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Indonesia not yet ready to join BRICS – Industry roundup: 29 August

Indonesia bides its time on BRICS membership

Indonesia’s President Joko “Jokowi” Widodo, who last week attended BRICS’s 15th annual summit in Johannesburg, said that his country has yet to submit its letter of interest for membership of the bloc of emerging economies.

“We would like to make the necessary calculations first. We do not want to rush things," Jokowi said in a video. “Indonesia has robust economic ties with the five BRICS members,” he added.

The Johannesburg summit concluded with an announcement that the five BRICS members – Brazil, Russia, India, China and South Africa – had invited Iran, Saudi Arabia, Egypt, Argentina, the United Arab Emirates (UAE) and Ethiopia to join the bloc at the start of next year.

Although reports have suggested that Indonesia as a potential partner, the world’s fourth most populous country should not rush into joining BRICS as there are still no clear economic benefits that come from being part of the group, according to an expert.

While Indonesia’s President has indicated that his country is likely to join when the time is right, senior economist Yose Rizal Damuri said that a BRICS membership lacked economic boon to the members.

“Indonesia will get little to no economic benefits from being a BRICS member,” Yose, who also serves as the executive director of the think-tank Center for Strategic and International Studies (CSIS), told a media briefing in Jakarta.

According to Yose, India and China are the only BRICS members to have witnessed robust economic growth over the period 2010-2022. Russia, Brazil, and South Africa have seen their economies stagnate over the 12 years.

He added: “Indonesia’s [economic] performance is even surpassing [those three countries].”

The intra-BRICS trade has not been significant; Yose revealed that BRICS only accounted for 11.4% of the members’ collective global trade in the pre-pandemic era. The number edged hgher to 11.9% in the post-pandemic period. 

“We have to look at this carefully. [BRICS’ trade] is largely centered on China  This shows how China has become an important hub for BRICS. … And I doubt India wants China to remain a pivotal hub. India is also wary of a bigger BRICS becoming a mouthpiece for China,” Yose told reporters.

He also contrasted Indonesia’s situation with that of new member Argentina. “Argentina is seeking a BRICS accession because it wants to find a solution to its macroeconomic problems. We are not in the middle of such a situation,” said Yose. “So from an economic standpoint, there is no urgency for Indonesia to pursue a BRICS membership.”

Despite his criticisms, Yose said the group’s New Development Bank (NDB) “deserves a thumbs up”. BRICS’ financial institution has approved US$32 billion in financing since it began operations in 2015, with much of the funding going to sustainable projects.

“BRICS’ accumulated financing may be small, compared to the World Bank. Today, most of the financing comes from China. But we will likely see the numbers grow following an expanded BRICS, especially with Saudi Arabia and UAE in the club. Although NDB still needs to work on its governance,” Yose told the forum.

Government data shows Indonesia-China trade stood at US$133.6 billion in 2022. Indonesia’s bilateral trade with India amounted to US$32.7 billion last year. Jakarta’s trade figures with the remaining BRICS member sin 2022 were: Russia (US$3.6 billion), South Africa (US$3.3 billion), and Brazil (US$5.4 billion).

The Association of Southeast Asean Nations (ASEAN), the bloc of 10 countries which Indonesia is chairing this year, has established robust economic cooperation with China. All ASEAN members and China are part of the world's largest trade pact, the Regional Comprehensive Economic Partnership (RCEP). India was an original negotiating member of the RCEP, but opted out of the negotiations in 2019 before the agreement reached completion the following year.


South Africa losing out to neighbours, says Standard Bank CEO

South Africa is quickly losing its competitive advantage over the rest of Africa, with its risk premium deterring investment and making it harder to raise capital to stimulate economic growth, says Standard Bank CEO Sim Tshablala.

Following a presentation of the bank’s interim results, Tshabalala outlined how the country is falling behind the rest of the continent. He explained that South Africa is involved in a global competition with its African counterparts and other emerging markets for scarce capital to drive economic development.

“The world competes for capital. We compete for the money we need to finance our nation’s budget deficit and compete globally for the money to finance infrastructure investment, fund [power utility] Eskom and Transnet, and finance corporate projects.

