Daily Update: December 8, 2020

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Despite the probability that a coronavirus vaccine will be widely available by the middle of next year, giving hope that an end to the global health crisis is in view, an acceleration in economic activity will be important for emerging markets to experience a brighter 2021.

Economic and credit conditions improved across emerging markets (EMs) in the third quarter, with the rebound fueled in part by nations’ robust exports. But the overall recovery has since stumbled as COVID-19 cases tick upward. EM governments and corporations are faced with limited flexibility to navigate the resurgence of infections and additional lockdowns, according to S&P Global Ratings, which assumes that the recovery will strengthen in mid-2021.

The average EM economy, excluding China, is likely to contract 6.1% this year and grow 5.9% next year, according to S&P Global Ratings. Latin American nations are likely to suffer the slowest recoveries of all emerging markets due to the pandemic’s implications for labor market and investment conditions.

“We forecast the recovery across all EMs to continue in the first half of 2021, even in the absence of the vaccine. But we expect the rebound to be limited and prone to setbacks,” S&P Global Ratings Lead Emerging Markets Economist Tatiana Lysenko said in recent research. “The arrival of the effective vaccine would foster the normalization of activity in the people-facing services sector, enable the resumption of travel (albeit with a lag), and boost consumer and business confidence, all of which would lead to a faster recovery in emerging markets.”

The availability of a safe and effective vaccine won’t eradicate all risks for emerging markets.

When the U.S.’s economic recovery begins, and the dollar strengthens, EMs will likely suffer tighter financing conditions as just a 1 percentage point increase in the U.S. currency can shave more than 0.3% from EMs GDP growth, according to the Bank for International Settlements.

Countries face exposure to social risks in light of the inequality that worsened in emerging markets during the crisis.

“The pandemic has exacerbated existing income disparities, precarious living conditions, and limited access to health services for the poor, stoking social discontent, with politicians raising their voices,” S&P Global Ratings said in a recent report. “The deep economic contraction resulting from the pandemic will lead to a sharp rise in poverty, which would be a huge setback for many EMs that made progress in this area in previous years. These conditions could ignite protests, with the population demanding change.”

However, emerging markets may not need to wait for a full-blown economic recovery. After investors pulled more than $90 billion in bonds and equities from emerging markets at the onset of the pandemic in March alone, inflows in November reached a monthly record, according to the Institute of International Finance. In recent days, major investors have characterized emerging market stocks as key opportunities for 2021. Blackrock described the equities as "principal beneficiaries of a vaccine-led global economic upswing” in a Dec. 7 outlook, while JPMorgan Chair of Global Research Joyce Chang forecast that EM stocks could rally as much as 20% next year. In a more conservative assessment, Morgan Staley analysts said Dec. 7 that the rally will be “front-loaded” through year-end and into the first quarter of next year before “petering out.”

Today is Tuesday, December 8, 2020, and here is today’s essential intelligence.

The Future of Credit

Default, Transition, and Recovery: Distressed Exchanges Now Lead 2020 Corporate Defaults

The global corporate default tally has reached 219 so far in 2020, after nine companies defaulted since S&P Global Ratings’ last report.

—Read the full report from S&P Global Ratings

Comebacks, Setbacks, And Divergent Tracks

As borrowers rebuild businesses and finances in 2021, the operating backdrop should improve. Economies are rebounding and COVID-19 vaccines are coming online. This, however, will be a bifurcated recovery.

—Read the full report from S&P Global Ratings

Australian and New Zealand Airports: A Solid Rebound Remains Elusive

Interstate border openings in Australia and steady local travel in New Zealand will support airports' cash flows in fiscal 2021, but meaningful levels of international travel remain elusive.

—Read the full report from S&P Global Ratings

Collapse of UK Retail Giants Leaves Large Hole in Heart of Property Sector

Of all the tough days the U.K. retail sector has had to endure in recent years, perhaps none will prove as significant as Dec. 1.

—Read the full article from S&P Global Market Intelligence

Banking Sector Under Pressure

Retreat by Big Banks Could Mean More Upstream Oil and Gas Bankruptcies in 2021

Bankruptcies in the oil and gas segment have slowed during the fourth quarter, but observers believe the combination of heavy debt loads and little hope of outside funding will mean the last few months have been a respite and not a sign of things to come.

