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Invest in Russia at your own risk after US sanctions, strategist says



Russian assets, in recovery mode following a deep recession after the global oil price collapse in 2015, have been ravaged since Friday over fears of U.S. sanctions.

Popular among many emerging market investors for the past year, this progress now appears on the brink of becoming undone as market analysts call for a re-evaluation of Russia’s risk pricing.

The turmoil was triggered by the U.S. Treasury’s announcement last Friday of targeted penalties on Russian entities and individuals, stemming from Congressional legislation — passed last August — known as CAASTA (the Countering American Adversaries Through Sanctions Act).

Until recently considered a safe bet, with many investors “overweight” on Russian assets, the country’s markets now appear at the mercy of the U.S. Treasury, whose deployment of punitive economic measures Friday was its most severe yet.

Monday saw Russian stocks suffer their worst day since 2014, with the country’s main share index crashing 11.4 percent and the ruble falling 4.5 percent against the dollar. The same day witnessed Russia’s 50 richest businessmen lose close to a combined $12 billion, according to Forbes.

Russian assets will likely now be plagued by higher risk premiums after a period of long positioning on Russian risk, according to Tim Ash, senior portfolio strategist at Bluebay Asset Management. This is thanks to the market being “long overly sanguine on Russia geopolitical risk and sanctions.” Indeed, for the past several years, analysts recall geopolitics having little to no lasting effect on global stocks.

Russia was an attractive proposition as it embarked on its economic recovery, said Valentijn Van Nieuwenhuijzen, chief investment officer at NN Investment Partners. “Over the last six to nine months, there have been times we actually liked Russian markets on the back of recovering commodities and oil prices,” he told CNBC’s Squawk Box on Tuesday.

But the danger posed to assets in the face of an unpredictably aggressive sanctions agenda changes things. “I think this type of news makes it at this point not a very attractive value opportunity,” Van Nieuwenhuijzen said.

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Lebanon is on a ‘train to hell’: Former government advisor



An anti-government demonstrator waves the national flag as they block the street, with burning garbage dumpsters, in front of Lebanon’s central bank in the capital Beirut on March 16, 2021, during a protest against the deteriorating economic situation.

JOSEPH EID | AFP | Getty Images

The current mismanagement of Lebanon has put it on “train to hell” which is “about to reach the last station,” Henri Chaoul, a former advisor to the country’s finance ministry, told CNBC.

Chaoul, who had advised the government in its talks with the International Monetary Fund, resigned in June last year after Lebanon failed to make the reforms necessary to qualify for IMF assistance. 

“This is not the government that will be good for the future of Lebanon,” Chaoul said. 

“It is clear that the old business model, the old model of governance in Lebanon has completely failed on many levels,” Chaoul added. “We need to be able to rebuild.”

And Beirut is a city desperate to rebuild, with it still reeling from a port explosion that killed over 200 people and injured more than 6,000 last August. The investigation into the blast remains inconclusive nine months later.

Government deadlock

The temporary government of Lebanon’s caretaker Prime Minister Hasan Diab is hoping to implement a cash card program to help citizens make ends meet. 

A source close to the cabinet told CNBC Tuesday that “the position of the prime minister is that it is essential the card program be instituted before any subsidies are removed.” 

The source added that the “mechanism of instituting a card program is complex to design and implement, and the funding of the card program has to come from the Banque Du Liban.”

Without a proper government in place, Lebanon cannot move forward and make the reforms necessary to unlock the aid it desperately needs. 

The small Mediterranean country of nearly 7 million is on its third prime minister designate in a year after Diab resigned in the wake of the Beirut explosion. His successor, Mustapha Adib, resigned a month later. Diab’s caretaker government will likely remain in place until three-time premier Saad Hariri can form a new legislative, with talks currently still in deadlock over its composition. Hariri declined to comment on this article when contacted by CNBC.

For many across the country, there is no hope for change. 

“We need to see a silver lining in this crisis and build a new social contract so that the young of Lebanon decide to stay in Lebanon and build their future,” Chaoul told CNBC. “There is no hope in Lebanon today.”

France steps back in

France’s Foreign Minister Jean-Yves Le Drian threatened to sanction politicians responsible for the deadlock in a visit to Beirut last week, and warned against “collective suicide” if the country continues to fail to form a government. 

Paris has put measures in place to restrict entry to France for Lebanese officials hindering the country’s political progress.

Riad Salameh, the country’s central bank governor, also faces corruption allegations in France over foreign investments, and is being investigated by Swiss prosecutors over suspected embezzlement and money laundering tied to the Banque du Liban.

Salameh maintains his wealth was acquired prior to taking his position as central bank governor in 1993, and his lawyer, Pierre-Olivier Sur, told CNBC that his client had been scapegoated.



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Asia-Pacific markets decline on inflation fears; Japan’s Nissan shares tumble 10%



The Tokyo Stock Exchange (TSE), operated by Japan Exchange Group Inc. (JPX), in Tokyo, Japan, on Thursday, Oct. 29, 2020.

Kiyoshi Ota | Bloomberg | Getty Images

SINGAPORE — Asia-Pacific markets were mostly down on Wednesday, as Taiwan’s markets tumbled after authorities said they may raise its Covid-19 alert level after an outbreak in recent days.