The biggest factor in attracting capital is the country’s risk premium which dictates the returns an investor should expect for taking on the risk of investing in a given country.”

This, he added, directly impacts a country’s ability to raise capital and the companies that operate in it. As this premium increases, which it has in South Africa, it becomes more difficult to attract investments in local businesses and finance the government’s deficit.

“We are competing on the continent and with emerging markets for this capital. So if they have decreased the risk of investing in their country and generated greater returns, the money will then rather go to those places than South Africa,” Tshabalala said. 

The key factor is the rate at which the economy is growing. South Africa is expected to grow at less than 1% in 2023, while other African countries will average growth of more than 3%.

“What does this mean? It means that we are losing our national competitive advantage. We need to grow faster and get people healthier and wealthier,” Tshabalala said. 

A richer population would also generate more capital to invest locally and drive further economic growth.“We are growing at 0.8%. Other countries are growing much faster. Where do you think that money is going to go? It is going to go to other countries and not South Africa.”

The biggest impediments to South Africa’s economic growth are an unstable electricity supply, logistical inefficiencies, and crime and corruption, said Tshabalala which is central to Standard Bank’s engagements with national leaders. 

Standard Bank South Africa CEO Lungiza Fusile is working with the government as part of a business-led initiative to assist ministers in fixing the country’s energy, logistics, and security problems.


Global investors bearish on offshore yuan

Global investors have little confidence that China will succeed in shoring up its financial markets, and expect mounting economic stress to drive the yuan’s offshore exchange rate to historic lows, while their outlook for Chinese assets is increasingly bearish.

The yuan (CNY) traded internationally is seen depreciating to 7.6 per dollar before the end of the year, according to the median estimate by 455 respondents in the latest Bloomberg Markets Live Pulse survey, which implies a drop of 4% from Friday’s close of 7.29 and would be a record low 

Underlining the country’s bearish outlook, only 19% of survey participants plan to increase their China exposure over the next 12 months, while 24% plan to reduce their holdings. In March 2023 a similar poll found 25% of investors ready to grow their exposure.

In recent days, Beijing has intensified efforts to halt a rout in the nation’s assets. The authorities urged financial institutions to buy stocks and the renminbi (RMB), made it more expensive to short the offshore RMB through higher funding costs, and told mutual funds to stop selling equities.

While these efforts briefly lifted markets, foreign funds have continued to sell amid concern over China’s struggles with falling prices, a slumping property market and soaring local government debt. Wall Street analysts are also turning more downbeat, with Morgan Stanley and Goldman Sachs Group lowering their targets on Chinese stocks in the past week.

China’s easier monetary policy at a time when the rest of the world is tightening is adding pressure on the RMB, as investors turn to higher-yielding United States assets. Two-year US Treasuries yield almost 3 percentage points more than the Chinese equivalent, the biggest premium since 2006.

The central bank’s “policy response to support the yuan hasn’t been effective in changing the trend and won’t be”, said Kiyong Seong, a strategist at Société Générale in Hong Kong. 

In 2008 China unleashed massive spending programmes to bolster growth, but few expect the country to launch large-scale measures this time round to save the economy. Only 11% of survey respondents expect policymakers to unveil “bazooka-like” stimulus, with most predicting moderate measures targeting specific industries. Another 32% said any policy rescue will be too little, too late. 

About 31% of survey respondents said the MSCI China Index would need to drop a further 20% in the next month to trigger a global rout, while another 33% said Chinese equity losses will not lead to any significant contagion.

China’s slowdown will not have a significant impact on actions by other key central banks such as the Federal Reserve, according to 56% of respondents. As major economies have limited export and banking exposure to China, “a debt-induced economic downturn in China likely would not trigger another global financial crisis a la 2008”, wrote Wells Fargo & Co economists in a note.


Eurozone money supply shrinks as lending slows

The eurozone's money supply has shrunk for the first time since 2010 as private sector lending slows and deposits decline, early indicators of a further downturn ahead.