—Read the full article from S&P Global Market Intelligence

Pandemic-Led Deposit Boom Causes Headwinds, Funding Changes for Nordic Banks

Pandemic-driven cash hoarding by households and businesses has been evident on Nordic banks' balance sheets since they released first-quarter 2020 results.

—Read the full article from S&P Global Market Intelligence

Indian Banks' Earnings May Improve As Rates Bottom Out, Economy Stabilizes

India's banks may begin to see improvement in their net interest margins and income as policy rates stabilize and the economy shows signs of a sooner-than-expected recovery from the COVID-19 pandemic, analysts say.

—Read the full article from S&P Global Market Intelligence

Central Bank Digital Money Faces 'inflection Year' But Banks Will Stay Relevant

Discussions around Central Bank Digital Currencies, or CDBCs, have heated up in recent months, but even if they eventually hit the mainstream, commercial banks are unlikely to be rendered irrelevant by this new form of exchange, according to analysts.

—Read the full article from S&P Global Market Intelligence

ESG in the Time of COVID-19

Exploring Core Applications of ESG

Could ESG strategies provide risk protection while offering a meaningful boost in ESG representation without necessarily sacrificing returns?

—Watch and share this video from S&P Dow Jones Indices

Reimagining Accounting to Measure Climate Change Risks

Carbon emissions intensity, and their absolute level, must reduce significantly over the next few decades if the most dramatic climate-change scenarios--and the associated social and economic costs--are to be mitigated.

—Read the full report from S&P Global Ratings

Denmark to End All North Sea Oil, Gas Production By 2050, Bans New Exploration

Denmark has agreed to ban new exploration and end its oil and gas production from the North Sea by 2050 as part of the country's efforts to become "climate neutral" in the coming decades.

—Read the full article from S&P Global Platts

'This is Lift-off' For Green Hydrogen, Says Veteran British Engineer

Having witnessed first-hand the ebb and flow of market and investor attention over the last three decades, Graham Cooley continues to be an ardent believer in hydrogen technologies. Now, 30 years since first starting work on hydrogen fuel cells and at times being in the minority as an advocate for the industry, he is among those holding the keys to a technology that many hope will play a crucial role in the energy transition, assisting in the decarbonization of hard-to-abate industrial sectors.

—Read the full article from S&P Global Market Intelligence

Pressure on Mining Sector to Lower Emissions Will Intensify – Engie Impact CEO

The pressure to lower emissions will intensify for the mining sector, Engie Impact CEO Mathias Lelièvre said in an interview with S&P Global Market Intelligence.

—Read the full article from S&P Global Market Intelligence

The Future of Energy & Commodities

Interactive: Platts Periodic Table of Oil Third Edition Adds Benchmarks, Refinery Data

From the impact of COVID-19 on global demand to the long-term effect of energy transition on petroleum producers and refiners crude quality has never been more important. There are hundreds of different grades and varieties produced around the world, from medium-sour Hungo in Angola to Norway's light-sweet Ekofisk and Mexican heavy-sour Maya crude. This is why the editorial team at S&P Global Platts has created a third edition of the interactive Periodic Table of Oil of Oil with new crude grades and benchmark functionality to help customers plan and make more informed decisions in rapidly changing volatile markets.

—Read the full article from S&P Global Platts

Political Rumblings Continue as Nord Stream 2 Prepares to Resume Work

As the Nord Stream 2 development company prepares to resume gas pipelaying work on the controversial project in German waters, the political row over the pipeline continues with the US and Russia trading blows in recent days.

—Read the full article from S&P Global Platts

Japan to Introduce Ammonia For Thermal Power, Shipping Fuels in Late 2020s

Japan said Dec. 7 it will introduce ammonia into the fuel mix for thermal power generation as well as for shipping from the late 2020s as part of its efforts to achieve carbon neutrality in 2050.

—Read the full article from S&P Global Platts

Listen: As Production Falls, the Bearish Case For U.S. Oil

U.S. crude output fell this year in response to low demand stemming from the coronavirus pandemic. Production has held at around 10.5 million b/d to 11 million b/d since late October, according to the US Energy Information Administration. But that is down roughly 2 million b/d on the year, and many analysts expect little change for 2021. However, some oil industry leaders are much more bearish on production. Adam Waterous, managing partner and CEO of North American private equity firm Waterous Energy Fund, believes the Permian Basin in particular has already peaked. Investors have been burned by low returns and are not likely come back in force.

—Listen and subscribe to Capitol Crude, a podcast from S&P Global Platts

Written and compiled by Molly Mintz.