This is an audio transcript of the FT News Briefing podcast episode: ‘Conflict puts Pakistan’s economy at risk’
Marc Filippino
Good morning from the Financial Times. Today is Thursday, May 8th, and this is your FT News Briefing.
Some US export controls are going away. And we look at why Pakistan can’t afford another conflict with India. Plus, DoorDash’s deal to acquire Deliveroo has people concerned about the UK market.
Kieran Smith
Alarm bells should be ringing for the London Stock Exchange. Some of the best tech companies that have done absolutely nothing wrong, and yet they’re still being acquired by bigger US competitors.
Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.
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The US is scrapping Biden-era export controls on artificial intelligence chips. That’s according to a US official. This move comes as the Trump administration is taking a more lenient approach to AI regulation. The rules were supposed to make it harder for Chinese companies to circumvent US export controls by accessing them through third countries. But the commerce department argued that the rules were full of red tape that made them unenforceable. It was a good bet that chip companies are gonna like the rollback. Shares in Nvidia jumped 3 per cent on the news.
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Pakistan has promised to retaliate after India launched a series of air strikes earlier this week. That was in response to a terrorist attack in Indian-controlled Kashmir in late April. Now the possibility of a wider military conflict between the nuclear-armed neighbours is threatening to derail Pakistan’s fragile economy. My colleague Humza Jilani has been reporting from Kashmir on the situation. Hi Humza.
Humza Jilani
Good to be here.
Marc Filippino
Good to have you. So first, can you just get us up to speed on what’s happened that’s brought India and Pakistan to the brink of war?
Humza Jilani
So about two weeks ago, there was a terrorist attack that killed 26 civilian tourists. And when these attacks happen, India tends to blame Pakistan and says that Pakistan has a history of supporting Kashmiri separatist groups. And as a result, India has promised to retaliate against Pakistan. And we saw what that retaliation looked like on Wednesday when they released the deepest barrage of air strikes against their nuclear-armed neighbour in about five decades. Kashmir has sort of been a bone of contention between India and Pakistan ever since birth really for both countries. Pakistan and India both claim it in their entirety and they fought multiple wars over this mountainous region.
Marc Filippino
Got it. So beyond the air strikes, what other measures has India taken against Pakistan since the terrorist attack?
Humza Jilani
In the build-up to the strikes, India took a few diplomatic measures to try and isolate Pakistan. The first thing they did was the Indus Water Treaty, the water co-operation treaty that governs the use of their shared rivers. And they said that they’d no longer co-operate with this treaty and instead have started constructing new infrastructure, threatening to withhold data and even some water access to Pakistan for areas where Pakistan relies on rivers that flow through India’s borders.
And India has also been doing the rounds at international financial institutions, like the IMF and the Asian Development Bank, and asking them to review lending to Pakistan and try and second-guess whether they’re gonna extend money to what India calls a country that sponsors terrorism, a charge that Pakistan of course denies.
Marc Filippino
So what is this all doing to Pakistan’s economy now?
Humza Jilani
So Pakistan has a really fragile economy. They’re coming off of one of the worst economic downturns in their history and have just started to turn a corner as inflation has come down to below 1 per cent, after being at a high of 38 per cent. And they’ve tried to get their fiscal house in order after they almost went into default two years ago. But because their economy is so fragile at the moment, they really can’t afford a prolonged military crisis with as economically powerful a country as India on their border.
The kind of uncertainty that conflict with India has injected into the minds of investors means that its stocks and also its dollar bonds last month were set for the worst month they had since 2023, which was their peak crisis year. And just on Wednesday, when India launched its aerial assault on Pakistan, its stock market plunged by about 6 per cent before recovering some of those gains, but that recovery was based on an optimism by investors that we’ve maybe seen the worst of conflict, which some political analysts think might be too optimistic.
Marc Filippino
Yeah, what’s at stake here for Pakistan if the conflict does escalate?
Humza Jilani
The concern is that going back into conflict with India could really destabilise Pakistan’s economy again. It could cut it off from international financial flows that it needs to keep itself from defaulting. And it could force a larger percentage of its already strained budget to have to go to defence, meaning painful cuts to healthcare, education, other development spending that have already been crippled during the crisis over the last two years. And then you have a 250mn population and a pretty militarily sophisticated country having a very uncertain future.
Marc Filippino
Humza Jilani is the FT’s Pakistan correspondent. Thanks, Humza.
Humza Jilani
Thank you.