The money supply is monitored by the European Central Bank (ECB) to check the impact of recent monetary policy tightening. As lending dries up and short-term deposits shrink, economic activity is expected to slow and inflationary pressures to cool. The data will influence the ECB’s governing council over whether it should pause interest rate rises for the first time since July 2022 at its next meeting on September 14.

More dovish members of the council say inflation is already falling and more rate rises risk causing an unnecessarily deep recession, while the hawks retort that inflation of 5.3% in July is still too far above the ECB’s 2% target. Inflation data for this month is released on Thursday.

The ECB’s measure of overall money in the eurozone system — the M3 figure that includes deposits, loans, cash in circulation and various financial instruments — decreased 0.4% in the year to July, down from growth of 0.6% in June, the bank reported.

Economists said the data showed the unprecedented increase in the ECB’s benchmark deposit rate from minus 0.5% to 3.75% in the past year, as well as the shrinking of its balance sheet, was working as intended, supporting the case for a pause.


Standard Chartered exits aviation leasing and financing

Standard Chartered has sold US$4.5 billion in assets linked to aircraft leasing and financing, announcing two separate deals with Riyadh-based AviLease and with a company backed by US private equity group Apollo.

The banking group said it had sold its aircraft leasing business for US$3.6 billion, including operational assets worth US$700 million and loans totalling US$2.9 billion, to AviLease, which is owned by Saudi Arabia’s Public Investment Fund (PIF) sovereign wealth fund.

It also agreed to dispose of secured aviation loans valued at US$920 million to Apollo-backed PK Airfinance, a provider with a portfolio of US$4 billion across 80 operators globally.

Once AviLease’s purchase is completed, it will own and manage more than 120 aircraft. The Saudi group will also fund the repayment of US$2.9 billion of financing from the aircraft leasing and financing unit to Standard Chartered.

Standard Chartered, which is streamlining its business, said it expects to receive a gain of US$300 million from the sale of its leasing business to AviLease, which will raise its common equity tier one capital ratio by 19 basis points.

It said it would still offer broader product offerings, such as foreign exchange and cash management, to clients in the aviation sector. The bank would use the majority of the funds raised to reinvest in other parts of the group.

Simon Cooper, chief executive officer Europe and Americas at Standard Chartered, said: “The sale of our aviation finance leasing business allows us to continue to focus our efforts on those areas where we are most differentiated and to further progress our return on tangible equity journey.”

Fahad Al-Saif, chair of AviLease, said: “This acquisition will propel AviLease and will in turn support Saudi Arabia’s aviation ecosystem, on our path to help realise the Saudi Vision 2030 objective of diversifying the economy and adding high-value employment opportunities for Saudi citizens.”

AviLease secured US$2.1 billion in temporary funding from BNP Paribas, Citibank, HSBC Bank Middle East and MUFG Bank for the deal.

Saudi Arabia’s sovereign wealth fund has invested in a wide range of sectors including mining and sport and has ventured into the aviation sector through Riyadh Air, which is in talks with manufacturers about a fleet of narrow-body jets. It launched AviLease in 2022, looking to grow through purchase and leaseback deals as well as portfolio and corporate acquisitions.


Bank of Japan chief says China’s slowdown adds to economic uncertainty

Bank of Japan (BOJ) Governor Kazuo Ueda said the pace of economic activity in China has been a disappointment that could cloud Japan's economic outlook, according to a text of his speech delivered at the weekend Jackson Hole Symposium in the US.

China's July data, such as retail sales, business investment and industrial production were "on the weak side," Ueda said, according to the text posted on the BOJ's website.

“The underlying problem appears to be the adjustment in the property sector and its spillover to the rest of the economy,” Ueda said on China, adding that impact on Japan of China's weakness has been partly offset by the relative strength of the US economy.

Ueda also said trade and foreign investment flows suggest Japanese firms are diversifying production from China into the rest of Asia and the US, partly in response to geopolitical risks.

“Longer run effects of geopolitical factors on the Japanese economy are unsurprisingly very uncertain,” Ueda said, adding that “the tit-for tat war,” mainly in the semiconductor sector, between major advanced economies and China was a risk. “Central banks will have a hard time factoring in these forces when making policy decisions,” he added.

