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Geoff Howie, markets strategist at the Singapore Exchange, discusses the earnings releases from Singapore’s biggest banks.
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Tag: Asia Economy
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Is Asia’s bull market over? Strategists say there’s room for stocks to rally further
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Investors observe stock market at an exchange hall on January 6, 2016 in Beijing, China.
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While Asia stocks entered a bull market in January, the benchmark index for the region has since fallen more than 5% from its peak.
The region’s rally – supported by China’s reopening – seems to have hit a wall, but economists say MSCI’s broadest index of Asia-Pacific shares outside Japan has further room to run.
Nomura Asia-Pacific equity strategist Chethan Seth said the firm expects the index at 700-levels by the end of this year – that’s 8% higher than current levels as of Wednesday.
“We think Asian stock valuations are still modest,” Seth said, pointing out the region’s forward price-to-earnings ratio of 12.9 despite the rally – versus the U.S. market valuation of 18.5.
Seth added that China’s economic and earnings recovery would provide further support as well as a recovery in fundamentals for technology, memory chips and semiconductors by the second half of this year.
He said recent U.S. data show further uncertainties lie ahead for inflation and economic growth.
“In the near term, Asian stocks will unlikely like this uncertainty and thus we expect some near-term volatility until a trend in the data is formed again,” he said.
I still expect the Asian stock markets will outperform their U.S. peers after a short-term correction on China’s reopening in 2023.
JPMorgan also anticipates the MSCI Asia-Pacific ex-Japan index will reach 700-levels this year.
“After this current period of consolidation, we anticipate the MXASJ to test our bullish target for 2023 in 2Q2023,” said Wendy Liu, JPMorgan’s chief Asia and China equity strategist.
“The MXASJ may fall [or] consolidate in 3Q on macro resilience concerns before recovering in late 2023 for a synchronized global growth recovery in 2024,” Liu said.
Victoria Harbor and Central Financial District, Hong Kong, China. (Photo by: Bob Henry/UCG/Universal Images Group via Getty Images)
Ucg | Universal Images Group | Getty Images
Uncertainties ahead
A recession fears loom for the eurozone and the U.S. after global central banks aggressively hiked rates to tame inflation. Uncertainties surrounding China’s shift away from its zero-Covid policy also continue to linger.
“These uncertainties are more likely to dent than to derail the structural positive forces we see in Asian economies,” said Minyue Liu, BNP Paribas’ investment specialist on Asian and global emerging market equities, adding that these factors will only contribute to volatility in the near term.
“Modest valuations, light investor positioning and good fundamentals are buffers that should help Asian stocks withstand near-term volatility,” BNP’s Liu said.
She added that domestic demand in the region will be the “driver of economic growth,” and she expects trade volumes to recover with China’s market reopening.
The China factor
China’s policies will continue to be a key factor in driving further growth for Asia-Pacific stocks.
CMC Markets analyst Tina Teng said the latest declines in Asia-Pacific stocks may have been due to investors who were eager to tap into China’s reopening.
“Asian market’s pullback in February may have been caused by a technical correction after a multi-month rally as the markets have been overbought when China started its U-turn in the Covid-zero policy, which fueled the rebounding optimism before materially seeing a promising economic recovery of the country,” she said.
“I still expect the Asian stock markets will outperform their U.S. peers after a short-term correction on China’s reopening in 2023,” she said.
Credit Suisse’s chief investment officer John Woods said China’s onshore investors may be the key factor to driving the rally further.
“One missing piece in the China equity rally so far has been the low participation by onshore investors, which we expect to reverse as data – and confidence – improves,” he wrote in a note.
“We anticipate the macro momentum to extend well into Q2, which should give further legs to the rally in equities,” he said.
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HSBC reports fourth-quarter pre-tax profit of $5.2 billion, beating estimates
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Hong Kong observation wheel, and the Hong Kong and Shanghai Bank, HSBC building, Victoria harbor, Hong Kong, China.
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HSBC on Tuesday reported fourth-quarter earnings for 2022 that beat analyst expectations.
The bank’s reported profit before tax for the three months ended in December was $5.2 billion, 108% higher than $2.5 billion a year ago. Analyst estimates compiled by the bank had expected a jump of 87% to $4.97 billion.
The bank said its fourth-quarter results reflect strong reported revenue growth and lower reported operating expenses.
For the full year, reported revenue was $51.73 billion, up from $49.55 billion in 2021.
HSBC, Europe’s largest bank by assets, said higher global interest rates support the firm’s confidence in achieving its target of at least 12% return on average tangible equity in 2023.
“We completed the first phase of our transformation and our international connectivity is now underpinned by good, broad-based profit generation around the world,” Noel Quinn, group chief executive said in the release.
“We are on track to deliver higher returns in 2023 and have built a platform for further value creation,” he said.
Banks globally have seen strong net interest income as central banks around the world raised rates to tame inflation. HSBC said it expects net interest income of at least $36 billion in 2023.
Hong Kong-listed shares of HSBC were about 1% lower before the release.
This is a breaking news story, please check later for updates.
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Singapore’s digital banks dangle incentives to win new customers — is it sustainable?
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Singapore’s new digital retail banks are offering lower fees, more incentives and waiving minimum account balances to win over customers from traditional banks. But how viable is this in the long run?
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SINGAPORE — Digital retail banks in Singapore are pulling out all stops to win new customers.
Trust Bank and GXS Bank — two online retail banks launched last year — are offering lower fees, more incentives and waiving minimum account balances to win over customers from traditional banks.
But how viable is this in the long run?
“It is tremendous returns, but there’s no way that is sustainable. It has to be subsidized in some way,” Zennon Kapron, founder and director of research and consulting firm Kapronasia, told CNBC.
Unlike traditional banks — like DBS, OCBC and UOB — which operate physical branches and automated teller machines, digital banks operate entirely online.
Singapore’s new digital banks
The city-state gave out four digital bank licenses in December 2020.
Two digital full bank licenses went to Grab–Singtel‘s GXS Bank and Sea Group‘s MariBank which serve retail customers. The other two digital wholesale bank licenses were bagged by Ant Group’s ANEXT Bank and Green Link Digital Bank, catering to small-and-medium enterprises and other non-retail segments.
GXS Bank currently offers its service to customers and employees by invite only, while MariBank is only available to employees of Sea Group.
Trust Bank, on the other hand, did not have to jump through the hoops to apply for a separate digital full bank license as it’s backed by banking giant Standard Chartered, which secured an additional full bank license to establish a subsidiary to operate a digital bank.
A partnership between Standard Chartered and Singapore’s largest supermarket chain FairPrice Group, Trust Bank appears to be making some headway since its Sept. 1 launch.
It is useful for a short-term customer acquisition story but it will be a big challenge to keep these customers coming back.
