Brazilian meat exporters need to adapt to new Chinese market reality

China will remain a major importer of meats in coming years, despite investing to recover its pig herd and to strengthen the poultry production chain. Importing volumes, however, tend to shrink as of the middle of the decade and in order not to lose market share to other exporters, such as the United States, Brazilian slaughterhouses will have to adopt new commercial strategies, preferably with more aggressive local presence, according to a recent study by German consultancy Roland Berger. These new strategies include investments to improve quality, adaptation to growing health and environmental requirements and partnerships with Chinese players. Roland Berger projects that the Chinese meat consumption will grow 2.2% per year until 2025.

Source: Valor International

Cost to transport soybean from Brazil to China drops

The cost in dollar to transport soybeans from Brazil to China dropped in 2020, despite an increase of 25% in the international price of the grain, according to a study by agriculture college Esalq. The fare to transport a tonne of soybean from Mato Grosso by truck to the port of Santos and then by ship to Shanghai dropped 18.5% to $92.04. “The lower demand for national and international transport due to the pandemic has reduced freight rates here and on the sea. And the rise of the dollar against the real further depreciated transport prices within Brazil,” says Thiago Péra, coordinator of the study.

Source: Valor International

Suzano raises pulp prices for China

The recovery of pulp prices gained traction in the fourth quarter, driven by Chinese demand and problems in the supply of long fiber, which also have repercussions on short fiber. Suzano, the world’s largest producer of eucalyptus pulp, announced three price adjustments since October for the Chinese market and fiber prices will begin 2021 with increases in all markets, a move not seen in months. Suzano’s commercial head for pulp, Carlos Aníbal de Almeida, says the industry enters 2021 under “very favorable conditions.” “Demand is heating up in all regions,” he told Valor. The strong demand for sanitary paper in North America and Europe and for all kinds of paper in China helps to explain the higher prices. The appreciation of different currencies against the dollar has also played a role.

Source: Valor International

Minerva’s JV in China to import $600m in five years

Minerva Foods, South America’s largest beef exporter, has signed a non-binding memorandum of understanding with Chinese conglomerate Greenland to create a joint venture to import and distribute meat in the Asian country. There are still some bureaucratic requirements for the agreement to come into effect, but the partnership has the potential to be more successful than Minerva’s joint venture in China with Joey Foods, a project that had the same purpose but did not take off. According to a source familiar with the talks, Greenland will offer an existing structure, something Joey didn’t. “This could bring forward Minerva’s business plan by two years,” the source says. China is the main export market for both Brazil and Minerva. Controlled by the Shanghai government, Greenland estimates that in the next two years imports through the partnership will exceed 4 billion yuan (about $600 million). In five years, the figure could reach 10 billion yuan ($1.5 billion). The Chinese group’s goal is to make the business the main distribution center for imported meat in the country. Minerva declined to comment.

Source: Valor International

Brazil-China trade expected to hit all-time high in 2020

Chinese imports of Brazilian products may see a record high in 2020 should it maintain the pace set through August, figures by China’s General Administration of Customs show, in stark contrast to falling global trade due to the covid-19 pandemic. Shipments to China increased by 20.8% in August when compared with the year-earlier month, while Chinese global purchases fell 2.1%. Brazil-China trade may also surpass the $115-billion level seen in 2019, according to China’s official figures. In the year to August, China says it imported $54.5 billion from Brazil and exported $19.9 billion. Brazil is one of the few countries with a trade surplus with China. In addition to farm commodities, Brazil is reportedly selling three times more oil to China, which would be taking advantage of the low prices to strengthen its strategic reserves.

Source: Valor International

A Look at Emerging Markets Beyond China

Executive Summary

1. Reforms and opportunities in India and Brazil. Beyond China, there are opportunities in other developing-world economies. Indian voters just handed a strong reform mandate to Prime Minister Narendra Modi, and India could see a dramatic pickup in economic growth that mandate translates into progress on land reform, labor regulations, and privatizations — especially in the banking sector. Brazil could see progress as it leaves behind a decade of corruption and recession, provided that President Jair Bolsonaro can implement pension reform and convince global investors that the country’s fiscal footing has become more secure. If tax reform followed, it could result in a quickening of global investor interest in Brazilian stocks, and an acceleration in growth. India is further along in the reform effort, and Modi has again demonstrated his political strength; the recent elections are likely to be received well by global investors seeking growth.

