Rising default risks for countries like Nigeria, Ghana, Kenya, Pakistan and Tunisia

Stockbrokers speak while monitoring the share prices during a trading session at the Pakistan Stock Exchange (PSX) in Karachi on July 19, 2022. (AFP/File)
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Updated 24 November 2022

Rising default risks for countries like Nigeria, Ghana, Kenya, Pakistan and Tunisia

  • Bulls are back after some of biggest losses in emerging markets this year
  • Japan's Nomura sees seven potential currency crises on the cards

LONDON: After some of the biggest losses in emerging markets on record this year the bulls are back, betting that the time has come for a rebound.

With caveats that global interest rates stabilise, China relaxes COVID restrictions and nuclear war is averted, annual investment bank forecasts for 2023 suddenly have some pretty lofty predictions for emerging markets (EM).

UBS, for example, expects EM stocks (.MSCIEF) and fixed income to earn between 8%-15% in total returns after a 15%-25% pummelling this year.

A "bullish" Morgan Stanley expects a near 17% return on EM local currency debt. Credit Suisse "particularly" likes hard currency debt, while BofA's latest global fund manager survey shows "long EM" is the top "contrarian" trade.

"It's a kind of a wholesale de-grossing of risk," said T. Rowe Price EM portfolio manager Samy Muaddi, who has started dipping his toe back into what he describes as "well-anchored" EM countries such as Dominican Republic, Ivory Coast and Morocco.

"Now, I feel the price is sufficiently attractive to warrant a contrarian view".

This year's surge in interest rates, the Ukraine war and China's battle against COVID have combined to be a wrecking ball for EM.

It could be the first time in the asset class's three decade history that 'hard currency' EM debt - the kind usually denominated in dollars - will lose investors more than 20% on a annual total return basis and the first ever 2-year run of losses.

The 15% loss currently racked up by local currency debt would be a record, while EM stocks have only had worse years during the financial crisis in 2008, the dotcom burst of 2000 and the Asian debt blowup in 1998.

"This has been a very rough year," DoubleLine fund manager Bill Campbell said. "If it hasn't been the worst, it is one of the worst".

It is the experience of those past routs that has led to the current wave of optimism.

MSCI's EM equity index soared 64% in 1999 and 75% in 2009 after losing 55% during both the Asian and financial market crashes. EM hard currency debt saw a whopping 30% rebound too after its 12% GFC drop and local debt which had lost just over 5% went on to make 22% and then 16% the year after.

"There is a lot of value at today's current levels," DoubleLine's Campbell added.

"We don't think this is the time to blindly allocate to an emerging market trade, but you can start to piece together a basket (of assets to buy) that does make a lot of sense".

Societe Generale's analysts said on Tuesday that cooling inflation and looming developed market recessions were "supremely conducive for EM local bond outperformance".

Most of the big investment banks were, however, backing emerging markets to rally this time last year. None predicted Russia's invasion of Ukraine or soaring interest rates. There is an almost annual ritual of bankers talking up EMs chances, say those who have followed EM for years.

BofA’s December 2019 investor survey showed ‘shorting’ the dollar was the second most crowded trade. JPMorgan and Goldman Sachs were bullish, while Morgan Stanley’s message at the time was: "Gotta Buy EM All!".

The dollar subsequently surged nearly 7% and the main EM equity and bond indexes lost money.

"You know how it works with a broken clock - at one point it might be right," abrdn EM portfolio manager Viktor Szabo said.

As well as the Ukraine war, stubbornly high inflation and China's lockdowns, rising debts and borrowing costs mean credit rating agencies are warning of rising default risks in countries like Nigeria, Ghana, Kenya, Pakistan and Tunisia.

Nomura sees seven potential currency crises on the cards and even though UBS is bullish on EM assets, it estimates this year has seen the biggest depletion of FX reserves since 1997. Its 2.1% global growth forecast would also be the slowest in 30 years aside from the extreme shocks of 2009 and 2020.

"Our hope is that a looser Federal Reserve combines with a peak in the global inventory cycle/recovery in Asia tech from Q2, creating more fertile ground for EM outperformance at that time," UBS said.

If the outlook does indeed brighten, international investors are well placed to swoop back in, having sold EM heavily in recent years.

JPMorgan estimates some $86 billion of emerging market bonds have been dumped this year alone, which is quadruple the amount sold during the 'taper tantrum' year of 2015.

"EM is swimming to safety," Morgan Stanley summarised. "Though still in deep water".

