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Emerging Markets

An optimist’s guide to 2021 in Asia



At the very beginning of 2020, Nikkei Asia reported an outbreak of a “viral pneumonia of unknown origin” emerging from the Chinese city of Wuhan. The new coronavirus, formally known as Sars-Cov-2, has gone on to infect more than 80m people globally — with probably millions more cases unrecorded — and it is no exaggeration to say it has turned the world on its head.

Covid-19 has killed around 1.7m people, sunk many countries into recession, roiled markets, grounded planes, closed schools, locked down cities and placed incredible burdens on hospitals and medical workers. It has also had incalculable impacts, such as its toll on mental health. The virus has brought phrases such as social distancing, cluster, asymptomatic, contact tracing, false positives and reproductive rate into the common lexicon and has made mask-wearing almost universal — certainly in Asian nations.

Many have called 2020 the worst year in recent memory. Yet, while the impact of the virus will be felt for decades to come, there are many reasons to be optimistic as we head into 2021. Key workers in places such as Europe and the US have started to receive vaccines, and Asian countries are beginning the approval process — meaning shots are likely to be just months away. Should enough inoculations be produced, procured and delivered to patients, life should start to return to some sort of normal.

Covid-19 has also provided people, governments and companies cause to pause and think about prevailing practices, forcing them to reconsider ways of living, governing and doing business. In many ways, the coronavirus has been a catalyst for change, rapidly accelerating developments that had been slowly taking place.

A man wears a mask while walking in January in the Chinese city of Wuhan — the epicentre of the pandemic
A man wears a mask while walking in January in the Chinese city of Wuhan — the centre of the pandemic © Getty Images

While the headlines have naturally focused on coronavirus treatments and vaccines, the pandemic-led tail winds have expedited public and private sector investment in medicine and healthcare generally. The hype has subsided a little and Nisa Leung, a managing partner in leading China venture fund Qiming and a veteran healthcare investor, said she expects strong interest in the sector to remain in 2021, albeit more rationally than this year.

Takeshi Kasai, the World Health Organization’s director for the Western Pacific region, told a forum in September that the pandemic has upended how societies operate and how we perceive and value health. “The situation demands that we break down barriers, collaborate and co-operate in solidarity, provide a space for new ideas and new partners and embrace uncertainty and creativity and take calculated risks — the very essence of innovation,” Dr Kasai said.

Telehealth services are flourishing, and the pandemic has also accelerated consumer awareness of health and sustainability issues — younger consumers are buying more ethical, sustainable and healthy products. For instance, makers of plant-derived meat substitutes, which reduce the environmental footprint, are seeing sales soar.

This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.

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Unrelated to the virus, 2021 is likely to herald advances in genome editing — an important tool in developing Covid-19 diagnostic kits and antivirus drugs, as well as new treatments for cancer and rare diseases. The year ahead could also bring progress in quantum computing, and improved disaster management through the use of AI, or artificial intelligence, and big data.

Also, the 5G era in telecommunications might finally arrive. Industry watchers say the newly launched iPhone 12 will drive the acceleration of overall 5G adoption in the US and other regions where Apple holds a dominant market position. China, with massive government backing, is set to rapidly roll out the technology nationwide, creating a breeding ground for innovation.

The demand for cloud services — a key arena for the next stage of competition between technology giants — is expected to continue to surge as more companies move their operations online to mitigate interruptions caused by extraordinary events. Analysts see great growth potential in Asia, especially China, as adoption among enterprises is much lower compared with US and European peers.

The push across Asia to achieve carbon neutrality — Japan and South Korea are aiming for 2050, with China a decade later — is also a catalyst for innovation. Toyota, the world’s largest automaker, will unveil a prototype next year of a solid-state battery allowing a trip of 500km on one 10-minute charge.

The green energy push is leading to a procession of announcements. Japan’s environment minister has proposed increasing renewable power sources to more than 40 per cent of the nation’s energy mix by fiscal 2030, about twice the government’s current goal; South Korea is putting Won160tn ($145bn) in its K-New Deal of green and digital investment; and China, the world’s biggest emitter, has pledged to cut emissions per unit of GDP by 65 per cent from 2005 levels and increase the share of non-fossil fuels in primary energy consumption to around 25 per cent by 2030. India, meanwhile, is expected to be the largest contributor to the renewables upswing in 2021, according to the International Energy Agency.

With President-elect Joe Biden set to take office in January, the US is expected to roll out a series of incentives to expedite the adoption of electric vehicles. Tokyo has set a goal for all new cars sold in the city to be hybrids or electric vehicles by 2030.

