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This is an audio transcript of the FT News Briefing podcast episode: EU drafts plan to avoid repeat of 2015 refugee crisis

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

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European officials are drafting a plan to avoid an influx of Afghan refugees. China’s leaders have been talking about economic inequality that’s making the luxury goods industry nervous. Plus, emerging markets have been laggards over the past decade. So far, this year isn’t much different, but some investors see hope.

Robin Wigglesworth
There are a lot of stars aligning in the right way. But we are just kind of waiting for that catalyst and then I think we might be off to the races.

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

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US pulled its last troops out of Afghanistan yesterday that brings an end to the 20-year war there. US President Joe Biden has been criticised for the chaotic evacuation and timing of the withdrawal. Yesterday, Biden addressed the nation from the White House and defended the decisions.

Joe Biden
Let me be clear, leaving August the 31st is not due to an arbitrary deadline. It was designed to save American lives.

Marc Filippino
Meanwhile, Europe is bracing for a wave of refugees from Afghanistan as people flee the Taliban rule. EU politicians want to avoid a repeat of the Syrian refugee crisis of 2015. So they’re drafting a proposal to offer €600m to Afghanistan’s neighbours. The funds would help those countries like Pakistan host Afghan refugees. The package could even mean cash would go 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 shopper is essentially responsible for all the growth in the sector.

Marc Filippino
That’s the FT’s Leila Abboud. She’s our correspondent in Paris, which is home of some of the biggest names in luxury goods like LVMH and Hermes. And those companies are nervous. China’s president has been saying things that luxury goods, sellers and their shareholders don’t like to hear.

Leila Abboud
What happened in mid-August when most of the Europeans were on their beach vacations, was that Xi Jinping, the president of China, signalled that China wanted to embark on a period of promoting what he called the common prosperity for all. And this was sort of read as a signal that the authorities are worried about sort of conspicuous consumption and growing inequality in the country. So immediately when that was made public, it was on August 17th, the next morning when the European markets opened, the shares of all the big luxury goods companies dropped precipitously. Now, to be fair, no one really knows what the comments mean, but investors don’t like uncertainty. And when China accounts for anywhere, depending on the estimates, between 35 to up to 50 per cent of all the luxury goods sales in the world now, that market even a small change in the demand there as a sort of outsized impact on the companies and their, therefore their profitability and their share price.

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

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Emerging markets like Brazil, India and Turkey once were hot, but over the past decade, investor enthusiasm has cooled off. Returns have been anaemic compared to US and European stock markets. Some analysts even call it a lost decade for emerging markets. But the FT’s Robin Wigglesworth says investors may have reason to be excited again.

Robin Wigglesworth
Well, one of the reasons why emerging markets started the year well and then dragged again was China. So people were optimistic. Emerging markets finally were going to come through a decade of pain and come to the promised land, as it were. And then China started cracking down swaths of its economy, started regulating your privacy, digital education, all sorts of areas where there are lots of listed Chinese companies and people really started to worry. The Chinese market fell dramatically. And China is such a huge part of emerging markets that anything that happens there quickly echoes throughout the developing world markets. And that’s what we saw this year. Now things are just so cheap, so beaten up compared to pretty much every other major market that people think that finally, finally, there might be a comeback in the offing.

Marc Filippino
So talk to me about some of the bright spots in emerging markets stock. What are those?

Robin Wigglesworth
Well, the main thing is that these countries are generally growing quicker than the developed world. You know, you don’t have to go through a China to see countries actually doing pretty well. They also have way better demographics than we have in the west. These are, generally speaking, young populations as well. Generally speaking, that is also good for equity returns. They export a lot of commodities, many of these countries, and commodity prices have rebounded strongly after the shock caused by the Covid-19 pandemic. So there are a lot of stars aligning in the right way, but we just kind of waiting for that catalyst, maybe, maybe worries about China to recede a little bit. And then I think we might be off to the races.

Marc Filippino
Is there anything that could go wrong at this point for emerging market stock?

Robin Wigglesworth
Well, there is one near-term risk, one medium-term risk and a long-term risk. The near-term risk is just that — the Chinese crackdown — this is just the beginning, that China really starts regulating swaths of its economy way more heavily and the growth slows there, the equity market tumbles and that will not remain contained in China. The slightly more medium-term, the Federal Reserve has talked, hinted a little bit that it will start tapering its asset purchases, all these bonds that it’s buying, billions of dollars worth a month. And typically easy US monetary policy has been good for emerging markets. And if the Fed starts being a little bit less accommodative, that could also cause some issues in the developing world’s stocks and equity markets. And the longer-term risk is this mega trend towards environmental, social and governance investing — ESG. Now, broadly speaking, I think it’s fair to say that emerging market companies score really badly on ESG. They tend to be badly governed. They tend to not have independent boards. They tend not to care about some of the social issues we do in some countries in the west.

Marc Filippino
And a lot of their biggest exports are oil.

Robin Wigglesworth
Yeah, and many of them are oil and natural resources companies. They they dig stuff out of the ground and sell it. So they score badly on ESG. And if we continue to see, you know, hundreds of billions of dollars switching of conventional investment mandates to ESG mandates, it might mean that even though emerging markets are cheap today, they could stay cheap for way longer than the optimists expect. And that is, I think, the big secular danger in emerging markets at the moment.

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

Robin Wigglesworth
Thanks 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 lab company that is actually really focused on leading with transparency.

Marc Filippino
That was Holmes in a 2015 interview with Forbes. Her company claimed to be developing a technology that could conduct a range of medical tests with just a few drops of blood. Theranos became a stock market darling and rose to a valuation of nearly $9bn until people found out Holmes allegedly hadn’t been transparent. Evidence of fraud mounted. Now, Holmes is once again a star, but this time in court. Yesterday began the jury selection for her criminal trial. Holmes is charged with defrauding investors and patients by making false claims about the company’s blood tests and financial position.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow the latest business news.

This transcript has been automatically generated. If by any chance 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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