Zennon Kapron
director, Kapronasia
Trust Bank claims to have reached more than 450,000 customers and achieved 9% of banking market share in Singapore within five months, based on data shared with CNBC.
New credit card customers receive vouchers worth 25 Singapore dollars ($18.80) to spend at FairPrice supermarkets, and can continue to accumulate reward points when they purchase groceries there. During their first month of launch, Trust gave out almost 60 tons of rice and over 11,000 breakfast sets – each worth more than S$2, according to the bank.
The bank wouldn’t divulge its customer retention rate nor profit margin to CNBC.
“While it is common in the market today to offer high-ticket and big rewards which are either complex to understand or have a poor experience, Trust offers simple, easy to understand rewards which are always tangible, which help bring down the cost of living and importantly, are in real time,” Dwaipayan Sadhu, CEO of Trust Bank, told CNBC over email.
“It is useful for a short-term customer acquisition story but it will be a big challenge to keep these customers coming back,” Kapron from Kapronasia said.
Trust Bank does not charge any annual fees or fees for foreign transaction, cash advance nor card replacement to credit card customers. It also does not require a minimum balance for its savings account, unlike traditional banks.
Its rival GXS Bank also does not require minimum balances for holders of savings accounts, currently the only product the bank is offering. GXS is a consortium between ride-hailing and food delivery giant Grab and Singapore’s largest telco provider Singtel.
The company says it targets the “underserved segment” — which includes the gig economy workers, self-employed entrepreneurs and those new to the workforce.
The bank has removed certain fees, such as fall-below fees that are usually charged when the balance drops below the minimum daily average.
The bank has “a low cost of acquisition and low cost to serve,” its CEO Charles Wong told CNBC.
“As a digital bank, we are unencumbered by the cost of maintaining a physical network such as branches or physical ATMs, resulting in cost savings on our overheads,” Wong explained.
In addition, Grab and Singtel have a combined customer base of over 3 million and the bank is “leveraging on [the] two giants for retail customers.”
“We also don’t provide gifts for customers. When you sign up, you sign up because it’s relevant to you or you are a Grab or Singtel customer and it is going to make it easy for you to make payments,” said Wong.
“Yes, you get additional rewards as you spend which makes sense because you’re spending within the ecosystem.”
GXS Bank, however, expects its bottom line to be largely driven by interest income, said Wong.
I think it’s going to be difficult for these banks to really have an impact, especially in the retail [banking] space on the Singapore market.
Zennon Kapron
director, Kapronasia
A 2022 analysis by Simon-Kucher revealed that 25 of the largest neobanks, also commonly known as digital banks, found out that only two of them — less than 10% — have achieved profitability. It also showed a majority earning less than $30 in annual revenues per customer.
Kapron said that traditional banks offering credit card products give out welcome gifts, like travel luggage or Apple watches, because they expect to be profitable after a certain period.
Those banks have already worked out how much they have to spend to gain a customer, and expect to recoup the costs when the customer starts missing payments or incurring interest, he explained.
Tough competition
Observers have previously raised questions about the need for digital banks in a largely banked population, where only 2% do not have bank accounts.
There’s also strong competition among the more established traditional banks.
I think the digital banks would have a higher rate of success if we were in a severely underbanked place like the Philippines.
“If you look at DBS Bank, it’s not like their digital offerings are [lousy],” said James Tan, managing partner of Quest Ventures, a VC company headquartered in Singapore.
Tan said he signed up for Trust Bank to see how different it will be to traditional banks. “I found no difference,” he told CNBC, adding that he eventually closed his Trust Bank account.
“I think the digital banks would have a higher rate of success if we were in a severely underbanked place like the Philippines,” said Tan.
Kapron added that it is going to be difficult for these banks to have an impact, especially in the retail banking space in the Singapore market.
“The market is just over-banked and the differentiator of these new digital banks doesn’t really move the needle much in terms of what they are offering.”
“Until that happens, you are having bags of rice, high promotional discounts or rewards, which are useful for acquiring customers but then, how do you keep them coming back?” asked Kapron.
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India hits back after George Soros says Adani troubles will greatly weaken Modi’s grip on power
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NDIA – JANUARY 18: Prime Minister Narendra Modi with Gautam Adani, chairman and founder of the Adani Group, and other delegates at Vibrant Gujarat Global Summit, at Mahatma Mandir Exhibition cum Convention Centre, on January 18, 2019 in Gandhinagar, India.
Hindustan Times | | Getty Images
India slammed billionaire investor George Soros after he alleged the Adani turmoil will weaken Prime Minister Narendra Modi’s grip on power and lead to a “democratic revival” in the country.
The latest dispute highlights renewed scrutiny on the relationship between India’s leader and business tycoon Gautam Adani, who has lost billions in net worth since a short seller report accused his companies of fraud. The Adani Group has denied those allegations, calling the report a “calculated attack on India.”
Last week, Soros criticized the prime minister saying India was a democracy but Modi “is no democrat.” Over the weekend, India’s foreign minister, Subrahmanyam Jaishankar, told a conference in Sydney that Soros’ comments were typical of a “Euro-Atlantic view” and rejected his accusations.
“There are still people in the world who believe that their definition, their preferences, their views must override everything else,” Jaishankar said.
He added there was “a debate and conversation that we must have on democracy,” including whose values defined a democracy as the world rebalanced and became less Euro-Atlantic.
“He is old, rich, opinionated and dangerous, because what happens is, when such people and such views and such organizations — they actually invest resources in shaping narratives” Jaishankar said in a response to a question about the billionaire’s remarks.
India’s voters will decide “how the country should [be] run,” the foreign minister said.
“It worries us. We are a country that went through colonialism. We know the dangers of what happens when there’s outside interference,” Jaishankar added.
Modi-Adani ‘close allies’
Soros’ criticism focused on the cozy relationship between Modi and Adani.
“Modi and business tycoon Adani are close allies; their fate is intertwined. Adani Enterprises tried to raise funds in the stock market, but he failed,” said Soros.
Both men hail from India’s Western state of Gujarat. Adani was an early supporter of Modi’s political aspirations and championed the Indian leader’s growth vision for the country. Modi flew in an Adani jet after he was elected to national office in 2014.
But Adani lost his crown as Asia’s wealthiest man in a matter of days after short-seller firm Hindenburg Research alleged fraud. The Adani Group has denied wrongdoing and fired back at the firm in an over 400-page rebuttal.
“Adani is accused of stock manipulation and his stock collapsed like a house of cards. Modi is silent on the subject, but he will have to answer questions from foreign investors and in parliament,” Soros said.
The billionaire predicted Adani’s troubles will “significantly weaken Modi’s stranglehold on India’s federal government” and “open the door to push for much needed institutional reforms.”
“I may be naive, but I expect a democratic revival in India,” Soros said.
The Hungarian-born investor is the founder of the Open Society Foundations advocacy network, through which he has donated more than $32 billion, according to its website. The network said it gives “thousands of grants every year toward building inclusive and vibrant democracies,” with active projects in more than 120 countries.