This year has seen many economies fall into recession — the Asian Development Bank sees regional gross domestic product across developing Asia shrinking 0.4 per cent in 2020. But the signs for 2021 are more rosy — the ADB forecasts 6.8 per cent regional growth. And economists surveyed by the Japan Center for Economic Research and Nikkei expect a turnround next year though pre-pandemic growth levels will only return in 2022. China and India are expected to lead the way, with the ADB projecting expansions of 7.7 per cent and 8 per cent, respectively, next year.

In diplomacy, Asian leaders will be able to catch their breath after four years of dealing with a US led by the unpredictable Donald Trump as Mr Biden moves into the White House. The former vice-president is not expected to unleash any jarring Asia policies, even on China. “A Biden administration will give both sides a small window for a partial reset, as he will take a more structured approach with China, albeit competitive,” said Feng Chucheng, a partner at Plenum China, a Hong Kong-based political consultancy. The incoming leader is expected to revive trade talks and engage with Beijing on issues such as climate change. 

There is also an outside chance that a code of conduct that spells out how countries must behave in the South China Sea could be completed next year, although many obstacles need to be overcome to bridge fundamentally divergent interests. And Beijing would probably use its heft to cut a favourable deal.

One of the most obvious changes of 2020 for white-collar workers was the increased flexibility — or obligation due to lockdowns — over working at home. Many companies, including those in east Asia where a presenteeism culture exists, are now making the temporary telecommuting option permanent.

A woman works from her home in Tokyo during the pandemic
A woman works from her home in Tokyo during the pandemic © Kosaku Mimura

The question, however, is will people be able to travel for work, vacation or to visit loved ones overseas? Asian countries are set to open travel bubbles to bring some degree of normality back to the battered airline industry. Australia and New Zealand have agreed to establish a bubble in the first quarter of 2021, and Hong Kong and Singapore are looking to start a delayed move to allow travel between the cities. China, meanwhile, has seen an increase in guests at luxury hotels in the latter half of 2020. “The 2021 Chinese new year is also likely to give a boost to the tourism sector with recovering traveller sentiment,” said Rinaldo Pereira, senior business fundamentals analyst at data and analytics company GlobalData.

India may be a bright spot for tech in Asia over the next few years. Reliance’s Jio Platforms has already invested $20bn in digital business and has an eye on splashing more cash. Tata Group, the country’s biggest conglomerate, is rolling out a super app but faces competition from Paytm and Walmart’s Flipkart.

Lovers of culture — both high and low — are hoping the new year will bring about the widespread return of concerts, moviegoing, live theatre and other events involving large audiences indoors and outdoors.

The new year’s largest sports event, the Tokyo Olympics, is rescheduled to start in late July and organisers are determined to hold the Games despite much scepticism. The Hong Kong Sevens rugby tournament, which draws thousands of fans from overseas, has been pushed back from spring to November.

Movie-goers tired of watching Netflix, Amazon Prime Video and Disney+ — and waiting impatiently for blockbusters that saw releases postponed this year including “Dune,” “Black Widow” and the latest James Bond film — can look forward to the prospect of cinemas opening without restrictions. “You need to be an optimist to be in this business, so I am somewhat hopeful that the [Hong Kong International Film Festival] will once again turn out to be an in-person, physical film festival,” Albert Lee, the festival’s executive director, told Nikkei Asia.

Steven Pinker, the renowned professor of psychology at Harvard University who made an optimistic case for humankind in his 2018 book “Enlightenment Now,” gave a reminder of the big picture to Nikkei.

“With Covid and Donald Trump dominating the news, many people have forgotten two of the greatest concerns of just a few years ago: terrorism and war. Both of them have declined in the past year,” Prof Pinker said. “In the case of war, this continues a bumpy decline in the rate of deaths from war that began after World War II. The world has not yet put an end to war, as the folk singers of the 1960s dreamed, but we’re heading in that direction.”

Additional reporting by Cliff Venzon, Nikki Sun, Dean Napolitano, Nana Shibata, Kiyoshi Ando and Eri Sugiura

A version of this article was first published by Nikkei Asia on December 29 2020. ©2020 Nikkei Inc. All rights reserved.

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Emerging Markets

Latin American markets: shot in the arm required




Latin American equity indices have trailed the rest of the world, including emerging markets, for the past year. Yet prices for the region’s important commodity exports remain high. Time to take advantage of undervalued stocks? Not so fast. Latin America’s markets lack the pull they once had.