2. Market summary. The U.S. market has been caught in a trading range after its powerful move from the December lows, and remains as of this writing about 3% below last year’s highs. There’s a lot of news that market participants could interpret as a justification for a decline, and yet the correction has been modest. We take this to indicate that beneath the daily uncertainty and volatility largely caused by trade-war news, market participants are absorbing positive U.S. trends in employment, wages, economic growth, and central bank policy. As long as those all remain constructive, we remain positive on U.S. stocks.

A tug-of-war is on for the psychology of Chinese retail investors. Pulling in one direction is the fear of the potential consequences of the ongoing trade conflict with the U.S. Pulling in the other direction is a sense of economic patriotism — and the knowledge that the Chinese government has expressed its interest in a stable stock market, and its intention to enhance the stimulus that is bolstering the domestic economy. In the case of a reasonable trade settlement between the U.S. and China, the U.S. market could rally to new high and present an opportunity to take profits.


Source: ETF Trends

Will the trade war spell the end of Chinese stock listings in America?

merican investors wanting a piece of Chinese firms, whether state-owned oil majors or tech stars, need not stray beyond Wall Street. Over the past two decades some 200 Chinese firms have gone public in America, more than from any other foreign country. (Most have their main listing there; a few have a “secondary” one, with a main listing in China.) These firms’ total market value is more than $1trn. For America’s stock exchanges, that is a great triumph. But trade hawks are starting to describe it as a great liability.

In a letter in April a bipartisan group of politicians led by Marco Rubio, a Republican senator, said American investors faced risks because of exposure to Chinese companies “that pose national-security dangers or are complicit in human-rights abuses”. Steve Bannon, President Donald Trump’s former chief strategist, expanded the focus to all Chinese stocks in America in an interview published on May 22nd in the South China Morning Post. “The next move we make is to cut off all the ipos [initial public offerings], unwind all the pension funds and insurance companies in the us that provide capital to the Chinese Communist Party,” he said.


Source: The Economist

Why US-China trade war’s latest escalation could be good news for Brazil, Mexico and Vietnam

Brazil, Mexico and Vietnam are among the countries that could make marginal gains in areas such as manufacturing and agriculture should US-China tensions continue after they flared up again this week, analysts have said.

The trade war between Washington and Beijing has already caused shifts in global trade, and will continue to create winners and losers as businesses try to cope with increased uncertainty.

The United States officially raised tariffs on US$200 billion of Chinese goods from 10 to 25 per cent on Friday, in a new escalation of tensions even as China’s Vice-Premier Liu He visited Washington for talks.

Donald Trump had said last month that the two sides were “very close” to a deal that would end nearly a year of mutual tariff levies, but the introduction of new tariffs on Friday – as threatened by Trump last Sunday – may change the landscape.

Global trade networks have been rocked by the US-China tariff exchanges that began last July, but uncertainty for some has opened doors for others.

“So far, US-initiated tariffs have mainly hit lower-end and labour-intensive sectors,” said Rob Koepp, Hong Kong director of The Economist Corporate Network. “Economies that are well positioned on the sidelines, like

Vietnam and Brazil, then have an opportunity to jump in and offer goods that avoid the increasing tariffs.”

The latest official monthly figures from Vietnam for April showed a 29 per cent increase in US-bound exports year-on-year, while capital contributions from foreign investors were up 215 per cent, largely in manufacturing.

A study by The Economist Intelligence Unit late last year suggested that many countries around Asia could reap the benefits of filling China’s shoes in exports to the US. Malaysia and Vietnam were projected to be the biggest winners in IT equipment manufacturing, while Bangladesh, India and Vietnam were potentially able to enjoy a boost in exports of ready-made garments.

Tommy Wu, a senior economist at Oxford Economics, said: “Malaysia and Thailand could also be winners because they have relatively good infrastructure already in place and have a more business-friendly environment than places like the Philippines or Indonesia that have the advantage of lower wages but also poorer infrastructure.”

Wu warned, however, that renewed escalation of US-China trade tensions may generally have a negative effect on trade in Asia.

“There is some trade diversion where Asian economies have seen exports to the US rising, but that was not enough to offset the overall trade weakness.”

The Asian Development Bank downgraded its growth forecast for the Asian economy this year from 5.7 per cent to 5.6 per cent, citing US-China trade tensions as a factor along with other uncertainties such as Brexit.

US soybean growers expressed displeasure with Trump’s new tariffs, fearing that retaliatory tariffs placed by China on their beans last year may continue to cut sales to China. Brazil stepped in to deliver  record amounts of soybeans to China last year, along with an increase in other agricultural products.