Adani’s fall draws fire
Opposition critics have also seized on the Hindenburg report to attack Modi and his party ahead of national elections set for next year. India’s main opposition Congress party has staged protests and demanded an investigation into Hindenburg’s allegations.
However, the opposition party was quick to distance itself from Soros’ comments.
“Whether the PM-linked Adani scam sparks a democratic revival in India depends entirely on the Congress, opposition parties and our electoral process,” tweeted Jairam Ramesh, Congress’ general secretary. “It has NOTHING to do with George Soros.”
Politically, it’s hard to predict what effect, if any, the Adani scrutiny will have on Modi’s popularity and his ruling Bharatiya Janata Party, observers said.
Still, the relationship between Modi and Adani is “so long and strong” it will be tough for the prime minister and his party to wriggle out of this crisis unscathed, Ashok Swain, head of the department of peace and conflict research at Uppsala University in Sweden told CNBC recently.
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Singapore posts worst non-oil domestic exports in a decade
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“Singapore’s external sector had another very tough month in January, and we doubt this marks the bottom,” an economist said.
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Singapore’s non-oil domestic exports plunged 25% year on year in January — their largest drop in 10 years.
Government data showed Singapore’s non-oil exports to its top markets led the wider decline, with exports to China falling by more than 41%, to the U.S. by 31.5% and to Hong Kong by more than 55% for the month.
The reading marks the fourth consecutive contraction and the steepest fall since February 2013, when the economy saw more than a 30% decline.
Non-oil retained exports also fell 10.4% in January, following the 7.2% decline in December. Total trade also fell by 10.4% year on year, with total exports dropping 9.6% and imports contracting by 11.3%.
The Singapore dollar weakened slightly after the release and the Straits Times index traded marginally higher in Friday’s morning trade.
The disappointing trade data comes days after Singapore released its latest budget for the year. Finance Minister and Deputy Prime Minister Lawrence Wong told CNBC in an exclusive interview that the government struggled to strike a “delicate balancing act” between tackling inflation and ensuring fiscal prudence.
Oxford Economics senior economist Alex Holmes called the January trade data “alarming.”
“Singapore’s external sector had another very tough month in January, and we doubt this marks the bottom,” he said in a Friday note.
“The worst is likely not over for Singapore’s export sector. We continue to expect further falls in global demand,” he said, reiterating the firm’s expectation that there will be a global recession in the first half of the year and adding that it will continue to weigh on Singapore’s trade outlook.
Exports to drag down growth
Oxford Economics expects Singapore’s economy to grow marginally by 0.7% in the full year.
“The weakness of trade is a key reason we expect GDP growth to come in near the bottom of the government’s 0.5%-2.5% forecast in 2023,” he said.
He noted that the value of domestically produced chip exports fell below lows seen during the earlier phases of the pandemic, and that a “turn in the semiconductor cycle” is continuing to hurt exports.
“Tumbling export earnings are also likely to weigh on domestic demand, stalling business investment and employment growth,” he said.
— CNBC’s Lim Hui Jie contributed to this report.
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Adani’s fall reignites scrutiny of billionaire’s close ties with Modi
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An activist of India’s Congress party shouts slogans as he burns an effigy of Prime Minister Narendra Modi and Indian tycoon Gautam Adani during a rally organised to protest against the union governments financial policies in Kolkata on February 6, 2023. Photo by DIBYANGSHU SARKAR/AFP via Getty Images
Dibyangshu Sarkar | Afp | Getty Images
Modi and Adani probably share the closest relationship a politician can have with a business person.
Ashok Swain
Uppsala University
Hindenburg’s report has further sharpened the focus on the billionaire mogul’s close ties with Modi.
“Adani has pulled off this gargantuan feat with the help of enablers in government and a cottage industry of international companies that facilitate these activities. These issues of corruption permeate multiple layers of government,” the report alleged.
In a rebuttal that ran over 400 pages, the Adani Group rejected those allegations calling it a “calculated attack on India.”
The company did not respond to CNBC’s request for comment. The Prime Minister’s office did not respond to a request for comment.
‘Crony capitalism’
India has always struggled with “crony capitalism,” but the cozy relationship between Modi and Adani has “taken it to a different level,” according to Ashok Swain, head of the department of peace and conflict research at Uppsala University in Sweden.
“Modi and Adani probably share the closest relationship a politician can have with a business person; certainly, it had never happened in India. Their rise has been together,” added Swain, a veteran observer of Indian politics.
Adani’s family-owned conglomerate spans from airports and maritime ports to coal and renewable energy and more recently, media.
India’s “chosen growth model” requires a “certain degree of crony capitalism,” said Milan Vaishnav, South Asia director at the Carnegie Endowment for International Peace.
NDIA – JANUARY 18: Prime Minister Narendra Modi with Gautam Adani, chairman and founder of the Adani Group, and other delegates at Vibrant Gujarat Global Summit, at Mahatma Mandir Exhibition cum Convention Centre, on January 18, 2019 in Gandhinagar, India.
Hindustan Times | | Getty Images
Vaishnav added the Modi government’s industrial policy is premised on building up national champions in industry, and Adani has been the “poster child to date.”
“There’s no question that Adani enjoys this position today at least in part because of his proximity to the prime minister,” he said, “but also because of a perception that he is able to execute on projects at scale.”
A ‘fruitful relationship’
The relationship between Adani and Modi is longstanding.
Both men hail from India’s Western state of Gujarat, where Modi was the chief minister in 2001. Adani was an early supporter of Modi’s political aspirations and championed the Indian leader’s growth vision for India.
Modi flew in an Adani jet after he was elected to national office in 2014.
There is no question that the fortunes of these two men are connected…
Milan Vaishnav
Carnegie Endowment for International Peace
“That Adani and Modi forged a close bond during their years in Gujarat is an open secret,” noted Vaishnav.
“There is no question that the fortunes of these two men are connected,” he said, “especially in the past few years as the government has ramped up capital expenditure as it makes a concerted push on infrastructure.”
The Adani Group is a key player in Modi’s ambition to transform India into a $5 trillion economy, said Alim Remtulla of Medley Advisors.
Both men embody the “Gujarat growth model,” he said, referring to the embrace of close relations between big business and government.
“Specifically, infrastructure is a key element to Modi’s nation-building plans. Adani [Group] is one of the few firms in the country that can deliver on these major infrastructure projects across the country,” Remtulla told CNCB’s “Squawk Box Asia.”
“Similarly, for Adani, he needs the implicit backing of Modi to raise funds for these capital-intensive projects. So this is a long and fruitful relationship that goes back decades,” he said.
Opposition attacks
Hindenburg’s report turned out to be a political gift for India’s opposition, which for years has railed against Modi for his links with Adani. With national elections looming next year, opposition critics have seized on the report to attack Modi and his party.