The rise in competition from one of Latin America’s biggest export customers, China, has cut back emerging market investor interest in the region. Earlier this century, Latin American countries profitably exported raw materials to sate China’s voracious industrial appetite. By 2010, Brazil represented more than 16 per cent of the MSCI Emerging Market benchmark. Today it has only a quarter of that weighting, point out analysts at Tellimer, as more Chinese constituents join MSCI indices.

Chart showing that Latin American stocks are trailing the world. MSCI indices in $ terms (rebased), comparative of Latin America, the rest of the world and emerging markets.

Even so, with commodity prices doing so well, one might expect more demand for Latin American stocks. Copper, up by three-quarters in price over one year, made up 46 per cent of Chile’s export value pre-pandemic. In Brazil, soyabeans, iron ore and crude oil together accounted for almost the same proportion of exports.

The problem is deciding where prices go from here. There is no clear evidence that a new commodity supercycle has begun and China is attempting to temper further commodity price surges. No surprise that MSCI Latin America trails the broader emerging market index by 11 percentage points over one year.

Chart showing that Covid-19 deaths continue to rise in Latin America. Daily confirmed deaths, (%, by region, 7-day rolling average), Europe, Latin Americaand Caribbean, North America, Middle East, Asia and Africa, Q1 2020 to Q2 2021

Valuation presents an additional hurdle. Latin America’s price to book is more than 2 times — slightly higher than its five-year average. Brazil is no cheaper, and interest rates there are rising. Pandemic-induced goods shortages have led to prices increasing, up 6 per cent overall in the year to March. Brazil could also be the source of further regional Covid-19 cases given it shares porous borders with ten countries. Its vaccination effort has covered only about 3 per cent of its population, according to Financial Times data. The government of President Jair Bolsonaro has rejected calls for a lockdown.

Commodity prices should soon peak. This possibility, combined with the surge of Covid-19 cases, mean that it is too early to fill portfolios with Latin American stocks.

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Emerging Markets

Ukraine accuses Russia of blocking talks to ease military tensions




Kyiv has accused Moscow of blocking attempts to begin talks aimed at calming military tensions sparked by the deployment of tens of thousands of Russian troops close to the Ukrainian border.

Ukraine’s president Volodymyr Zelensky has not received a response to his request for a telephone call with Russia’s Vladimir Putin, his spokesperson said, amid concerns from the US and other European powers that an escalation in military deployments could result in full-blown conflict.

More than 14,000 people have been killed in eastern Ukraine since 2014 in fighting between Russian-backed separatists and Ukraine’s army for control of Donbas, a region in the east of the country bordering Russia. The fighting first erupted after Moscow’s annexation of Ukraine’s Crimea peninsula.

“The request has been forwarded from the office of the president of Ukraine to the office of Vladimir Putin to have a conversation, a telephone talk. And we have not received an answer yet,” Zelensky’s spokesperson Iuliia Mendel said on Monday.

“The office of the president of Ukraine hopes that it doesn’t mean that Vladimir Putin refuses to have a dialogue with Ukraine,” she said, adding that the request was made on March 26.

Separately, Ukraine’s foreign ministry said on Monday that Russia had refused to engage “in consultations aimed at reducing security tensions” and boycotted an OSCE meeting on Saturday where the troop build-up was scheduled to be discussed.

Volodymyr Zelensky
Ukraine president Volodymyr Zelensky (above) made a request for a telephone call with Russian counterpart Vladimir Putin on March 26 © Gints Ivuskans/AFP/Getty Images

Putin’s spokesperson responded by saying that he was not aware of any recent requests for talks from Zelensky.

“In recent days, I have not seen any requests. I am not aware that there have been any requests in recent days,” Dmitry Peskov told reporters.

“In terms of defusing tensions and preventing a potential war, Vladimir Putin always has something to say,” he added, when asked whether Putin had anything to say to his Ukrainian counterpart. “We hope that political wisdom will prevail in Kyiv, and the matter will not take a serious turn.”

Mendel said Russia had stationed more than 40,000 troops on the eastern border area and sent another 9,000 to Crimea, in addition to the 33,000 troops already there.

That build-up, supplemented by tanks and other armed vehicles, has led to accusations that Moscow plans some form of military intervention. The Kremlin said it is permitted to station its soldiers wherever it likes, and that they are no threat to any other country.

Both Ukraine and Russian-backed separatists in Donbas accused the other side of sporadic violations of a ceasefire agreement over the weekend.

Kyiv says 28 of its troops have been killed so far this year, more than half the number who died over the whole of 2020.

Russian officials have dramatically increased their belligerent rhetoric towards Ukraine in recent weeks. Putin has warned that the situation could provoke a repeat of the 1995 Srebrenica massacre in Bosnia, while his deputy chief of staff said any escalation by Kyiv would be “the beginning of the end” for the country and provoke from Russia “not a shot in the leg, but in the face”.