Pakistani brothers, venture capital firm founders, feature on Forbes 30 Under 30 list

Updated 15 sec ago

Pakistani brothers, venture capital firm founders, feature on Forbes 30 Under 30 list

  • Mohammed Amdani and Ammar Amdani lead a team of eight
  • Most of their team members identify as people of color, Forbes said

KARACHI: Pakistani brothers Mohammed Amdani and Ammar Amdani have made it to this year's Forbes 30 Under 30 list, a litany of young investors who are putting their money to work in companies created by and for their immigrant, people-of-color and other minority peers.

Forbes 30 Under 30 is a set of lists of people under 30 years old issued annually by Forbes magazine and some of its regional editions.

"The Amdani brothers founded Adapt Ventures as an early-stage firm and venture studio investing across the US and Latin America, with $30 million in assets under management," Forbes said on its website.

"They were one of the first backers of unicorn Clara, Italic, Wander and several acquired companies. They've also helped incubate Pluto, a Middle East-focused spend management startup that announced a seed round in February."

The Pakistani-American cofounders lead a team of eight, most of whom identify as people of color, across New York and Miami.

Last year, 13 young Pakistanis have made it to the Forbes 30 Under 30 list which included startup founders and young innovators like Bazaar Co-founders Hamza Jawaid and Saad Jangda, Dastgyr Co-founders Muhammad Owais Qureshi and Zohaib Ali, CreditBook Co-founders Iman Jamall and Hasib Malik, ModulusTech Co-founders Yaseen Khalid, M. Saquib Malik and Nabeel Siddiqui, Visual artist and designer Misha Japanwala, Producer Abdullah Siddiqui, Eikon7 Managing Partner Shayan Mahmud, and Digital Pakistan Co-founder Hannia Zia.

Pakistan Test commences on schedule today after England stomach bug scare

Updated 21 min 24 sec ago

Pakistan Test commences on schedule today after England stomach bug scare

  • England's cricketers, including skipper Ben Stokes, were struck down with a suspected stomach bug
  • Problems with food and players becoming ill during the Twenty20 series led to the decision to bring a chef

ISLAMABAD: The Pakistan Cricket Board said the first Test against England in Rawalpindi would go on as per schedule today, Thursday, after England's cricketers, including skipper Ben Stokes, were struck down with a suspected stomach bug.

There were fears on Wednesday the virus outbreak could force England to change the team for the Test which had been announced on Tuesday.

England are on their first Test tour of Pakistan in 17 years, following their Twenty20 side playing seven matches in the country two months ago, taking the series 4-3.

“The ECB has informed the PCB that they are in a position to field an XI, and, as such, the first #PAKvENG Test will commence as per schedule today (Thursday, 1 December) at the Rawalpindi Cricket Stadium,” PCB said on Twitter.

Problems with food and players becoming ill during the Twenty20 series led to the decision to bring a chef, Omar Meziane, who also worked with the England men's football team at the 2018 World Cup in Russia and at Euro 2020.

England and Pakistan will contest a three-Test series with the second in Multan beginning December 9 and the third in Karachi from December 17-21.

Pakistan central bank to set up special wing to ensure Shariah-compliant banking — finance minister

Updated 01 December 2022

Pakistan central bank to set up special wing to ensure Shariah-compliant banking — finance minister

  • Federal Shariat Court gave a five-year deadline to the government to Islamize the country’s financial system
  • Religious scholars call for practical steps to transform Pakistan’s banking system under the court’s verdict

KARACHI: Pakistan’s finance minister Ishaq Dar said on Wednesday a dedicated wing would soon be established at the State Bank of Pakistan (SBP) to ensure the country’s transformation into an interest-free economy to comply with a ruling of the Federal Shariat Court (FSC) earlier this year.

The FSC directed the government in April to eliminate riba, or interest, within five years while pointing out its prohibition was absolute in all forms and manifestations in Islam.

The finance minister said his government was committed to transforming Pakistan’s banking system by December 2027, adding it would up the special wing at the SBP to expedite the process.

“A wing would be formed at the SBP and I will notify the formation of wing within a week,” Dar said while addressing at a seminar on the prohibition of riba in Karachi.

“We can’t establish a ministry [to oversee the economic transformation] which is also not needed,” he continued while emphasizing that the role of the central bank was “pivotal” in Islamizing the banking system of the country.

Referring to the deadline set by the court, the finance minister said the conversion of the banking system was doable within five years.

“This is not the work that can’t be done in five years,” he said while asking the Securities and Exchange Commission of Pakistan (SECP) along with the central bank to diligently work on the project.

“A base has already been established as the share of Islamic banking in terms of the overall assets and deposits has surged by 20 percent and 21 percent, respectively, of the overall banking sector,” he added.

The finance minister noted that significant progress had been made in relation to the Islamization of Pakistan’s banking system during his government’s previous tenure, adding that things came to a halt due to political instability in the country.

