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Jeff Bezos squares up to Mukesh Ambani in India ecommerce battle

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Amazon chief executive Jeff Bezos is squaring up against Reliance Industries founder Mukesh Ambani over the Indian retailer Future Group, drawing battle lines between two of the world’s richest men over the country’s lucrative ecommerce market.

On Sunday, the Singapore International Arbitration Centre granted an emergency interim order in Amazon’s favour, after the US tech group filed a complaint connected to a $3.4bn deal that Reliance struck with Future Group in August.

Amazon, which acquired an indirect minority stake in the retail and fashion conglomerate last year, alleged that Future’s sale of its retail, wholesale, logistics and warehousing businesses to Reliance breached its pre-existing contract, which included a right of first offer and a non-compete clause. The deal is now on hold until a final decision is given.

The legal fight comes as Amazon and Reliance are set to go head to head in a battle for dominance in India’s booming ecommerce market, which will be worth $86bn by 2024, according to research firm Forrester. The stakes are particularly high for Amazon, which believes India is a big growth market after shutting its online store in China last year.


$5bn


Amount Mukesh Ambani’s Reliance Retail has raised from marquee investors

Reliance, which is already India’s biggest offline retailer, with more than 11,000 stores and revenues of $18.5bn last year, has a small presence in ecommerce. But it is embarking on a strategy to dislodge Amazon and Walmart-owned Flipkart, which together control about 70 per cent of the online market in India.

After raising $20bn from global investors for Reliance Jio, his telecom and digital services business, Mr Ambani has since begun another fundraising blitz for his retail arm. Raising more than $5bn from marquee backers so far, his vision is to digitise Reliance Retail and its enormous offline network.

“Now, with the kind of funding Reliance has got, it’s evident that they will play in the same [online] markets as Amazon and Flipkart,” said Bernstein’s Rahul Malhotra in Mumbai. “This is the start of a more competitive era.”

‘Ambani is after what Bezos has got’

The battle over Future Retail comes as Amazon and Flipkart are seeking partnerships with bricks-and-mortar retailers in India, part of a push to expand while complying with new regulations limiting foreign players in the ecommerce sector.

Amazon, Reliance and Future Group declined to comment for this article.

The skirmish is the latest setback for Mr Bezos in India after a high-profile trip in January flopped, with the commerce minister saying that the Amazon head’s pledge to invest $1bn to digitise small and medium-sized businesses across the country was no “great favour to India”.

Mr Bezos — who has invested billions in India since starting operations there in 2013 — had been unable to secure a meeting with Mr Modi when he came to New Delhi, said a person close to Amazon. Mr Bezos later had breakfast with Mr Ambani and other industrialists in Mumbai.

“They are big rivals, obviously. Ambani is after what Bezos has got,” said a Mumbai banker. “A typical middle-class Indian kid wants to shop online and he thinks of Amazon, he doesn’t think of Reliance Retail or JioMart,” he said, referring to Reliance’s online grocery delivery store.

Despite on-and-off talks this year over the possibility of Amazon taking a stake in Reliance Retail, analysts said Mr Bezos was wary of forming a partnership with the powerful Indian tycoon. Mr Ambani, too, was reluctant to hand over any majority stake or control to his rival, people close to Reliance said, hindering any genuine effort to make a deal.

Mr Ambani has been a magnet for investment as he seeks to transform his energy conglomerate into a homegrown tech superpower. He has made no secret of his plans to make Jio Platforms the next internet giant.

“Jio wants the maximum amount of household spending to come to them,” said Satish Meena, a New Delhi-based analyst at Forrester. “They are doing the same thing that they did with telecom, and if they are able to control grocery purchases, they have captured the majority of household spending.”

Future operates some of India’s most high-profile retail brands, such as supermarket chain Big Bazaar and premium grocery shop Foodhall. If Reliance’s tie-up with the group went through, Mr Ambani’s empire would control 40 per cent of the country’s formal grocery market.

‘Why should a foreign company dominate?’

Despite lagging Amazon and Flipkart in its online user experience, analysts say Reliance has the advantage of being on the right side of a growing tide of protectionist policies in India.

“In Mumbai business circles, Amazon is viewed as the new East India Company of sorts,” one person close to Reliance said, referring to the private British corporation that ruled large swaths of the Indian subcontinent in the 18th century. “Why should a foreign company dominate when we have homegrown giants — from Ambani to Tata and Birla?”

