks to calm the economic fallout from the coronavirus pandemic, Nicholas Bariyo reports. Finance Minister Matia Kasaija told parliament that spending would increase 14% during the 2020-21 fiscal year, which starts next month.

The spending includes a 24% increase in external support, notably from lenders and donors. The World Bank and IMF have already extended more than $500 million in emergency aid to Uganda to respond to the pandemic.

“The budget…will support the economy to fully recover, harness the potential that we have, and get back to our progressive journey of double-digit GDP growth rate,” Mr. Kasaija said, adding that the government was in talks with some external creditors for debt relief.

Earlier this week, the country’s central bank cut its benchmark lending rate by one percentage point—the third cut in a row this year—bringing the rate to a record low since Africa’s top coffee-exporting nation introduced inflation targeting monetary policy a decade ago.

IMF doubles emergency support for Rwanda. The IMF this week sharply increased its assistance to Rwanda to help cushion the landlocked East African nation’s economy from the effects of the coronavirus pandemic.

Rwanda’s economy has been buffeted in recent months by slumping domestic demand and declines in export revenues and foreign remittances.

“Rwanda’s economic outlook has worsened since the approval of the first fund request, leading to a further downward revision in the 2020 GDP growth forecast from 5.1% to 2.0%,” the IMF said. “The unprecedented spending needs generated by the pandemic, combined with losses of revenues, are putting significant pressures on public finances and compounding the impact of sharp declines of exports and remittances on the balance of payments.”

The second disbursement of $111 million more than doubles the funding the MF has provided Rwanda to respond to the coronavirus pandemic. emergency support to Rwanda to US$ 220.46 million to help urgent balance of payment needs stemming from the pandemic.

Burundi president dies after election that confirmed his successor. Pierre Nkurunziza, Burundi’s longtime leader, died unexpectedly of heart failure weeks after an election confirmed his chosen successor, Nicholas Bariyo and Joe Parkinson report. The 55-year-old president and former rebel leader died at a hospital on Monday in central Burundi where he was receiving treatment after falling ill during the weekend while watching a volleyball match, a government statement said.

President Pierre Nkurunziza took part in a May 16 campaign rally for the ruling-party candidate to succeed him as Burundi’s president.

PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES

In power for 15 years, Mr. Nkurunziza ruled the coffee-producing central African nation of Burundi with an iron grip. He survived street protests and a failed coup attempt that left hundreds dead after he announced in 2015 that he would seek a third term in office in violation of the country’s constitutional two-term limit. Mr. Nkurunziza eventually overhauled the constitution.

He was set to hand power to a political ally, Evariste Ndayishimiye, a retired military general who won 69% of the vote in a disputed election held on May 20. But Mr. Nkurunziza was set to retain huge influence in the role of Burundi’s “supreme guide to patriotism.”

Covid-19 testing creates vast traffic jams on East Africa’s borders.Border checkpoints testing truckers traveling between nations in East Africa are creating traffic jams as long as 50 miles and bringing critical trade routes to a sudden halt Nicholas Bariyo writes. Along East Africa’s borders, medical workers in hazmat suits take throat swabs from truck drivers in makeshift clinics to test whether they have the virus that causes the disease, extending journeys that would normally take a week into monthlong ordeals.

“People look at us as disease carriers,” Abdiyare Muhamed, a 27-year-old truck driver from Kenya, said on Sunday in Busia, a busy lakeside town on Kenya’s border with Uganda. After spending 10 days stuck on the side of a dusty tar road near the frontier, he was preparing to wait another three to five days for the results of his coronavirus test. If Mr. Muhamed is infected, he won’t be allowed into Uganda and his freight company will have to send another driver to haul his shipment—24 metric tons of grain—to a United Nations compound in Juba, South Sudan.

Truck drivers prepared dinner while they waited to pass the Kenya-Uganda border, on June 7. While they wait for test results, drivers often mingle with other drivers and local residents, potentially spreading the virus. PHOTO: WILL SWANSON FOR THE WALL STREET JOURNAL

Ugandan border guards have turned back more than 550 truckers who have tested positive for the virus since mid May, representing more than two-thirds of the country’s confirmed cases. Health officials say truckers account for the bulk of the nearly 6,000 cases confirmed in Kenya, Uganda, Rwanda and South Sudan.

Asia

South Asian nations face painful dilemma. Pakistan and Bangladesh are taking a calculated gamble by easing restrictions imposed in response to the coronavirus pandemic even before there is any sign the spread of the virus is coming under control, researchers at Capital Economics said this week. With the number of infections in the South Asian nations still growing sharply, rolling back their lockdowns could prolong the economic downturn caused by coronavirus, the firm said. However, “the economic consequences of remaining in lockdown much longer would be even worse,” according to Shilan Shah, CapEc’s senior India economist.

As the pandemic took hold in regions across the world in late February, both countries initially saw relatively few cases. A spokesman for Bangladesh’s government told the Journal at the time that the country’s proactive moves to monitor travelers were helping limit the number of cases there. Pakistan’s ambassador to the U.S., Asad Majeed Khan, told the Journal in an interview in late April that the country was seeing less than a third of the cases its government had expected, giving confidence that its medical facilities would be able to cope with the anticipated outbreak.

A street in Karachi, Pakistan, shortly after stores were ordered to reopen. Photo: Asif Hassan/Agence France-Presse/Getty Images

Despite their precautions Bangladesh by Friday had 81,523 confirmed cases while Pakistan had 125,933. Policymakers in both countries are loosening restrictions to reduce the economic pain their populations are suffering.

“Opening up while infections are still spreading rapidly ensures that these economies will suffer slower and more fitful recoveries than those that have managed to contain the virus,” Mr. Shah said. “Higher levels of illness and absenteeism from workplaces will affect productivity. And there is a higher chance that policymakers will have to reverse course and reimpose lockdowns if a spike in cases threatens to overwhelm healthcare systems.”