India’s main opposition Congress party has staged protests and demanded a probe over Hindenburg’s allegations. Opposition critics have also accused Mod’s government of giving unfair favors to Adani’s business empire.
“The entire country has observed a close connection between the Adani Group’s commercial interests and your [Modi’s] eagerness to help him using government policy. This pattern is consistent across sectors ranging from agriculture to energy to transportation,” Jairam Ramesh, the Congress party’s general secretary, said in a statement last week.
NEW DELHI, INDIA – FEBRUARY 7: Members of Indian Youth Congress protests over ongoing Adani issue in front of Life Insurance Corporation (LIC) office at Connaught Place on February 7, 2023 in New Delhi, India. (Photo by Sanchit Khanna/Hindustan Times via Getty Images)
Hindustan Times | Hindustan Times | Getty Images
In 2018, the Modi government reportedly changed rules that allowed Adani to bid — and eventually win — tenders for six airports. It was met with outrage amid criticism of cronyism. The government has rejected those allegations.
After Modi became prime minister, Adani continued to benefit from the relationship but on a much larger scale, said Swain.
“Besides giving licenses for the airports and ports, changing the environmental rules for Adani’s coal mines, and tweaking the rules to favor Adani’s stakes in special economic zones, Modi has helped Adani’s businesses in many ways,” he said.
In his address to parliament last week, the prime minister seemed unfazed by the opposition’s criticism and made no mention of Adani.
I am skeptical that the Adani crisis will personally tarnish Modi or hamper the electoral prospects of the [ruling party] BJP.
Milan Vaishnav
Carnegie Endowment for International Peace
“The blessings of 1.4 billion countrymen are my biggest ‘suraksha kavach,’” Modi said, using a Hindi term meaning “safety shield.”
“And you can never breach this safety shield with the weapons of abuse and lies,” he said, as opposition lawmakers chanted “Adani, Adani.”
Adani has rejected claims that he gained personal favors from Modi, calling such allegations baseless.
“Prime Minister Modi and I are from the same state. That makes me an easy target for such baseless allegation,” said the tycoon, according to a January report in India Today.
“My professional success is not because of any individual leader but because of the policy and institutional reforms initiated by several leaders and governments over a long period of more than three decades,” he said in the report.
Political damage?
Politically, it’s hard to predict what effect, if any, the fresh scrutiny will have on Modi’s popularity and his ruling Bharatiya Janata Party, observers said.
“I am skeptical that the Adani crisis will personally tarnish Modi or hamper the electoral prospects of the BJP,” said Carnegie’s Vaishnav.
Still, the relationship between Modi and Adani is “so long and strong” it will be tough for the prime minister and his party to wriggle out of this crisis unscathed, added Swain.
“Adani’s close link with Modi has forced his supporters and India’s Hindu nationalists to defend [Adani] for the last nine years. It will not be that easy to distance themselves from Adani now,” he said.
“However, they will try to blame Adani’s fall on an international conspiracy against Modi,” he added.
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Indian tycoon Gautam Adani dismisses market volatility as ‘temporary’
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Art school teacher Sagar Kambli gives final touches to a painting of Indian businessman Gautam Adani (L) highlighting the ongoing crisis of the Adani group in Mumbai on February 3, 2023.
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Indian billionaire Gautam Adani has downplayed the recent market volatility of Adani Group’s shares as “temporary.”
His comments came Tuesday in the quarterly earnings release of Adani Enterprises, the flagship business of his conglomerate which spans ports, energy and media.
The tycoon said the conglomerate’s success was a result of its “strong governance” and “strict regulatory compliance.”
“The current market volatility is temporary,” Adani said. He added the conglomerate “will continue to work with the twin objectives of moderate leverage and looking at strategic opportunities to expand and grow.”
Shares of various Adani Group companies saw a massive sell-off after U.S. short-seller Hindenburg Research accused it of “brazen stock manipulation” and “accounting fraud.”
The Adani Group has denied those accusations, and said it was a “calculated attack on India.”
Adani flagship earnings
On Tuesday, Adani Enterprises reported a profit after tax of nearly $100 million for the October to December quarter. This was against a loss of $1.5 million in the same period a year ago.
Total revenue grew 42% to $3.3 billion year-on-year, on the back of stellar performance in its airports, coal trading and new energy businesses.
Nobody wants to see Adani [Group] suddenly collapse because these infrastructure projects are big. The assets are good. They serve a mission critical purpose…
Anand Batepati
portfolio manager, GFM Focus Investing
“Over the past three decades, as well as quarter after quarter and year after year, Adani Enterprises has not only validated its standing as India’s most successful infrastructure incubator, but has also demonstrated a track record of building core infrastructure business,” said Adani in the results statement.
Shares of Adani Enterprises last traded about 3% higher Wednesday on National Stock Exchange of India.
Despite the crisis, the Adani conglomerate is critical to India’s growth story, said Anand Batepati, portfolio manager at GFM Focus Investing.
“Nobody wants to see Adani [Group] suddenly collapse because these infrastructure projects are big. The assets are good. They serve a mission critical purpose and they’re aligned to all these development goals the government is shooting for,” he told CNBC’s “Streets Signs” on Wednesday.
“So, I don’t think the access to [Indian] capital markets, whether it’s the banks or the rupee bond market, is going to be closed to Adani,” added Batepati. “It is possible though that there’s going to be more scrutiny.”
Not a ‘Lehman moment’
The Securities and Exchange Board of India is expected to meet Finance Minister Nirmala Sitharaman on Wednesday, to give an update on its investigations into the Adani Group, Reuters reported, citing sources.
India’s central bank, the Reserve Bank of India, has also said “the banking sector remains resilient and stable,” citing its own assessment of the situation. The RBI said it will continue to monitor the stability of the industry.
Batepati said the Adani crisis is unlikely to have the same fallout as the collapse of U.S. investment bank Lehman Brothers in 2008, which triggered a string of big Wall Street bailouts and a subsequent financial crisis.
“The Reserve Bank of India recently asked everybody to furnish their exposure to the Adani Group in light of the recent developments. It was a pretty small number… that reported back,” said Batepati.
While he acknowledged the true extent of the exposure to the Adani Group could be possibly bigger, at least, “at face value, these numbers are quite small and it’s not like you’re going have a Lehman moment because of Adani.”
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India stock markets have been volatile. Analysts say these sectors are worth watching
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The Indian government announced during the annual budget on Feb. 1 that the country will increase infrastructure spending by 33% to 10 trillion rupees ($122.29 billion) in the next fiscal year.
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Indian markets have been volatile as the Adani crisis continues to dominate headlines, but analysts say this could be a buying opportunity.
In particular, some are bullish about the construction sector and say an infrastructure push could benefit cement stocks.
