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Analysis: Indonesia, India beckon as Fed tapers without tantrums

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November 5, 2021

By Tom Westbrook and Anushka Trivedi

SINGAPORE (Reuters) – Last time the Federal Reserve moved toward reducing bond buying, it triggered a rush of funds out of emerging markets. This time is different, investors say, as they lay bets on sparkling returns extending in some of Asia’s biggest developing economies.

Indonesia, in particular, has stood out with equity inflows, a steady currency and even its notoriously volatile bond market calm through months of taper talk leading up to Wednesday’s announcement the Fed would begin paring purchases.

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It is a far cry from the “tantrum” that walloped bonds and emerging markets’ currencies in 2013 – sending the rupiah down about 17% in five months – after then Fed Chair Ben Bernanke surprised markets by mentioning tapering to Congress.

This time the move was far better telegraphed, and few were surprised on Wednesday. But fundamentals in Asia, where inflation is less pressing and exporters stand to benefit from high energy prices, are also markedly changed, and investors are increasingly willing to bet that 2013 will not be repeated.

“We’ve been through 2013 and 2018, and I don’t think it’s the same thing in this rate hiking cycle,” said Howe Chung Wan, head of Asia fixed income at Principal Global Investors in Singapore, who has a selective exposure to emerging markets.

“Sitting out here in Asia, there are other things that are more top of mind for us than the Fed,” he said, such as China’s economy and credit markets and volatile commodity prices, as well as the equities flows supporting Indonesia’s currency.

Enthusiasm for upcoming listings have pulled cash into Indonesia’s stock markets, and the benchmark Jakarta bourse is heading for its best year since 2017, with indexes in Thailand, Vietnam and India eying similar milestones.

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Sky-rocketing coal and palm oil prices – Indonesia is the world’s largest exporter of both – have also swung Indonesia’s trade surplus to record levels and promise a tax windfall that has soothed sovereign bond investors.

“Indonesia has benefited a lot from this energy crunch,” said Jessica Tea, investment specialist for Asia Pacific and greater China equities at BNP Paribas Wealth Management in Hong Kong.

“We are also seeing a growing middle class and rising household incomes – Indonesia is probably one of our favourite exposures in the region.”

FORMERLY FRAGILE

Market mechanics are also a favourable tailwind in a region where small investors’ money keeps pouring into equities.

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Retail account numbers have surged by roughly a third since the end of 2019 in Vietnam to top three million, according to UBS analysts, helping drive the benchmark index up 50% this year, twice as much as the S&P 500.

In Indonesia, data from the Indonesia Central Securities Depository shows the number of investors in stocks is up more than 70% over the year to Oct. 19 at 6.7 million.

Global investors are also circling with investors spooked by regulatory crack-downs in China looking for ways to put their money to work in other emerging markets.

To be sure, destinations such as Indonesia remain risky and vulnerable to capital flight if low-risk U.S. interest rates rise sharply. Dwindling foreign ownership of sovereign bonds highlights particular caution on the growth outlook, especially as the government is legally bound to reduce its deficit.

“I am worried about the growth prospects because even before the country could recover from the pandemic…Indonesia is entering into a period of strong fiscal consolidation,” said Societe Generale economist Kunal Kundu.

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Nevertheless, the prospect of a tantrum-free taper is still drawing bets on currencies and stocks especially as Chinese markets are weighed down by cautious sentiment.

“The Fed has navigated taper communication without a major upset,” Deutsche Bank analysts wrote in late September.

“Asia’s former fragile five members are also far less fragile,” they added, referring to Indonesia and India, which along with Brazil, South Africa and Turkey were seen in 2013 as especially vulnerable to fickle foreign money flows.

“Our favoured Asian FX trade into year-end is to stay long INR and IDR, against shorts in CNH.”

(Reporting by Tom Westbrook in Singapore and Anushka Trivedi in Bengaluru. Additional reporting by Gayatri Suroyo in Jakarta; Editing by Raju Gopalakrishnan)

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Canada’s Shopify records Black Friday sales up 21%

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November 27, 2021

(Reuters) – Canadian e-commerce company Shopify Inc recorded worldwide sales of nearly $2.9 billion on Black Friday, an increase of about 21% in comparison to last year, the company said Saturday.

New York, London and Los Angeles were among the top-selling cities, the company said, while apparel and accessories was the top-selling product category.

Shopify also said it funded 23,000+ tonnes of carbon removal to counteract emissions from the delivery of every order placed on its platform on Black Friday.

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(Reporting by Aakriti Bhalla in Bengaluru; Editing by Nick Zieminski)

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Xiaomi to open car plant in Beijing with annual output of 300,000 vehicles – Beijing govt

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November 27, 2021

SHANGHAI (Reuters) – Chinese smartphone giant Xiaomi Corp will build a plant that can produce 300,000 vehicles annually in Beijing for its electric vehicle unit, authorities in the capital said on Saturday.

The plant will be constructed in two phases and Xiaomi will also built its auto unit’s headquarters, sales and research offices in the Beijing Economic and Technological Development Zone, the government-backed economic development agency Beijing E-Town said on its official WeChat account.

Beijing E-Town said it anticipated the plant reaching mass production in 2024, a goal announced by Xiaomi’s Chief Executive Lei Jun in October.

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In March, Xiaomi said it would commit to investing $10 billion in a new electric car division over 10 years. The company completed the business registration of its EV unit in late August.

The company has been opening thousands of stores to spur domestic sales growth for its smartphone business but eventually intends to use these shops as a channel for its plans to sell electric vehicles.

(Reporting by Brenda Goh; Editing by William Mallard)

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Eni sells Snam 49.9% stake in Algeria gas pipelines for 385 million euros

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November 27, 2021

MILAN (Reuters) -Italian energy group Eni has agreed to sell gas group Snam 49.9% of its stake in strategic pipelines carrying Algerian gas into Italy for 385 million euros ($436 million), the two companies said on Saturday.

The pipelines will be jointly controlled by the two companies, they said in a joint statement.

Italy imports more than 90% of its overall gas needs and Algerian gas currently accounts for around 30% of flows.

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“This transaction allows us to free up new resources to be used on our energy transition path,” Eni Chief Executive Claudio Descalzi said.

Eni is working on spinning off a series of oil and gas operations into new joint ventures to help reduce debt and fund its shift to low-carbon energy.

Snam, which owns a 20% stake in the TAP pipeline that carries Azeri gas into Italy, makes most of its money from managing Italy’s gas transport grid.

It has pledged to spend more on new green business lines such as hydrogen and, like other gas grid operators in Europe, is upgrading its gas network to be hydrogen ready.

“In the future, North Africa could also become a hub for producing solar energy and green hydrogen,” Snam CEO Marco Alvera said.

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The pipeline companies involved in the deal posted net income of around 90 million euros in 2020.

($1 = 0.8836 euros)

(Reporting by Stephen Jewkes, editing by Giselda Vagnoni)

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