The Taiwan Stock Exchange fell 4.3%. Its health minister said on Wednesday, according to Reuters that Taiwan may raise its Covid-19 alert level in the “coming days” after it experienced an unusual outbreak of six new cases with no clear infection source. The territory had kept the pandemic well under control before this cluster.

In Japan, the Nikkei 225 tumbled 2% while the Topix index fell 1.9%.

Japanese automaker Nissan’s shares tumbled more than 10%. The company announced Tuesday that its annual operating loss in the year ending March 31 widened to 150.65 billion yen ($1.38 billion) from a 40 billion yen shortfall in the past year, according to Reuters. Overall, auto shares in Japan fell on Wednesday morning, except Toyota Motor which was up more than 2%.

South Korea’s Kospi index fell 2.16%.

Mainland Chinese markets were subdued in the morning. The Shanghai composite was flat, and the Shenzhen component was down 0.26%. Hong Kong’s Hang Seng index fell 0.37%.

Down Under, the Australian benchmark ASX 200 declined 0.8% as major banking names came under pressure. MSCI’s broadest index of Asia-Pacific shares outside Japan lost about 1%.

“The tech led equity rout that began on Monday’s US trading session extended into our APAC region yesterday and overnight Europe joint the retreat with some heavy losses,” Rodrigo Catril, a senior foreign-exchange strategist at the National Australia Bank, wrote in a morning note.

“Inflation concerns against a backdrop of higher commodity prices was identified as the reason for the US technology led equity sell-off on Monday night,” he said. “That said looking at the data releases over the past 24 hours, one could argue that we had at least one more new evidence that inflation is on the rise.”

China released data on Tuesday that showed factory gate prices rose at the fastest rate in three and a half years in April while consumer prices rose at a more modest pace. That fueled some of the concerns around a rapid rise in inflation that may force central banks to raise interest rates and implement other tightening measures.

Wednesday’s session follows overnight sell-off stateside where the Dow Jones Industrial Average experienced its worst day since February.

In overnight trading, Dow futures fell about 150 points as of 1:13 a.m. ET.

Currencies and oil

In the currency market, the U.S. dollar rose to trade at 90.383, up from levels near and above 91.00 in the previous week.

The Japanese yen changed hands at 108.86 per dollar, strengthening from last week’s levels above 109.00. Meanwhile, the Australian dollar declined against the dollar to $0.7791.

Oil prices were little changed on Wednesday during Asian trading hours. U.S. crude futures traded 0.15% higher at $65.42 per barrel and global benchmark Brent also traded near flat at $68.65.

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Amcham finds 42% of members surveyed plan or consider leaving



A man wearing a protective face mask stands on Kowloon’s Tsim Sha Tsui waterfront that faces Victoria Harbour in Hong Kong.

Anthony Wallace | AFP | Getty Images

A survey by the American Chamber of Commerce in Hong Kong found that 42% of respondents are considering or planning to leave Hong Kong, with more than half citing their discomfort with the controversial national security law imposed by China.

Various media outlets have reported anecdotes of people or businesses leaving Hong Kong following the clampdown by Beijing. And the Amcham survey offers a glimpse of the sentiment among the expatriate community in Hong Kong.    

Last year, China bypassed Hong Kong’s legislature to impose the national security law. Implementation of the law came after widespread pro-democracy protests rocked the financial hub in 2019 and took a toll on its economy. Hong Kong is a former British colony that returned to Chinese rule in 1997.

The chamber collected 325 anonymous responses for the survey, or 24% of its membership, between May 5 and May 9.

About 78% of respondents were expatriates who live in Hong Kong for work but do not hail from there.

… I don’t want to continue to fear saying or writing something that could unknowingly cause me to be arrested.

Among those planning to move out of the city:

  • 3% said they aimed to do so immediately.
  • 10% said before the end of the summer.
  • 15% said at the end of the year.
  • 48% said they plan to leave in the next three to five years.
  • The remaining 24% said as soon as they can relocate their jobs and/or family.

Around 62.3% of those considering leaving cited the national security law (NSL) as a reason.

“Previously, I never had a worry about what I said or wrote when I was in Hong Kong,” said an anonymous respondent to the Amcham survey.

“With the NSL, that has changed. The red lines are vague and seem to be arbitrary. I don’t want to continue to fear saying or writing something that could unknowingly cause me to be arrested,” the person said.

Hong Kong is ruled under a special framework that promises the city limited autonomy, including legislative and independent judicial power.

The Hong Kong government said last year the law is aimed at “an extremely small minority of criminals who threaten national security.” It maintained that the legislation “will not affect the legitimate rights and freedoms enjoyed by Hong Kong residents.”

Some critics disagreed. Former pro-democracy lawmaker Emily Lau told CNBC last month that people in Hong Kong have become “distressed” and “disillusioned” as some fear the city has lost important freedoms.

Still, a slight majority of respondents — about 58% — in the Amcham survey said they’re not planning to leave Hong Kong. Around 76.8% of them cited a good quality of life in the city, while some 55.1% said the business environment is excellent.

“Whilst we plan to stay for now, we are not sure about the long term in light of the political changes that have been taking place recently which make HK a less attractive place to be,” a respondent said.

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