In a January note, Bernstein analysts led by Venugopal Garre, said they were “generally optimistic about the real estate cycle and the potential for a better rural environment.”
Investors can consider playing the country’s infrastructure sector through domestic cement names, Garre said.
Cement: UltraTech, Ambuja
Bernstein likes UltraTech Cement — a company Garre said has the capacity to keep up with the growing number of real estate projects coming up in India.
He said “70% of cement demand comes from real estate, and 30% comes from infrastructure,” and added that when a new property is built, cement is needed from the first day the project cycle commences.
This is unlike electric equipment or circuitry that is only needed in the third or fourth year of the construction project, he explained.
Sanjiv Bhasin, director at IIFL Securities, also said UltraTech Cement is one of the firm’s “top picks,” along with Ambuja Cements.
Shares of UltraTech Cement was trading at about 7,123.05 on Wednesday, lower by 0.21%. The stock is close to its 52-week intraday high, according to FactSet.
The government’s spending on infrastructure is increasing and “we think cement prices are headed higher because we [are going] into a season where construction activity may be at the highest,” Bhasin said.
FactSet data showed shares of Ambuja Cements have fallen 34% year-to-date. Bhasin has said the stock is a buy and that it’s a “brilliant opportunity” despite the current market volatility.
The Adani Group owns a 63.15% stake in Ambuja Cements, Refinitiv showed.
The price for Ambuja Cements is falling “because it exists within the Adani umbrella,” said Praveen Jagwani, chief executive officer at UTI International Singapore.
“This temporary fiasco is only a buying opportunity … We still think that UltraTech and Ambuja are very, very good plays on the cement side,” Bhasin said, adding than an impetus on infrastructure spending will cause these names to outperform in the next quarter.
India’s infrastructure push
Morgan Stanley is bullish on India’s industrials sector, its analysts said in a note on Feb. 1 after the budget announcement.
“As the Budget supports capex and employment creation, we remain constructive on the domestic demand strength,” the financial services firm said.
Finance Minister Nirmala Sitharaman announced during the annual budget last week that the country will increase infrastructure spending by 33% to 10 trillion rupees ($122.29 billion) in the next fiscal year. India’s fiscal year starts in April and ends in March the next year.
India’s construction materials industry should see some upside from the rise in capital expenditure, but investors have to be “very careful” when picking cement stocks, Jagwani told CNBC.
India needs more high quality commercial buildings, roads and airports, but the country’s infrastructure sector is also “super unpredictable and risky,” Jagwani warned.
Return on investment would fall each year as infrastructure projects get delayed, Jagwani pointed out, claiming that it happens frequently in India.
Engineering: ABB India, Siemens India and more
Engineering companies that focus on infrastructure and construction are also good buys, IIFL Securities said.
They include ABB India, Siemens India, and Larsen & Turbo.
Larsen & Turbo will be coming out with “higher double digit margins, and their order flows are the strongest,” Bhasin said.
UTI International also likes Berger Paints, which Jagwani said has the “ingredients” to see a continuous growth in sales and will benefit not just from new buildings being built, but older ones that need maintenance.
“Paint is in the replacement market. People need to get their houses and apartments painted every few years because of rain and excessive heat,” he said.
The shares, however, are down 4.5% year-to-date and close to their 52-week intraday low of 527.6 rupees. Berger Paints was trading at about 555.45 rupees on Wednesday.
— CNBC’s Michael Bloom contributed to this report.
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DBS Bank says it has a ‘very good’ overall profitability outlook for 2023
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Piyush Gupta, CEO of Singapore’s largest lender, says the upside will come from the economy beginning to open up in this part of the world, especially China.
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India’s largest insurer LIC says it may review stake in Adani after management meeting
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India’s largest insurer says it “might” review its stake in the embattled Adani Group after meeting with the management.
Life Insurance Corporation Chairman M.R. Kumar told CNBC in an exclusive interview that the state insurer plans to have a discussion with the Adani management soon to get a better picture of the crisis engulfing the conglomerate.
“As an investor, it’s not often that we have this kind of a situation. But then we have reached out to the management of Adani,” Kumar, told CNBC’s Tanvir Gill in an interview in Mumbai last week, adding the meeting could happen in the coming days.
“We propose to speak to them about this … just to try and understand what’s really happening within the organization, within the Adani group.”
An advertisement of the state-owned insurance group and investment company Life Insurance Corporation (LIC) is pictured at the entrance of a metro station in New Delhi on March 1, 2022. (Photo by Sajjad HUSSAIN / AFP) (Photo by SAJJAD HUSSAIN/AFP via Getty Images)
Sajjad Hussain | Afp | Getty Images
The chairman said the insurer will make a call whether to review its stake in the Adani Group after the meeting.
For now, LIC has no plans to trim its exposure in the ports-to-energy conglomerate.
“As of now, no,” the chairman told CNBC.
Asked whether that could change after the meeting with the Group, the chairman said it “might.”
On Jan. 30, nearly a week after the Hindenburg report came out, LIC said in a statement it had invested 364.7 billion rupees ($4.47 billion) in Adani companies. That brings the insurer’s total exposure in the Group about 1% of its assets under management.
The state insurer had a 4.23% stake in the conglomerate’s flagship business Adani Enterprises as of end 2022, according to FactSet data. LIC also owns 9.14% of Adani Ports as of Nov. 11 last year, FactSet showed.
Market meltdown
NEW DELHI, INDIA FEBRUARY 6: Indian Youth Congress worker protesting against very risky transactions and investment of government institutions like LIC and SBI in Adani Group by Modi government at Jantar Mantar on February 6, 2023 in New Delhi, India. (Photo by Sonu Mehta/Hindustan Times via Getty Images)
Hindustan Times | Hindustan Times | Getty Images
“These rating actions follow the significant and rapid decline in the market equity values of the Adani Group companies following the recent release of a report from a short-seller highlighting governance concerns in the Group,” Moody’s said in a statement.
In a further blow, global index provider MSCI last week said it will cut the weightings of some Adani Group businesses, including flagship firm Adani Enterprises.
Nathan Anderson, founder of Hindenburg, following the MSCI move on Twitter said: “We view this as validation of our findings on offshore stock parking by Adani.”
Still, the LIC chairman said the national insurer isn’t too concerned about the conglomerate’s high debt levels or the recent volatility in Adani’s share price. He stressed LIC makes its investment decisions based on market fundamentals.
“I can assure you that all investment decisions taken by LIC, are basically on fundamentals, on company valuations — whether it is debt or equity,” Kumar said.
Adani fallout
The Adani fallout has raised concerns about the group’s exposure to India’s leading banks and insurers.
India’s opposition parties have targeted both the LIC and State Bank of India, the country’s largest lender, for their investments in the conglomerate.
India’s main opposition Congress party accused the government as well as LIC and SBI for squandering public money and demanded a probe into the allegations made in the Hindenburg report.