The shifting ecommerce regulations in the country have raised familiar questions over New Delhi’s treatment of its biggest foreign investors, with Vodafone spending years fighting a €3bn tax dispute with Indian authorities related to an acquisition of a local operator.

After Walmart paid $16bn for Flipkart in 2018 — the largest single foreign investment in the country — New Delhi changed its rules for the sector just months later, banning foreign companies from keeping their own inventory and allowing them only to operate as online “marketplaces” connecting sellers to buyers. 

To work around these rules, Amazon and Flipkart have been picking up stakes in Indian retailers to deepen their supply chains. Amazon holds stakes in department store Shoppers Stop and grocery chain More, part of the Aditya Birla Group. Flipkart on Friday announced that it paid $200m for a 7.8 per cent stake in Aditya Birla Fashion and Retail Limited, which has more than 3,000 stores in the country. 

The outcome of Amazon’s legal battle with Future was difficult to predict, analysts said. Reliance said in a statement it “intends to enforce its rights and complete the transaction . . . with Future group without any delay”.

At the very least, however, the arbitration would buy the US group some time, said Neil Shah, analyst at Counterpoint in Mumbai.

“Amazon might put a spanner in the wheel to try and slow down the Reliance expansion,” said Mr Shah. “But Reliance is making big moves and is a big threat. The ball is in Mr Ambani’s court.”



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Emerging Markets

Tech-heavy Taiwan stock index plunges on Covid outbreak

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Taiwan’s stock market, home to some of the world’s biggest tech companies, suffered one of the largest drops in its history as investors were rocked by a worsening Covid-19 outbreak.

The Taiex fell as much as 8.55 per cent on Wednesday, the index’s worst intraday fall since 1969, according to Bloomberg. It finished down 4.1 per cent.

Construction, rubber, automotive and financials — sectors retail investors had been shifting into from technology in recent months — were the worst hit in the sell-off.

The world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Company, which has a 30 per cent weighting in the index, fell as much as 9.3 before recovering ground to be down 1.9, while Apple supplier Hon Hai Precision Industry, also known as Foxconn, dropped 9.8 per cent before paring losses to be down 4.7 per cent.

While Taiwan’s sell-off was related to domestic Covid-19 problems, it followed recent declines in global markets as investors worried about possible inflationary pressures.

The falls came as Taiwan’s government was expected to partially close down public life to contain a worsening coronavirus outbreak — something the country had managed to avoid for more than a year.

“The reason that triggered the escalated sell-off during the trading session is the new [Covid-19] cases to be reported this afternoon, and probably the raising of the pandemic alert level,” said Patrick Chen, head of Taiwan research at CLSA. “On top of that, the market before today was already at a point where the index was at an inflection point.”

Taiwan’s strict border controls and quarantine system and meticulous contact tracing measures had helped it avoid community spread of Covid-19 until recently.

That success, which allowed Taipei to forego lockdowns, helped boost the local economy, which grew about 3 per cent last year and 8.2 per cent in the first quarter of 2021.

But health authorities announced 16 locally transmitted confirmed cases on Wednesday, for three of which the infection source was unclear — a sign of widening spread in the community. Authorities had confirmed seven untraced cases on Tuesday, and domestic media reported that the government might introduce partial lockdown measures.

President Tsai Ing-wen called on the public to be vigilant but avoid panicking.

Taiwan’s stock market rose almost 80 per cent over the past year, peaking at a historical high late last month. It is now down 8.5 per cent from that mark.

Retail investors have increasingly moved out of technology stocks in recent weeks, reducing the sector’s weight in trading volume from almost 80 per cent at its height to just over 50 per cent.

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China factory gate prices climb on global commodities boom

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The price of goods leaving factories in China rose at the fastest pace in more than three years, on the back of a rally in commodities supported by the country’s economic recovery.

The producer price index rose 6.8 per cent in April year-on-year, beating economists’ expectations and surpassing March’s increase of 4.4 per cent.

The rate was driven in part by comparison with a low base last year in the early stages of the pandemic. But it also reflects a global surge in the prices of raw materials that was first stoked by China and now incorporates expectations of recovering global demand.

While PPI prices in China have leapt, economists suggested there was limited spillover into consumer prices and that the central bank was unlikely to react. China’s consumer price index added just 0.9 per cent in April, the National Bureau of Statistics said on Tuesday, although it touched a seven-month high.

“It tells us that demand at this moment is super strong,” said Larry Hu, head of greater China economics at Macquarie, of the PPI data, although he suggested policymakers would see the increase as “transitory” and “look through it”.