US neighbour Mexico may also benefit from less US reliance on China and make a comeback in furniture, toys and textile manufacturing, in which it has lost out to China since China joined the World Trade Organisation, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“Even with the new Nafta [North American Free Trade Agreement] not signed, Mexico is moving up the rankings as a trading partner for the US,” he said. “The Mexican peso might be a beneficiary of the trade war.”

Source: South China Morning Post

As Latin America Goes Right, Can China Keep Its Footing?

Although the future of China’s engagement with Latin America seems bright, many Chinese politicians and academics have been somewhat pessimistic about the recent stunning comeback of the Latin American right. The recently elected president of Brazil, Jair Bolsonaro, has gladly accepted the moniker of the Brazilian Trump. The presidents of Argentina and Chile, Mauricio Macri and Sebastián Piñera, are business moguls-turned-politicians who came into office with liberal economic strategies while praising the virtues of carrying business tactics into the job of governing.

For most Chinese, ideology does play a special role in their mindset. Many senior diplomatic officials got their start during the old days of the so-called pink tide, when many governments leaned left, and are not pleased by the current political environment in the region.

Whatever the case, it seems unlikely that Latin America’s newly elected right-wing governments will veer too far to the right, at least not too much on economic matters. In spite of whatever each country’s political system does, China should still keep its delicate relationships with those regional powers in Latin America, either politically or economically.

Meanwhile, the ideological affinity between China and Venezuela is one of the strategic elements of China’s foreign policy. Becoming friends with leftist governments sometimes drags China into endless trouble. The Venezuelan case is the best example. Although they noted the worrying trends in Venezuela, some Chinese researchers felt China’s economic and diplomatic interests would not be adversely affected because China needs a large quantity of Venezuelan oil and has the money to pay for it. Now Venezuela is in chaos, and President Nicolás Maduro finds his legitimacy challenged. As the China expert Matt Ferchen recently wrote in Diálogo Chino, “Venezuela remains an important test case for how Chinese researchers as well as government and business officials understand, or misunderstand, political risk in Latin America and beyond.”

China’s policies toward Latin America will have to adapt to new political realities in the region, in which the respective governments work together to create a mutually beneficial relationship and achieve common development.


Source: Americas Quarterly

Green lights for emerging markets get brighter

Emerging markets have started 2019 well due to a sharp U-turn in monetary policy around the globe and an easing of trade war tension between China and the US. The Fed and ECB’s change in monetary policy was initiated after the ‘blood bath’ in markets in December 2018. This shift has redirected flows from higher yield expectations across developed markets to yield hunting in emerging markets. Stabilisation in the USD in early 2019 versus its sharp strengthening in 2018 has been a big positive driving force for emerging markets despite lots of other persistent risky issues: the China-US trade deal has not been agreed yet, keeping intrigue for emerging markets sentiment; (geo)political turbulence is still in place for Hungary, India, Kazakhstan, Poland, Russia, Turkey and Ukraine. Many economic issues should be solved locally in 2019, for instance in Brazil and China.

In line with markets, we remain confident that the China-US trade deal will be agreed later in Q2 19. Any withdrawal from the current ‘trade talks journey’ by either counterparty would weigh immediately on emerging market sentiment. After US President Donald Trump has dealt with US-China trade, we could see his attention shifting to starting a trade war with the EU. If this happens in May 2019, the biggest losers would be the Central and Eastern European economies. Market expectations are still in favour of Germany’s economic pickup in Q2 19, which is fuelling the Czech, Hungarian and Polish economies, but Trump’s auto tariff idea would spoil the sentiment overnight.

Economic growth in emerging markets is set to slow down less than expected on easing monetary conditions. Given stabilisation in currencies across many emerging markets, accelerated inflation is set to calm down in H2 19, allowing emerging markets’ central banks to follow a change of monetary stance in developed countries. We have seen the first shoots of monetary easing in China and India in Q1 19. We also see tentative signs of a bottom in China (PMI, metals), which has eased concerns about a hard landing in the country. Other Asian economies are likely to follow the pattern very soon, while Russia, South Africa, Turkey and Brazil could join the cuts later in 2019, helping economic expansion in particular looking ahead to 2020.

We now see many yellow lights in the emerging market risks heat map becoming green, while the green lights are becoming even greener. However, there is still a risk that a possible new TRY crisis will put the brakes on the appetite for emerging markets in H1 19.