Ukraine has responded by calling on Nato to speed up its membership application, while US president Joe Biden has pledged his support to the country.

In addition to the US and European powers, concerns over the military build-up have drawn in regional power Turkey, which lies across the Black Sea from Crimea. The Nato member has deepened ties with Russia in recent years but opposes Russia’s annexation of the peninsula and in 2019 sold military drones to Kyiv.

Zelensky on Saturday held talks with Turkish president Recep Tayyip Erdogan in Istanbul, who called for dialogue and for a peaceful resolution
in line with Ukraine’s “territorial integrity”. Those talks came a day after a telephone call between Erdogan and Putin, in which the Russian leader accused Ukraine of “dangerous provocative actions”.

Additional reporting by Ayla Jean Yackley in Ankara

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Emerging Markets

Technology will save emerging markets from sluggish growth




The writer, Morgan Stanley Investment Management’s chief global strategist, is author of ‘The Ten Rules of Successful Nations’

Emerging economies struggled to grow through the 2010s and pessimism shrouds them now. People wonder how they will pay debts rung up during the pandemic and how they can grow rapidly as they did in the past — by exporting their way to prosperity — in an era of deglobalisation.

The freshest of many answers to this riddle is the fast-spreading digital revolution. Emerging nations are adopting cutting-edge technology at a lower and lower cost, which is allowing them to fuel domestic demand and overcome traditional obstacles to growth. Over the past decade, the number of smartphone owners has skyrocketed from 150m to 4bn worldwide. More than half the world’s population now carry the power of a supercomputer in their pockets.

The world’s largest emerging market has already demonstrated the transformative effects of digital technology. As China’s old rustbelt industries slowed sharply over the past decade, and ran up debts that threatened to explode in crisis only a few years ago, the booming tech sector saved the economy.

Now, often by adopting rather than innovating, China’s emerging market peers are getting a push from the same digital engines. Since 2014, more than 10,000 tech firms have been launched in emerging markets — nearly half of them outside China. From Bangladesh to Egypt, it is easy to find entrepreneurs who worked for Google, Facebook or other US giants before coming home to start their own companies.

As well as the so-called Amazon of China, there are Amazons of Russia, Poland, Latin America and south-east Asia. Local firms dominate the market for search in Russia, ride-hailing in Indonesia and digital payments in Kenya. 

By one key metric, the digital revolution is already as advanced in emerging economies as developed ones. Among the top 30 nations by revenue from digital services as a share of gross domestic product, 16 are in the emerging world. Indonesia, for example, is further advanced by this measure than France or Canada. And since 2017, digital revenue has been growing in emerging countries at an average annual pace of 26 per cent, compared with 11 per cent in the developed ones.

How can it be that poorer nations are adopting common digital technologies faster than the rich? One explanation is habit and its absence. In societies saturated with bricks-and-mortar stores and services, customers are often comfortable with and slow to abandon the providers they have. In countries where people have difficulty even finding a bank or a doctor, they will jump at the first digital option that comes along. 

Outsiders have a hard time grasping the impact digital services can have on underserved populations. Nations lacking in schools, hospitals and banks can quickly if not completely redress these gaps by establishing online services. Though only 5 per cent of Kenyans carry credit cards, more than 70 per cent have access to digital banking. 

The “digital divide” is narrowing in many places. Most of the big countries where internet bandwidth and mobile broadband subscriptions are growing fastest are in the emerging world. Last decade, the number of internet users doubled in the G20 nations, but the biggest gains came in emerging nations such as Brazil and India.

The digital impact on productivity, the key to sustained economic growth, is visible on the ground. Many governments are moving services online to make them more transparent and less vulnerable to corruption, perhaps the most feared obstacle to doing business in the emerging world.

Since 2010, the cost of starting a business has held steady in developed countries while falling sharply in emerging countries, from 66 per cent to just 27 per cent of the average annual income. Entrepreneurs can now launch businesses affordably, organising much of what they need on a smartphone. Lagos and Nairobi are rising as local fintech hubs, where leading executives vow to raise Africa’s “digital GDP” by widening access to internet financing.

It’s early days, too. As economist Carlota Perez has shown, tech revolutions last a long time. Innovations like the car and the steam engine were still transforming economies half a century later. Now, the fading era of globalisation will limit the number of emerging economies that can prosper on exports alone, but the era of rapid digitisation has only just begun. This offers many developing economies a revolutionary new path to catching up with the living standards of the developed world. 

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