Finimize - 🇨🇳 China's breaking up

What’s going on here?

Ratings agency Moody’s warned that some Asian emerging markets (EMs) may be left lonely and unloved, as their beloved China cuts them off.

What does this mean?

China is a nice neighbor to have. The country might not keep a spare stash of milk and watch folks’ dogs when they’re on vacation, but it does tend to stock up on a whole host of goodies from its next-door EMs. But now that China’s economic prowess has essentially skipped town, the surrounding nations are missing out on a steady stream of income. That’s a big problem, according to credit agency Moody’s, which doubts that China’s neighbors have the resources to plug that hole.

Why should I care?

The bigger picture: Rock, meet hard place.

EM nations can’t count on foreign lenders to bridge the gap, either. Lenders tend to err on the side of caution when handing out loans in less common currencies, because the higher risk of fluctuation means they might be paid back less than they’d like in their original currency. That’s why EM governments gravitate toward dollars, instead. Problem is, if the country’s currency falls, the difference in value against the dollar would make it more expensive to pay back that dollar-denominated debt. That leaves those countries in a sticky spot: lower rates to spur on an economy, or keep them higher to make borrowing money – essential cash for stimulating businesses – more manageable.

For markets: Star spangled, indeed.

Analysts had predicted that US stocks would lose their dominance, after a decade or so of running the world’s markets. But that was before investors flurried into US tech stocks, a bid to claim a part of the AI theme. So while EM countries are touted for their long-term potential, China’s MSCI index has yet to deliver: you’d be in the red if you’d invested when it started in 1992, a long way off the S&P 500’s 1,000% uptick over the same period.

What’s going on here?

News broke that Exxon Mobil is taking two activist investors to court for, uh, trying to save us all from extinction.

What does this mean?

Exxon has been a target for green-minded ESG petitioners for years, and it looks like the gas-extracting powerhouse has had enough of the peer pressure. The company was forced to replace a quarter of its board with new directors back in 2021, after it lost a battle with activist investor Engine No. 1. So now it’s playing offense, filing a lawsuit against activist investors Follow This and Arjuna Capital, both of which are pushing a proposal to clamp down on greenhouse gas emissions faster. Naturally, traditional energy companies aren’t known for putting the world above profit, but Exxon’s choice to take the duo to court is an unusually aggressive strategy. The energy goliath, though, believes that this eco-minded plan would sacrifice company and shareholder interests, which barely measures up to the trifling issue of Mother Nature’s survival.

Why should I care?

For markets: A little too (eco) friendly.

Exxon isn’t the only company disgruntled with the efforts of activist investors, but it could be the one to set a precedent. Many firms believe that the US financial watchdog is letting too many eco-focused proposals make it to the boardroom for annual meetings, and if Exxon wins its case, those vetting standards could get tightened up.

The bigger picture: Check the recycling bin.

It’s true, some ESG initiatives are more about bold claims than genuine progress. But more than a handful of shareholder petitions manage to marry business goals with long-term sustainability plans – and if businesses want to earn a place in the next decade’s economy, they should think twice before throwing those outlines out.