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Marc Filippino
The Federal Reserve held US Interest rates steady yesterday. Policymakers voted unanimously on the decision. Fed chair Jay Powell said at his press conference that the country’s economic outlook is still very uncertain.
Jay Powell voice clip
The tariff increases announced so far have been significantly larger than anticipated. All of these policies are still evolving, however, and their effects on the economy remain highly uncertain.
Marc Filippino
This is the third meeting in a row that the Fed has decided to hold rates. Officials say they want to wait to lower borrowing costs until they see how President Donald Trump’s tariffs unfold.
Jay Powell voice clip
We don’t think we need to be in a hurry. We think we can be patient. We’re going to be watching the data.
Marc Filippino
The committee mentioned that the risks for unemployment and higher inflation have increased. For now though, the US economy still seems to be on solid footing. Demand looks pretty good from the start of the year, and the latest jobs report from April came in stronger than expected. But surveys show that people and businesses are really concerned about their finances. Despite the warnings from the Fed, the S&P 500 ended pretty much flat on the day.
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The London stock market is about to suffer another major blow. UK food delivery app Deliveroo is likely gonna be taken over by its US rival DoorDash at less than half of Deliveroo’s original valuation. Now the deal still needs to pass in a shareholder vote, but if it does, that could further hurt a UK market that’s already having issues attracting and retaining companies. Here to explain is Kieran Smith, he covers tech and telecoms for the FT. Hey, Kieran.
Kieran Smith
Hi, Marc.
Marc Filippino
So Deliveroo was actually a hotly anticipated IPO back in 2021. What happened there?
Kieran Smith
You’re completely right, Marc. Deliveroo’s IPO was even hailed as potentially the most exciting listing in London in a decade. But when it actually started trading, it couldn’t have gone much worse. Shares cratered over 25 per cent in the first day of trading. And why was that? Well, I think a lot of investors in London just had doubts ultimately about the food delivery business and whether it was just simply a pandemic bubble. There were also other concerns about the legality of Deliveroo’s rider system. Of course, that’s simply now being resolved. And finally, it was a decision made by the CEO, Will Shu, to adopt a dual-class share structure, which effectively blocked the company from listing on the FTSE 100, which some investors said effectively stopped institutional funds just automatically being invested into the company. And ultimately the shares have never recovered.
Marc Filippino
So DoorDash and Deliveroo, they kind of came up at the same time. Why have their stocks had such different fates?
Kieran Smith
I think it speaks to a larger comparison between tech companies that list in both London and then those that list in New York. And what some bankers in the industry have said to me is that investors in London are just simply a bit more conservative. They don’t value tech companies in the same way that investors in the US do. A lot of investors in the UK value profitability whereas some say that investors in the US value growth more.
And when you’ve got a business in food delivery that’s quite new and is obviously fast-growing but is not necessarily going to be profitable immediately, investors in the US essentially are a little bit more willing to take a risk on the company than investors in the UK. I think that this points a little towards Deliveroo’s recent strategy change over the last couple of years. And that did lead to the company making its first annual profit this March. But at the same time, shares have never recovered to anywhere near the price that they were valued when the company first listed back in March 2021.
Marc Filippino
That’s interesting, so it’s basically a big philosophical difference between the two countries’ markets. How big of a blow is Deliveroo’s takeover for the UK market, and does it say anything more largely about what’s going on in the UK market?
Kieran Smith
Deliveroo’s listing in 2021 was part of a wave of tech companies, which also included the cyber security firm Darktrace, listing on the UK public markets, which generated quite a lot of excitement amongst investors. However, since then, both of those companies have since been taken over by US firms. And I think what it signals, as one analyst said to me, was that alarm bells should be ringing for the London Stock Exchange.
If some of the brightest and best tech companies, as he said to me, that have done absolutely nothing wrong in terms of setting guidance in which they met and actually, in Deliveroo’s case, achieving profitability this year, and yet they’re still being acquired by bigger US competitors, what does that say about the attractability of not only the London Stock Exchange but going public in general?
Last year the London Stock Exchange saw its worst year of delisting since the financial crisis, and there’s been a lot of commentary about whether the London Stock Exchange is still an attractive place to list. And losing some of your brightest and best tech companies to US acquirers is not gonna do anything to help that image.
Marc Filippino
Kieran Smith covers tech and telecoms in London for the FT. Thanks, Kieran.
Kieran Smith
Thank you.
Marc Filippino
You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.
