January: 20 best emerging market stocks through the pandemic
Rohit Kumar, Rahul Shah and Nirgunan Tiruchelvam highlighted 20 emerging market stocks whose structural growth trajectories had received a pandemic boost. Not all were able to achieve cash flow sustainability, but growth-starved investors proved extremely forgiving. Tech-enabled innovation, partnership models, improved accessibility are some common themes across these names.
Some continued to succeed through the rest of 2021 while others fell away dramatically.
February: Quantitative technical analysis: Machine learning set to revolutionise investing
We launched our new 'quantitative technical analysis' product for clients in February, led by James Huckle, combining traditional technical analysis with cutting-edge machine-learning systems, capable of analysing and making sense of huge amounts of data while constantly evolving to account for changes in market conditions. Read James's library of reports here.
March: How Elon Musk's Starlink could help solve Africa's internet problem by Ayobami Omole
Starlink, a satellite internet service designed by Elon Musk's SpaceX, announced plans early last year to launch in Nigeria, and to later expand to other African countries.
In her report, Ayobami Omole explored the implications for Africa's connectivity problems and the broader conclusions for local internet service providers and telcos. She expanded on her thinking in her Global Theme for 2022.
April: Cryptocurrency moves further mainstream; emerging markets could benefit most
Coinbase’s Nasdaq listing last year and Tesla holding cryptocurrency on its balance sheet signaled that cryptocurrency’s inexorable shift to the mainstream had gathered momentum, wrote Rahul Shah and Rohit Kumar.
The Covid pandemic has played a key role in accelerating this transition; government largesse to cushion economies crippled by lockdowns is putting pressure on the credibility of fiat currencies.
Emerging market investors have long known about the risks of sovereign financial indiscipline – new technologies are now enabling cryptocurrency to complete with gold or hard currency, not just as a store of value but, increasingly, as a convenient medium of exchange.
May: MMT-driven inflows are still coming to an emerging market near you
Modern Monetary Theory (MMT) – which argues that countries with a fiat currency need not be constrained by rising government debt because the government’s deficit is the private sector’s surplus – is coming, predicted Paul Domjan, implying huge increases in public spending.
Some emerging markets, like China and South Korea, have the currency flexibility and economic heft to pursue MMT in their own right. For the rest of the EM world, the main impact of MMT is likely to be capital inflows.
In some countries, this will fuel a risk of overheating and asset bubbles, but others will be able to absorb that capital efficiently and use it to drive growth. The key challenge for investors will be to separate the winners and the losers...
June: Reliance on bank funding risks crowding out private sector in EM
With historically large budget deficits seen in the pandemic, and with deficits likely to remain elevated in the coming years, Patrick Curran wrote that fiscal financing needs are likely to remain elevated across many emerging and frontier markets, and that, to finance those deficits, governments have several potential options: non-resident investors (external debt issuance or inflows to domestic debt); domestic non-bank investors (mutual funds, pension funds, or insurance companies); domestic banks; and/or the central bank.
Generally speaking, greater reliance on the banking sector has increased the risk that private sector borrowing will be crowded out by elevated post-Covid budget deficits. A hard stop in foreign financing (such as some form of 'tightening tantrum') would accelerate that trend.
July: Nigeria approves oil reform bill after 13 years – could slow down IOC exits
After years of deliberation in Nigeria's National Assembly, the Petroleum Industry Bill (PIB) was passed by both houses of the parliament on 1 July.
Janet Ogunkoya argued that the act could just be what Nigeria’s oil and gas sector needs to salvage the industry. It is still inevitable that international oil companies (IOCs) will exit in the long term given the move towards low-carbon energy.
But passing the bill will taper the pace of exits in the short term, if the IOCs find the terms of the PIB favourable enough to keep Nigeria assets in their portfolio and execute projects that have been in the pipeline.
August: IMF approves historic US$650bn SDR allocation
The IMF finally agreed a US$650bn general special drawing rights (SDR) allocation at the start of August. The general allocation became effective on 23 August, when newly created SDRs were credited to IMF member countries in proportion to their existing quotas in the Fund.
Around US$275bn (42%) of the new allocation went to emerging markets and developing countries, including low-income countries, according to the IMF. Stuart Culverhouse calculated that US$33.5bn would go to Africa, of which, US$23bn would go to Sub-Saharan Africa.
While every IMF member stood to benefit, the main winners were those whose IMF quota (which determines the size of SDR allocation for each member) is a bigger share of its reserves.
September: Scandal at the World Bank and IMF is not good for emerging markets
Every year, the World Bank publishes its Ease of Doing Business report, which scores and ranks 190 countries on an index that provides a widely followed guide to business-friendly structural reform, particularly in emerging markets.
But following an independent external audit on "irregularities" in how the report was compiled in 2017 and 2019, the World Bank decided to discontinue it altogether.
The audit implicated the prevailing CEO of the World Bank, Kristalina Georgieva, for intervening to ensure that China's ranking improved in the 2018 ranking. In the final report, China's ranking improved from 85th to 78th, allegedly thanks to changes in the method for calculating the ranking. The audit also found irregularities in the 2020 scores for Azerbaijan, Saudi Arabia and the UAE.
Georgieva, now the Managing Director of the IMF, issued a public statement disagreeing with the findings of the audit. But, whatever the truth of the matter, Hasnain Malik presented five reasons why the scandal was bad news for emerging markets.
October: The Nigeria banks best placed for Basel III implementation
From November, Nigeria's banks began implementing specific guidelines from Basel III, as put forward by the Central Bank of Nigeria (CBN). Busola Jeje scoured the CBN's customised guidelines and concluded that they are positive for increasing capital and liquidity, while reducing leverage and large exposures.
However, there are trade-offs: liquidity versus higher margins, solid capital versus payout and risk-asset growth. In her report, she highlighted the implications for Nigeria's banks, and identified those best placed to cope with the transition.
November: Global Investment Themes for 2022
Our Research Team identified 11 major trends that will shape investing over the next 12 months, and beyond. Some of the chapters offered our unique perspective on major global developments, while some highlighted the importance of themes that you may not have read about elsewhere. Click through for the full set.
December: Bukalapak: Grossly mispriced and facing oblivion
We initiated coverage on Bukalapak on the morning of 1 December and the stock was down by over 6% by 9am UK time after Bloomberg picked up Nirgunan Tiruchelvam's report.
The Indonesian e-commerce company focuses on providing e-commerce to the country’s 13.5mn small businesses.
Its principal target is the tier 2 regions of Indonesia – ie those beyond metropolitan Jakarta and Surabaya. But Nirgunan says Bukalapak is a peripheral player in Indonesia’s e-commerce boom and its market share will contract. He doesn't sit on the fence in his in-depth report.