“Today the financial share of the Islamic banks would have been 40 percent instead of 20 percent,” he said.

Earlier, the SBP governor, Jameel Ahmad, noted the demand for Islamic banking services was far greater than the conventional ones. He added the central bank was therefore taking more “measures to meet the growing demand.”

“We have already commenced work on a transformation plan to shift to Islamic banking,” Ahmed said.

He informed a high-level working group of officials from the SBP, SECP and finance ministry had been formed and activated which was responsible for developing Sukuk structures.

Ahmed said that Pakistan currently had five full-fledged Islamic banks offering a wide range of products and their annual growth rate over the last five years in terms of their assets and deposits had been 25 percent and 22 percent, respectively.

This, he noted, was far higher than most conventional banks.

Speaking at the seminar, Mufti Taqi Usmani, a prominent Islamic scholar, appreciated the government’s decision to withdraw appeals against the FSC decision which had earlier been filed in the Supreme Court.

Usmani asked the finance ministry to take practical steps to move toward an interest-free system in the country while pointing out that some private banks had yet not withdrawn their petitions against the FSC ruling.

Political and religious leaders, including Maulana Fazlur Rehman, chief of Jamiat-e-Ulema-e-Islam, and Siraj-ul-Haq, emir of Jamaat-e-Islami party, also participated in the seminar.

Pakistan PM meets new army chief, lauds military's professional abilities

Updated 30 November 2022

Pakistan PM meets new army chief, lauds military's professional abilities

  • Prime Minister Shehbaz Sharif tells General Asim Munir it is a huge honor to lead the Pakistan Army
  • The PM hopes the armed forces will protect the country’s security better under its new leadership

ISLAMABAD: Prime Minister Shehbaz Sharif praised the military’s professional abilities while holding a meeting with the new army chief Syed Asim Munir on Wednesday, saying it was a huge honor for anyone to lead the armed forces of Pakistan which were tirelessly working for the country’s security.

This was Munir’s first meeting with the prime minister after taking over the army’s command in a ceremony held at the General Headquarters in Rawalpindi on Tuesday. He replaced General Qamar Javed Bajwa who retired from the post after leading the army for six years.

“We have full confidence in the professional capabilities of the Pakistan Army,” the prime minister was quoted as saying in a statement released by his office after the meeting.

“It is a great honor to lead the Pakistan Army,” he said while addressing the top general. “It is hoped that the armed forces under your leadership will deal with the challenges facing the country’s security in a better way.”

Sharif congratulated Munir on taking charge of his new position.

He maintained the whole nation was proud of the army’s role in protecting the frontiers of the country and fighting violent extremism and militancy.

The army has ruled Pakistan for almost half of its 75-year history, either through coups or as an invisible guiding hand in politics.

Munir’s appointment coincides with a dispute between the army and former premier Imran Khan, who blames top military generals for playing a part in his ouster in a parliamentary no-trust vote earlier this year.

Khan also expressed hope earlier in the day the new military leadership would end the “prevailing trust deficit” between the army and the public.

The PM Office said in its statement Sharif’s meeting with the army chief focused on professional issues related to the country’s defense and security.

Munir also met President Arif Alvi during the day.

In a separate meeting, Alvi discussed defense related matters with the new Chairman Joint Chiefs of Staff Committee General Sahir Shamshad Mirza.

Pakistan President Dr Arif Alvi (right) meets army chief Syed Asim Munir in Islamabad, Pakistan, on November 30, 2022. (PID)


Gas blast at Pakistan coal mine kills nine workers, injures four

Updated 30 November 2022

Gas blast at Pakistan coal mine kills nine workers, injures four

  • Coal deposits are found in the northwestern Orakzai district that sits on the Afghan border
  • Mine workers say lack of safety gear, poor working conditions are key causes of accidents

PESHAWAR: A gas blast at a coal mine killed nine workers in a northwestern Pakistani district on Wednesday, a government official said, and a team investigating the incident said gas sparks had caused the explosion.

There were 13 workers in the mine at the time and nine bodies were recovered, said Adnan Farid, the area deputy commissioner.

The remaining four miners were rescued from the rubble and have suffered critical injuries, he said.

A government team from the mineral development department inspected the site of the incident and said the explosion took place "due to gas sparks inside the mine," Orakzai district police chief Nazeer Khan told Reuters.

A government report seen by Reuters said the blast caused the collapse of the mine, and that gas build-up had triggered the blast. It didn't specify what type of gas it was.

Coal deposits are found in the northwestern Orakzai district that sits on the Afghan border and mine accidents are common, mainly due to gas build-ups.

Mine workers have complained that a lack of safety gear and poor working conditions are the key causes of frequent accidents, labor union officials have said in the past.