The opposition party also organized street protests outside several LIC and SBI offices across the country last week, over their exposure to the Adani Group.
Last week, the State Bank of India told CNBC, the loans they extended to the Adani group are well covered and there should be no immediate risks. The bank added the Indian public doesn’t need to be concerned about their deposits in the bank.
LIC’s chairman echoed a similar sentiment saying the state-owned insurer’s fundamentals remain robust.
“I think we have very strong fundamentals in place. The growth drivers are intact … we are growing very well this year,” said Kumar. “So I believe that people need not have any worries about where they’ve invested their money.”
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Outlook for Singapore banks remains positive, analyst says
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Paul Chew of Phillip Securities Research discusses DBS Group Holdings’ fourth-quarter earnings, and how banks in Singapore will benefit from higher interest rates.
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Moody’s cuts outlook for four Adani group companies, cites rapid declines in market value
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A man pushes a tricycle loaded with LPG cylinders on the road below the Adani signage in Mumbai. US based Hindenburg Research firm’s allegation on fraud by Adani Enterprise has sparked political debate in India by the opposition parties.
Sopa Images | Lightrocket | Getty Images
Moody’s lowered its outlook for four Adani Group companies on Friday, citing a “significant and rapid decline” in the market values of the entities, the ratings agency said in a notice.
It cut the outlook for Adani Green Energy from stable to negative, alongside Adani Transmission Step-One, Adani Electricity Mumbai and Adani Green Energy Restricted Group – an entity that includes Adani Green Energy, Parampujya Solar Energy, and Prayatna Developers.
“These rating actions follow the significant and rapid decline in the market equity values of the Adani Group companies following the recent release of a report from a short-seller,” Moody’s said.
Without naming Hindenburg Research, the ratings agency highlighted “the recent release of a report from a short-seller highlighting governance concerns in the Group.”
The U.S. short-seller in a Jan. 24 report accused the Indian conglomerate of stock manipulation and accounting fraud, and Adani has denied those allegations.
Adani group companies have lost more than $100 billion in market capitalization as shares plunged since the Hindenburg report.
Credit concerns
For Adani Green Energy, Moody’s said the downgrade to negative takes into consideration the company’s large capital spending program and dependence on support from its sponsors.
Moody’s described Adani Green Energy’s support will potentially come in the form of subordinated debt or shareholder loans, adding that it will “likely be less certain in the current environment.”
“The negative outlook also factors in the company’s significant refinancing needs of around $2.7 billion in fiscal year ending March 2025 and limited headroom in its credit metrics to manage any material increase in funding costs,” it said.
Four Adani entities remain stable
Meanwhile, Moody’s maintained its stable outlook for four other Adani group companies, including Adani Ports and Special Economic Zone and Adani International Container Terminal. Adani Green Energy Restricted Group and Adani Transmission Restricted Group were also on the list.
The latest revision from Moody’s comes after global index provider MSCI announced last week it will be cutting the weightings of Adani Enterprises, the conglomerate’s flagship company, and three other Adani group companies.
MSCI’s latest quarterly review, however, showed no Adani stocks have been removed from its global index.
Adani Enterprises is scheduled to report its third-quarter earnings on Tuesday.
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Vietnamese EV maker VinFast says job cuts won’t derail plans to start U.S. production
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The Vinfast VF6 all-electric vehicle is on display at the 2022 Los Angeles Auto Show on November 18, 2022 in Los Angeles, California.
Josh Lefkowitz | Getty Images News | Getty Images
Vietnamese electric vehicle maker VinFast told CNBC it’s on track to start production in the U.S. by 2024 even though the company is cutting its headcount in North America.
Vietnam’s first domestic automaker previously announced plans to go public in the U.S.
Just this week, VinFast — the automotive arm of Vietnam’s biggest conglomerate Vingroup — announced it will be cutting jobs in the U.S. in a restructuring exercise that will consolidate its operations across the U.S. and Canada.
“After last year’s observation, we see a lot of similarity in the two markets and consolidating the two markets will allow us to be stronger and more agile,” said Le Thi Thu Thuy, VinFast CEO, in an interview with CNBC’s J.P. Ong on Friday.
The news about the job cuts come on the heels of a Reuters report on Feb. 3 that VinFast will be delaying deliveries to its first customers in the U.S.
We still plan to start the trial production in 2024 as originally planned.
Le Thi Thu Thuy
CEO, VinFast
VinFast shipped its first batch of cars to the U.S. in November, which included 999 VF 8s. It had plans to deliver them by the end of December but has since delayed shipments to February.
Le told CNBC on Friday they have about 12,000 pre-orders in the U.S.
International expansion
The automaker has been ramping up its U.S. expansion to take on American automakers such as Tesla and announced it will be setting up a production plant in North Carolina to manufacture EVs.
Le said the layoffs will not affect the planned timeline for production to commence at its first North American manufacturing plant.
“We are in the final stages of getting a permit to test the construction but the land has already been cleared. The state has already worked on the infrastructure for the land as well,” she told CNBC.
“We still plan to start the trial production in 2024 as originally planned,” Le said. The annual production capacity of the plant is 150,000 electric vehicles, according to the company’s release.
The next markets VinFast plans to target will be in Europe, namely Germany, France and the Netherlands, said the CEO.
However, VinFast vehicles do not currently qualify for the $7,500 tax credit in the U.S. because they are not built in the country, but are built in Vietnam. Prices for the 2023 VinFast VF 8 model start from $40,700.
“We immediately accelerated our plan for the North Carolina plant. Luckily, we had already signed that agreement before the Inflation Reduction Act,” Le said.
“We didn’t see it coming but we always [planned] to have a plant in the U.S. so the IRA increased our manufacturing capability in the U.S. to make sure that our customers will be able to have access to electric vehicles at a reasonable pricing.”
“I believe that in the long run [we are] going to concentrate the manufacturing of electric vehicles as well as the key components of electric vehicles in the U.S.,” Le added.
VinFast IPO plans
VinFast filed for an initial public offering in the U.S. on Dec. 6. They have not disclosed the number nor price of the shares to be traded, according to its prospectus. It is also not known when they exactly plan to list.
“We have been watching the intensity of the market and I think this year, the market has been a little bit better. We are ready but we need the market to be more cooperative for us to make the IPO happen,” said Le.
When asked about when the IPO is expected to happen, she said: “When we are ready to talk more about it, we will be happy to share more.”
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NYU’s ‘Dean of Valuation’ says Adani Group exploited ‘weakest links’ in Indian institutions
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The Adani Group didn’t play a “con game” but has exploited the “weakest links” in India’s institutions to its advantage, according to NYU’s “Dean of Valuation” Aswath Damodaran.
The finance professor at the Stern school of business said fundamentals “never come into play” for Indian markets.
related investing news
“Nobody wants to talk fundamentals, nobody wants to be bearish about a company and say that stock looks overpriced. It’s not healthy for a market,” Damodaran, told CNBC’s “Streets Sign Asia” on Thursday.