Ueda delivered the speech during a weekend session on globalisation held at the Jackson Hole Symposium in Wyoming.

Geopolitical tension between the United States and China has been among the risks to global trade that have weighed on export-reliant economies such as Japan.

Relations with China soured after Japan started releasing treated radioactive water from the wrecked Fukushima nuclear power plant into the Pacific Ocean last week, drawing expressions of concern from neighbouring countries.

Elsewhere at the Symposium, Federal Reserve chair Jerome Powell insisted that US inflation was still too high and that the bank would raise rates again if it appeared core inflation was not getting back down to what he said still remains the central bank's 2% inflation target. "Uncertainties, both old and new, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little," he told the Jackson Hole audience of central bankers, economists and financial reporters..


Goldman Sachs sells financial planning business

Goldman Sachs has agreed to sell its personal financial management (PFM) unit to Creative Planning, a Kansas-based registered investment advisor with more than 2,100 employees and US$245 billion in assets under management.

The transaction is expected to close in Q4 of 2023 and “result in a gain” for Goldman, which did not  reveal the sale price for its PFM business.

Goldman acquired a team of about 220 financial advisors managing US$25 billion in assets in May 2019, when it announced the US$750 million acquisition of United Capital Financial Partners. At the time, CEO David Solomon heralded the deal as a way to broaden Goldman’s reach beyond the ultra-rich clientele that is its main strength to those who are merely wealthy, with perhaps a few million dollars to invest.

However, the PFM business was deemed too small in the context of Goldman’s larger aspirations in wealth and asset management. Goldman said in February that it only had about 1% of the high net worth (HNW) market, or those who have between US$1 million and US$10 million to invest.

“This transaction is progress toward executing the goals and targets we outlined at our investor day in February,” said Marc Nachmann, global head of asset and wealth management at Goldman.

The sale “allows us to focus on the execution of our premier ultra-HNW wealth management and workplace growth strategy” while continuing to support HNW clients through a strategic partnership with Creative Planning, he said.


Vietnam’s SBV joins ASEAN regional payment connectivity initiative

The State Bank of Vietnam (SBV) has signed a Memorandum of Understanding (MoU) on Cooperation in Regional Payment Connectivity (MOU RPC) to improve the connectivity of cross-border payments. Included in the RPC initiative are the central banks of Indonesia, Malaysia, Philippines, Singapore, and Thailand.

“The expansion of the RPC to include other ASEAN members is a mandate from the 9th ASEAN Finance Ministers and Central Bank Governors (AFMGM). Further, it is a priority of the ASEAN 2023 Indonesia Chairmanship,” read the joint media release.

The initiative will ensure faster, more affordable, more transparent, and more inclusive cross-border payments. 

This cooperation includes several modalities, including quick response (QR)-code and fast-payment-based cross-border payments.

“The goal of the RPC is to make inter-country payments more seamless, convenient, and affordable, allowing individuals and businesses to conduct transactions across the ASEAN region with ease,” read the statement.


Singapore’s IMDA joins partnership for greener digital infrastructure in Asia

The Singapore government’s Infocomm Media Development Authority (IMDA) is partnering with Dell Technologies and digital infrastructure firm Equinix with the aim, they say, “of reshaping the way digital infrastructure is designed, deployed and maintained with a focus on promoting sustainable digital solutions and green technology practices across the region”.

As part of this partnership, the three organisations will provide guidance and recommendations to modernise digital infrastructure deployment sustainably across Asia and to optimise the integration and use between hardware and software interfaces.

Equinix adds that the partnership will develop a comprehensive process to measure, capture and audit the quantifiable sustainability improvement in the form of energy and carbon emission savings.

“This partnership,” the company adds, “represents another important step towards promoting green ICT [information and communications technology] practices and driving the development of sustainable digital applications.”

Ong Chen Hui, assistant chief executive of the IMDA’s biztech group, commented: “Greening the ICT sector is an important priority for the IMDA. Earlier this year, Singapore launched one of the world’s first standards for optimising the energy efficiency of data centres in tropical climates.”

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