Emerging markets are selling off in historic ways as a basket of emerging market currencies hits lows not seen since before the commodities supercycle began at the start of the millennium. Besides emerging market currency values, also sliding are foreign exchange reserves held by emerging markets, commodities and China’s stock market. Below, Finance Forward looks at the impact of China’s A-share equity market selloff and, should it spread to the wider economy, the impact of a slowdown in China on the MENASEA region which includes several key emerging markets such as Malaysia and Indonesia.
Values-based Banking for a Better World
I predict a quiet but powerful revolution in the banking sector that will return banks to their people-centred roots. I believe the strongest banks will not be the biggest banks, as we currently understand them, but those recognising their true value to society – acting as financial intermediaries; and acting as servants of the people, organisations and the communities that make them possible. I dream that in the future, the most successful banks will be those investing consistently in social, economic and environmental change.
A different kind of banking
The Global Alliance for Banking on Values (GABV) comprises banks and banking cooperatives across Asia, Africa, Australia, Latin America, North America and Europe; serving 20 million customers; holding up to $100 billion of combined assets under management; and powered by a network of 30,000 co-workers. Alliance members have different operating models but collectively they share a common mission to use finance to find global solutions to international problems—and to promote a positive, viable alternative to the current financial system.
A challenge to change perceptions
In values-based banking, profit is a consequence of serving real needs in a real economy – not an end goal. This is different to the current ‘’mainstream’’ banking system and shifting this perception among bankers, policy makers and the public is a challenge for the GABV. A second challenge is to find, connect, learn from and work with new Alliance members. The more we grow as a network of profitable values-based banks, the stronger we become in connecting and learning from each other, advocating for change, and assisting mainstream banks to shift their banking models.
An opportunity to partner in Middle East, North Africa, and South Asia (MENASA)
We’re uncovering a growing number of banks in the MENASA region whose principles have close ties with those of GABV members, and we’d like to connect them to our members, so that they can collaborate and grow. A new fund initiated by the GABV in March, called SFRE, is also available as a very practical support vehicle to potential members. SFRE is the first global open-ended investment umbrella fund, with a $1 billion ambition, developed to deploy substantial amounts of long term capital to banks with a proven track record of serving the real economy by meeting the needs of individuals, enterprises and communities they serve, whilst also delivering robust and stable financial returns.
A growing movement
This is what we call values-based banking, and it is a growing, global movement. Behind the movement is GABV, a not-for-profit foundation that advocates and convenes the best examples of values-based banking from around the world. Together we can change the world!
Dr. Marcos Eguiguren is the Executive Director of the Global Alliance for Banking on Values. If you’re interested to learn more, he invites you to get in touch with him directly at Marcos.Eguiguren@GABV.org.
Disclaimer: The views and opinions expressed in this post are those of the author and do not necessarily reflect the official policy or position of ME Global Advisors.
China pulling back the reins: Does it really slow the growth across MENASEA?
Last month, the Chinese stock market spiraled into a nosedive, shedding one-third of its value (more than $3 trillion of wealth) in a matter of just a few days. This crash was mainly attributable to retail investors fleeing the market or being pushed as a result of their heavy reliance on margin loans for their earlier purchases.
Margin lending balances reached 2.2 trillion Yuan ($344 billion) or about 12 % of the value of all freely traded shares on the market. So far the effect has been largely domestic – the US Standard & Poor’s 500 dropped less than 4% after China’s bubble burst (during the Greek crisis) and that it has made up most of those losses signals it may have been Greece more than China driving that market movement.
However, a pause in the Chinese economic growth story certainly raises a few red flags for the global economy. Countries from the MENASEA have varying exposures to spillovers from a slowing China. In the GCC, the UAE leads the way in the trade partnership with China as the trade between the two topped at $54.8 billion (AED 175 billion) last year. UAE is responsible for one-third of China-GCC trade and one-fifth of Sino-Arab trade.
Economic conditions in China can have far reaching implications for its trade partners, for both those countries who are importers of Chinese manufactures and exporters of commodities to China. The share of oil imported by China from MENA rose modestly from 48% in 1990 to 52% in 2014, but the volume of these imports rose dramatically, from 700K bpd in 1990 to 3.2M bpd in 2014. Chinese investments in MENA still constitute a small proportion of total Chinese FDI (2.4%), but a sizeable proportion of MENA GDP (6.4%).
A marginal decrease in outflow from China is likely to have a significant effect on the trade balance of the countries in the MENA region. Reduced Chinese growth will have a significant affect on Southeast Asian economies as well as they become more dependent on China as a key trading partner. Like the MENA region, the biggest economic impact tied to the China slowdown will impact East Asia’s developing economies whose export earnings are dependent on selling commodities to China (Indonesia, Philippines and Malaysia).
These countries have benefited from China’s import of raw materials and commodities which fueled China’s industrial and investment binge in the past few years. The bursting of China’s stock market bubble will not likely lead to a sharp reduction in Chinese economic growth. Having said this, the economies of the most impacted SE Asian countries are not out of the woods. Their domestic economies remain vulnerable to commodity price declines (witness the falling value of the Rupiah, Peso and Ringgit).
The value of Indonesia’s exports of copper, which were allowed to continue through at least 2017 (unlike nickel whose raw export was banned in 2014), dropped substantially in 2014 even though prices only fell modestly. The drop in prices has accelerated in 2015 (as has the depreciation of the Rupiah), suggesting further economic pain for Indonesia.
Structural reforms aimed to make the Chinese economy less reliant on capital investment and more oriented towards local consumption will certainly have an impact on China’s trading partners, including those in the MENA region who are feeling the effect of lower oil prices as well as countries that export ther commodities to China. The stock market meltdown—to the extent it lowers Chinese consumption growth from a negative wealth effect—may make the road bumpier than planned by the Chinese government.