“That’s why I said Adani is not about the company … this is about the weakest links in the India story. And from my perspective, this is not a con game. This is just a company that’s played those weaknesses.”
Damodaran’s remarks are an extension of his recent blog post, where he shared his views on the ongoing Adani affair.
Art school teacher Sagar Kambli gives final touches to a painting of Indian businessman Gautam Adani (L) highlighting the ongoing crisis of the Adani group in Mumbai on February 3, 2023.
Indranil Mukherjee | Afp | Getty Images
On Jan. 24, U.S. based short-seller firm Hindenburg released a report accusing Indian billionaire Gautam Adani of pulling the “largest con in corporate history,” and alleged the conglomerate has engaged in stock manipulation and fraud.
The Adani Group firmly denied the accusations, calling it a “calculated attack on India” and its institutions.
Valuation issues
Even though the Adani conglomerate spans ports, airports, mining, cement, power companies, Damodaran said he believed the Group’s core business is in infrastructure.
“What I see is an infrastructure company … if we just value the company as an infrastructure company, then the numbers just don’t make sense from pricing perspective. How does the stock quadruple in market cap over a two or three year period?” he pointed out.
Even without the Hindenburg report, the professor noted he was “hard pressed” to explain why the company’s share is so overpriced.
Adani Group’s total gross debt reached 2.2 trillion Indian rupees ($26.8 billion) as of end-March 2022, according to calculations by Refinitiv Eikon.
“I am willing to believe that Adani Group has played fast and loose with exchange listing rules, that it has used intra-party transactions to make itself look more credit-worthy than it truly is,” Damodaran said in the blog post.
He added: “Even if it has not manipulated its stock price directly, it has used the surge in its market capitalization to its advantage, especially when raising fresh capital.”
Damodaran also said the Adani affair provides an opportunity for Indian institutions to learn lessons and try to fix the problems.
“As for the institutions involved, which include banks, regulatory authorities and [Life Insurance Corporation], I have learned not to attribute to venality or corruption that which can be attributed to inertia and indifference,” the economist said on his blog.
“A more nuanced version of the Adani story is that the family group has exploited the seams and weakest links in the India story, to its advantage,” he said on the blog, adding that “there are lessons for the nation as a whole, as it looks towards what it hopes will be its decade of growth.”
Exposure to Indian banks
The fallout from the Adani scandal has raised concerns about the Group’s exposure to Indian banks.
State Bank of India, the country’s largest lender, told CNBC the loans they have extended to the Adani group are well covered and there should be no immediate risks.
“The total exposure to this entity was just about 0.88% of the total bank’s loan book,” Chairman Dinesh Kumar Khara told CNBC’s Tanvir Gill an interview.
“There is no reason for anybody to have any concerns or doubts relating to our inability.”
Khara added the Adani Group’s cash flow situation looks pretty stable and SBI hasn’t been approached for more funding by the conglomerate.
Over the weekend, the Security and Exchange Board of India tried to defend Indian markets, saying the country’s two main indexes – the Bombay Stock Exchange and the National Stock Exchange of India — have demonstrated “ongoing stability” and are “continuing to function in a transparent, fair and efficient manner.”
— CNBC’s Jihye Lee contributed to this report.
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India’s largest lender discusses exposure to Adani
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Dinesh Khara of the State Bank of India speaks to CNBC's Tanvir Gill about the Adani crisis and the bank's exposure to the company.
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China’s economy will grow 5% this year, Fitch Ratings says in upgraded forecast
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The Chinese flag floats before the skyscrapers of multinational corporations on February 23, 2018 in Shanghai, China.
Vincent Isore | IP3 | Getty Images
China’s economy will expand by 5% in 2023, Fitch Ratings said in a revised forecast on Wednesday – an improved outlook from its previous 4.1% growth prediction made in December.
The latest revision is based on “evidence that consumption and activity are recovering faster than initially anticipated” after China’s government removed most of its stringent Covid restrictions, signaling a move away from its Covid-zero policy.
Fitch also pointed to China’s latest purchasing managers’ index (PMI) for manufacturing and services, a measure of business activity, that indicated further growth.
China’s official manufacturing PMI reading rose to 50.1 in January from a previous reading of 47, and its services PMI rose to 54.4, the highest level since June 2022. A value above 50 indicates expansion of economic activity; a reading below 50 points to a contraction.
There were large waves of Covid outbreaks across China after authorities lifted measures. But Fitch pointed out it “appears to be subsiding,” citing commentary from from health officials and mobility trends.
“The swift rebound from the Covid shock-wave means that activity in 1H23 will be stronger than we had forecast,” a team of economists led by Brian Coulton said in a release.
“We believe stabilizing the recovery will remain the key focus in the near term, but do not anticipate aggressive macro-policy easing,” the economists wrote, looking ahead to the National People’s Congress slated to take place in March.
The economists also noted China’s gross domestic product reading in December was better than Fitch had expected.
Cautious spending
While many economists foresee a consumption-led recovery, UBS adds that spending will be rather “cautious” due to strains in consumer confidence.
The Swiss bank estimates that China’s households have a total of excess savings worth 4 trillion yuan to 4.6 trillion yuan (between $590 billion to $678 billion), according to its chief China economist Wang Tao.
“With employment and household income still in need of recovery, consumer confidence may not recover completely but instead remain cautious,” Wang’s team said in a note.
“We think excess savings may not be released completely and very fast in 2023,” UBS said.
Ultimately, UBS expects China’s household consumption growth to jump to 10-11% in nominal terms and 7.8% in real terms in 2023.
“Further normalization of consumer behavior and more release of excess savings could help underpin future consumption recovery in 2024 and beyond,” said Wang.
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Hong Kong services to rebound as China reopens, but UBP says sector is coming from ‘fragile situation’
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Hong Kong’s service sector will be the part of economy that sees “the biggest rebound” as borders reopen, UBP told CNBC’s “Squawk Box Asia” on Thursday.
However, it warned that the sector is coming “from a very fragile situation,” given its contraction in every quarter of 2022.
“We can’t exclude the possibility of further insolvencies or bankruptcies … even as things do look to improve in the months ahead,” said Carlos Casanova, UBP’s senior economist for Asia.
The latest figures from the Hong Kong government also showed the city’s economy contracted by 4.2% in its fourth quarter, the fourth-straight quarter of declines. Real GDP also shrank by 3.5% year-on-year.
“That contraction was much faster than we had anticipated, our forecast was -2.8%,” Casanova added.
However, the economist was optimistic that Hong Kong’s economy should be “in a position to return to expansion” in 2023.
“We are seeing signs that there’s been a sequential acceleration in January. So that’s the good news,” said Casanova.
