Sat. Oct 16th, 2021


This is an audio heading of the FT News Briefing podcast episode: EU draft plans to prevent recurrence of refugee crisis in 2015

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, September 1st, and this is your FT newsletter.

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European officials draw up a plan to avoid an influx of Afghan refugees. China’s leaders have spoken out about economic inequality that is making the luxury goods industry nervous. On top of that, emerging markets have deteriorated over the past decade. So far this year is not much different, but some investors are seeing hope.

Robin Wigglesworth
There are many stars that are aligned in the right way. But we’m just waiting for the catalyst, and then I think we can go to the races.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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The US withdrew its last troops from Afghanistan yesterday, ending the 20-year war there. US President Joe Biden has been criticized for the chaotic evacuation and timing of the withdrawal. Biden addressed the country from the White House yesterday and defended the decisions.

Joe Biden
Let me be clear: the 31st of August is not a random deadline. It’s designed to save American lives.

Marc Filippino
Meanwhile, Europe is preparing for a wave of refugees from Afghanistan as people flee the Taliban regime. EU politicians want to avoid a repeat of the 2015 Syrian refugee crisis. Therefore, they are drawing up a proposal to offer 600 million euros to the neighbors in Afghanistan. The funds will help countries like Pakistan to house Afghan refugees. The package could even mean cash going to Iran, which is under international sanctions.

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China is an incredibly important market for the luxury goods industry.

Leila Abboud
The Chinese buyer is essentially responsible for all the growth in the sector.

Marc Filippino
This is the FT’s Leila Abboud. She is our correspondent in Paris, with the biggest names in luxury goods such as LVMH and Hermes. And the companies are nervous. The president of China has said things that luxury goods, sellers and their shareholders do not like to hear.

Leila Abboud
What happened in mid-August when most Europeans were on their beach holidays was that Xi Jinping, the president of China, indicated that China wanted to start a period of promoting what he calls the general prosperity for all. And it is read as a sign that the authorities are concerned about the conspicuous consumption and increasing inequality in the country. When it was immediately announced, it was on August 17, the next morning when European markets opened, that the shares of all the major luxury goods companies fell sharply. To be honest, no one really knows what the comments mean, but investors do not like uncertainty. And if China, according to estimates, now accounts for between 35 and 50% of all luxury goods sales in the world, the market is even a small change in demand as a kind of big impact on businesses and them, hence their profitability and their share price.

Marc Filippino
This is Leila Abboud, the FT’s Paris correspondent.

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Emerging markets such as Brazil, India and Turkey were once hot, but the past decade has cooled investors’ enthusiasm. Yields are anemic compared to US and European stock markets. Some analysts even call it a lost decade for emerging markets. But FT’s Robin Wigglesworth says investors may have reason to be excited again.

Robin Wigglesworth
One of the reasons why emerging markets started the year well and then dragged on again was China. So people were optimistic. Emerging markets are finally going to come through a decade of pain and, as it were, come to the Promised Land. And then China started to break down its economy, started to regulate your privacy, digital education, all kinds of areas where there are a lot of listed Chinese enterprises, and people started to worry. The Chinese market has fallen dramatically. And China is such a big part of emerging markets that everything that happens there quickly resonates in the developing world markets. And that’s what we’ve seen this year. Now things are just so cheap, so beaten up compared to almost every other big market that people think there might finally be a return.

Marc Filippino
So talk to me about some of the highlights in emerging markets. What is that?

Robin Wigglesworth
The most important thing is that these countries are generally growing faster than the developed world. You know, you do not have to go through a China to see that countries are actually doing pretty well. They also have a better demographic than we have in the west. In general, these are also young populations. In general, it is also good for equity returns. They export many products, many of these countries, and commodity prices have risen sharply following the shock caused by the Covid-19 pandemic. So there are a lot of stars coming in line in the right way, but we’m just waiting for the catalyst, maybe the concern about China is back a bit. And then I think we can go to the races.

Marc Filippino
Is there anything at this point that could go wrong with stocks in emerging markets?

Robin Wigglesworth
There is a short-term risk, a medium-term risk and a long-term risk. The short-term risk is just that — the Chinese crack down — it’s just the beginning, that China is really starting to regulate its economy more heavily and slowing down growth, the stock market is tumbling and it will not stay in China. The somewhat more medium-term that the Federal Reserve has spoken has hinted a bit that it will start declining its asset purchases, all these bonds he buys, billions of dollars worth of a month. And usually the easy US monetary policy was good for emerging markets. And if the Fed starts to get a little less comfortable, it could also cause problems in the developing world’s equities and stock markets. And the long-term risk is this huge trend towards environmental, social and managerial investment ESG. Now, in general, I think it’s fair to say that emerging market companies are getting a very bad score on ESG. They tend to be poorly controlled. They tend not to have independent councils. They tend not to care about some of the social issues we do in some countries in the west.

Marc Filippino
And many of their biggest exports are oil.

Robin Wigglesworth
Yes, and many of them are oil and natural resource companies. They dig well out of the ground and sell it. So they get a bad score on ESG. And if we continue to see, you know, hundreds of billions of dollars of conversion from conventional investment mandates to ESG mandates, it could mean that while emerging markets are cheap today, they can stay cheap much longer than optimists expect. And that is, I think, at the moment the great secular danger in emerging markets.

Marc Filippino
Robin Wigglesworth is our global financial correspondent. Thanks, Robin.

Robin Wigglesworth
Thank you for having me again.

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Marc Filippino
Before we go, a word from Elizabeth Holmes, the founder of Theranos.

Elizabeth Holmes
We are the only laboratory company that is actually focused on leading with transparency.

Marc Filippino
That was Holmes in an interview with Forbes in 2015. Her company claims she’s developing a technology that can do a series of medical tests with just a few drops of blood. Theranos became a stock exchange and rose to a valuation of nearly $ 9 billion until people found out that Holmes was allegedly not transparent. Evidence of fraud has taken place. Now Holmes is a star again, but this time in court. Yesterday, the jury selection for her criminal trial began. Holmes is accused of defrauding investors and patients by making false allegations about the blood tests and the financial position of the company.

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You can read more about all these stories on FT.com. This was your daily FT News Briefing. Visit the latest business news tomorrow.

This transcript was generated automatically. If there is an error, please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.



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