“We’re going to see some reflation trends,” he added.

Signs of tightening in China’s credit conditions have drawn scrutiny from global investors eyeing the prospect of higher inflation as the global economy recovers from the pandemic, especially in the US, which releases consumer price data on Wednesday.

China’s PPI index remained mired in negative territory for most of 2020 following the outbreak of coronavirus, but has started to gather momentum this year. Gross domestic product growth in China returned to pre-pandemic levels in the final quarter of 2020.

An industrial frenzy in China has stoked demand for commodities such as oil, copper and iron ore that make up a significant portion of the index and have helped to push it higher. 

Policymakers in China have moved to tighten credit conditions, as well as attempted to rein in the steel sector. Ting Lu, chief China economist at Nomura, said the relevant question now was “whether the rapid rise of raw materials prices will dent real demand, given pre-determined credit growth”.

Retail sales in China have lagged behind the growth rate of industrial production, putting downward pressure on CPI, which has also been weakened by lower pork prices that rose sharply on the back of African swine fever. Core CPI, which strips out food and energy, rose 0.7 per cent in April 

Julian Pritchard-Evans, senior China economist at Capital Economics, said that producer prices were feeding through into the rebound in consumer prices, but also suggested that pressures on the former were “likely to be mostly transient”.

He added that output prices for durable consumer goods were rising at their fastest level on record.

China’s rapid recovery has been driven by its industrial sector, which has churned out record quantities of steel and fed into a construction boom that policymakers are now trying to constrain. On Monday, iron ore prices hit their highest level on record, while copper prices also surged.



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Iron ore hits record high as commodities continue to boom

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The price of iron ore hit a record high on Monday in the latest sign of booming commodity markets, which have gone into overdrive in recent weeks as large economies recover from the pandemic.

The steelmaking ingredient, an important source of income for the mining industry, rose 8.5 per cent to a record high of almost $230 a tonne fuelled by strong demand from China where mills have cranked up production.

Other commodities also rose sharply, including copper, which hit a record high of $10,747 a tonne before paring gains. The increases are part of a broad surge in the cost of raw materials that has lasted more than a year and which is fanning talk of another supercycle — a prolonged period where prices remain significantly above their long term trend.

The price of timber has also hit a record high as US sawmills struggle to keep pace with demand in the run-up to peak homebuilding season in the summer.

“Commodity demand signals are firing on all cylinders amid a synchronised recovery across the world’s economic powerhouses,” said Bart Melek, head of commodity strategy at TD Securities.

Strong demand from China, the world’s biggest consumer of commodities, international spending on post-pandemic recovery programmes, supply disruptions and big bets on the green energy transition explain the surge in commodity prices.

Commodities have also been boosted by a weaker US dollar and moves by investors to stock up on assets that can act as a hedge against inflation.

The S&P GSCI spot index, which tracks price movements for 24 raw materials, is up 26 per cent this year.

Strong investor demand pushed commodity assets held by fund managers to a new record of $648bn in April, according to Citigroup. All sectors saw monthly gains with agriculture and precious metals leading the way, the bank said.

Agricultural commodities have had an especially strong run owing to rising Chinese demand and concerns of a drought in Brazil. Dryness in the US, where planting for this year is under way, is also adding to the upward rise in prices. Corn, which is trading at $7.60 a bushel and soyabeans at $16.22, are at levels not seen since 2013.

“From a macro economic environment to strong demand and production concerns, the ingredients are all there for the supercycle,” said Dave Whitcomb of commodity specialist Peak Trading Research.

Rising copper and iron ore prices are a boon for big miners, which are on course to record earnings that will surpass records set during the China-driven commodity boom of the early 2000s.

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JPMorgan reckons Rio Tinto and BHP will be the largest corporate dividend payers in Europe this year, paying out almost $40bn to shareholders. Shares in Rio, the world’s biggest iron ore producer, hit a record high above £67 on Monday.

Brent crude, the international oil benchmark, has crept back up
towards $70 a barrel, which it surpassed in March for the first time in
more than a year, recovering ground lost as the pandemic
slashed demand for crude and roiled markets.

Supply cuts by leading oil producers have helped to bolster the market
as consumption has begun to recover around the world.

While some Wall Street banks have hailed the start of a new supercycle, with some traders talking of a return to $100 a barrel oil, others are less convinced. The International Energy Agency said oil supplies still remain plentiful meaning any talk of a supercycle is premature.



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