Factors contributing to possible expansion
Besides the return of mainland Chinese tourists, Casanova said “more supportive equity valuations” will help improve sentiment in Hong Kong.
“You also have this expectation that the Fed will hike rates at a more modest pace in 2023 … that at some point you will have a pause,” he explained.
“And that means that this pro-cyclical headwind that we’ve been experiencing in Hong Kong with tighter monetary policy … will not be such a big drag in the year ahead.”
Boost for housing demand
Hong Kong’s property sector also experienced “subdued sentiment” last year and, like the services sector, is “definitely in a perilous situation as well,” said Casanova.
For example, home prices plunged to a five-year low in October as interest rates pushed up borrowing costs.
“In fact, data on the housing sector earlier this week showed that the number of mortgages that are underwater … is at the highest in 18 years,” Casanova said.
“But it only takes a very small number of mainland talent to move into Hong Kong in order to at least put a floor on that correction in housing prices.”
Reversing the number of mortgages that are in negative equity will be “a very important side-effect” from the reopening of borders and recovery of domestic demand, he added.
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Iron ore prices could rally as one leading producer remains reluctant to share, analyst says
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A coke plant worker beside coke battery ovens at the ArcelorMittal steel plant in Kryvyi Rih, Ukraine, in March 2019.
Vincent Mundy | Bloomberg | Getty Images
Expect exports of iron ore out of India to remain low as the world’s fourth-largest producer reserves more of the commodity for its own use, said commodity intelligence service Kpler.
“Indian iron ore exports … have really come off in the last few months. And that is quite indicative that domestic consumption there is very strong,” said Reid I’Anson, Kpler’s senior commodity analyst, who added that this will continue throughout the year.
India’s exports of iron ore plunged by 90% year on year in October last year, and recorded an year-on-year decline as steep as 96% in September.
India produces 9.2% of the world’s iron ore. Australia is the largest producer, accounting for almost 35% of global supply, followed by Brazil and China.
“India is going to be a standout economy in terms of growth in 2023 … And I think exports out of India are going to remain pretty weak as well as they consume most of that domestic production.”
A 20% rally?
The dip in India’s exports of the commodity comes just as China’s Covid reopening sends commodity prices soaring, and I’Anson forecasts that an “upward movement of 20%” on iron ore prices is on the table.
The benchmark 62%-grade iron ore last traded at $123.37 per ton, up about 30% since December when China announced the rollback of its “zero-Covid” measures.
Iron ore is primarily used to make steel, an important material in construction and engineering projects — and both Asian nations are on track to consume more.
“You’ve got the return of the consumers in China, which is going to drive durables consumption, and you’re going to see an improvement in the property market there,” I’Anson said.
The plate mill of the Jindal Steel and Power Ltd. plant in Raigarh, Chhattisgargh, India, on Feb. 11, 2015.
Udit Kulshrestha | Bloomberg | Getty Images
According to Refinitiv, around 60% of global iron ore exports are destined for China.
“Downstream demand in China started to show some signs of optimism based on government support particularly for the construction sector, which is the largest steel using sector in the country,” Tamara Thorne, senior analyst at Refinitiv Metals Research, told CNBC.
A similar pace of demand is expected for its neighbor.
“We expect the steel consumption in India will grow much faster than what we have seen in the first nine months of the financial year (in 2022),” said Seshagiri Rao, joint managing director of JSW Steel.
How long will it last?
The secretary general of the Federation of Indian Mineral Industries, B K Bhatia, said he believes the export of iron ores in 2023 will be much more than the exports during 2022. Iron ore exports from India were affected by a 50% tax on low-grade iron ore exports, which was reversed in late November.
But while India’s exports of iron ore have picked up from December because of that, the move may not be a sustainable one, according to Kpler’s I’Anson. He maintains that the exports are unlikely to return to the levels seen in 2020 and 2021.
“The extent to which loadings have picked up recently is likely not sustainable for very long,” he said.
India’s iron ore exports won’t be the biggest factor in price volatility, however.
A laborer working at a stainless steel utensil workshop in Chennai on April 30, 2022.
Arun Sankar | Afp | Getty Images
“The largest swing factor is the ability of Rio Tinto in Australia and Vale in Brazil to operate up to the limits of their supply chains,” said CLSA research analyst Robert Stein.
Both iron ore powerhouses expect production to be flat year-on-year on the low side, and a 5% increase in a bullish scenario.
“Working capital has stabilised but remains somewhat elevated with commodity price volatility, higher raw material prices and global supply chain pressures,” mining giant Rio Tinto recently stated in its fourth-quarter production results.
China is another big factor.
“Demand is still impacted by the Chinese property deleveraging program and whilst in any given week, positive sentiment may lead price higher, [but] to sustainably reach those levels we would need to see widespread property stimulus or support,” said Stein.
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South Korea posts the worst trade deficit in its history
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05 November 2022, South Korea, Pusan: Containers are loaded from the container freighter “Alula Express” at Busan Newport International Terminal, one of the largest container ports in the world. Photo: Bernd von Jutrczenka/dpa (Photo by Bernd von Jutrczenka/picture alliance via Getty Images)
Picture Alliance | Picture Alliance | Getty Images
South Korea recorded a trade deficit of $47.5 billion for 2022, official data from the customs agency showed.
It marked the worst trade deficit since the agency started compiling data in 1956 and far more than the $20.6 billion trade deficit in 1996.
January exports fell $46.3 billion, or 16.6% – declining more than expectations for a drop of 11.3%. Imports fell $59 billion, or 2.6%, falling less than forecasts of a 3.6% decline.
That resulted in a deficit of $12.7 billion for January, more than the $9.27 billion expected by economists polled by Reuters.
The Korean won traded at 1,232.24 against the U.S. dollar following the report.
“There’s some expectation that the world economy won’t be facing as difficult of a situation as expected thanks to China’s reopening and unexpected growth from surrounding economies,” South Korea’s minister of economy and finance Choo Kyung-ho said in a meeting with officials on Wednesday.
South Korea Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho speaks with his staff attending the G-20 Finance Ministers Meeting in Bali, Indonesia on July 16, 2022.
Sonny Tumbelaka | AFP | Getty Images
“The widening trade deficit seen in January is widely seen to be due to seasonal factors such as an import in energy exports for the winter, as well as a sudden drop in chip prices, leading to a worsened picture,” Choo said.
This comes as global smartphone shipments dropped 18% to 296.9 million units in the final quarter of 2022 as demand fell, according to Canalys.
“Despite showing some stabilization in Q3, Asia Pacific and Europe suffered their worst Q4 performances in history in 2022,” said Canalys analyst Sanyam Chaurasia, adding shipments in Asia-Pacific fell by 8% in 2022 despite resilience throughout the year.
On Tuesday, chipmaker Samsung Electronics reported its worst quarterly profit in eight years, while SK Hynix also posted a record loss for the period.
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