Vietnam’s free-trade agreement with E.U. ‘should provide timely export boost.’ A new free-trade agreement between the E.U. and Vietnam that is likely to be approved by the Southeast Asian country's National Assembly this month comes at an opportune time, Yiwei Wong reports. According to HSBC, the agreement, once approved, could boost Vietnam’s annual exports to the E.U. by 18% by 2035.

The Covid-19 pandemic has caused Vietnam’s exports to the E.U. to fall this year, driven mostly by a 24% contraction year-on-year for phone shipments, HSBC says.

Vietnam’s electronic exports are likely to be boosted under the FTA, although its textile exports may not receive the same benefits due to E.U.’s strict rules of origin, which require use of locally-produced fabrics, the bank adds.

Middle East

Middle East’s coronavirus surge shows pandemic’s shift to developing world. A surge in coronavirus cases in Saudi Arabia and other Middle East countries has forced authorities in some places to enforce new lockdown measures just weeks after easing restrictions, Stephen Kalin and Rory Jones report.

Nations globally are following the U.S. and Europe in lifting restrictions introduced to stem the spread of the disease. But the emergence in the Middle East of a quick second wave highlights the risk of hasty re-openings in big population centers with often ill-equipped health-care infrastructure.

The Middle East resurgence follows a period of looser curfews during the holy month of Ramadan, when families share evening meals after daylong fasts. Having imposed lockdowns early on, before the virus spread locally, many countries in the region are also fatigued by the restrictions just as they need them most.

Worshipers pray in Saudi Arabia's holy city of Medina. New daily infections, critical cases, and virus-related deaths have jumped in the kingdom. PHOTO: MAJED AL-CHARFI/AGENCE FRANCE-PRESSE/GETTY IMAGES

Since the end of Ramadan in late May, new daily infections, critical cases, and virus-related deaths have jumped in Saudi Arabia. More than a quarter of all cases and nearly half of all deaths in Saudi Arabia have been reported in the past two weeks. More health-care workers, in particular, are getting sick and dying.

Europe

Surge in debt issuance in Europe continues. Governments across Europe are rushing to take advantage of an unexpected surge in demand for sovereign bonds, Emese Bartha reports. Hungary last week raised €1.5 billion ($1.67 billion) in its inaugural 15-year, euro-denominated green bond. That issue was heavily oversubscribed with investors putting in some €7.5 billion in offers.

Also heavily oversubscribed was a eurobond issued this week by Albania. Investors put in bids worth more than €3 billion for the €650 million bond. Demand was heavy enough that the issuers were able to reduce the interest rate offered by half a percentage point, leaving the seven-year bond yielding just 3.625%.

And on Wednesday, Croatia sold €2 billion in 11-year bonds with a coupon of 1.5%, priced to yield 1.643%. Demand for the bond exceeded €9 billion, according to one of the banks that managed the sale.

Next Monday, Slovakia will put investor enthusiasm to the test with a new four-year bond issue offering 0% interest and a seven-year bond offering 0.125%. the combined value of the bonds is expected to be €400 million.

Latin America

Argentine farmers and president clash over government seizure. Argentina’s leftist government, facing crushing debt and the coronavirus pandemic, is moving to seize one of the country’s leading agricultural companies, Vicentin, putting President Alberto Fernández in direct conflict with the powerful farming sector, Ryan Dube reports.

The anticipated expropriation of the grain exporter, which filed for bankruptcy late last year and was in ongoing court proceedings, deepened concern in Argentina’s business community over the influence of a hard-line wing in Mr. Fernández’s Peronist coalition led by his vice president, Cristina Kirchner (pictured). She seized large private firms when she was president, from 2007 to 2015.

On Monday, Mr. Fernández announced a decree to immediately seize Vicentin, saying it was of strategic interest to the country. If Argentina’s insolvent government is able to push the expropriation through it will have to assume the $1.5 billion in debt and liabilities of Vicentin weeks after the country defaulted on tens of billions of dollars in foreign debt for the ninth time in its history.

The Fernández administration is currently in negotiations with foreign creditors, aiming for a large reduction in debt payments.

What We’re Reading

Massive labor migration begins in post-lockdown Africa. (Bloomberg) 

At least half of mystery deaths in Nigeria’s Kano ‘due to COVID-19.’ (Reuters) 

‘They have killed us more than corona’: Kenyans protest against police brutality. (The Guardian) 

Morocco’s economic recovery ‘will be faster than expected.’ (Morocco World News) 

Libyan warlord, facing setbacks, proposes cease fire. (WSJ) 

Turkey dismisses Egypt ceasefire offer as attempt to save Haftar. (Al Jazeera) 

It took decades to get Asia’s poor into schools. The pandemic is driving many to drop out. (WSJ) 

Vietnam could be a rare winner from the coronavirus pandemic. (Axios) 

EU set to reject Cambodia tariff relief plea. (Nikkei) 

Bangladesh leads climate-threatened nations in push for global action. (Reuters) 

China and India pull back from Himalayan standoff. (WSJ) 

For Sri Lanka’s activists, a ‘state of fear’ resurfaces. (The New Humanitarian) 

Sri Lanka to hold coronavirus-delayed election on August 5. (Al Jazeera) 

Online photo archive brings Romania’s history back to life. (BalkanInsight) 

U.S. sets plan to expand sanctions on tankers, in bid to pressure Venezuela. (WSJ) 

Peru’s ginger exports soar during pandemic. (Jakarta Post) 

Frontier slump presents opportunity. (SeekingAlpha) 

April’s historic economic plunge points to steep climb for the world economy. (WSJ)