David Fuller and Eoin Treacy's Comment of the Day
Category - China

    China's $29 Trillion Ball of Money Rolls to a Long-Ignored Haven

    This article from Bloomberg news may be of interest. Here is a section:

    Bank deposits, shunned for years by the nation’s return-hungry masses, are suddenly looking attractive again as higher-yielding investments prove riskier than many had anticipated. China’s household deposits rose in July at the fastest annual rate in a year -- an influx that analysts say may accelerate after the nation’s stock market sank at the quickest pace worldwide, hundreds of peer-to-peer lending platforms shuttered and companies defaulted on their debt at an unprecedented rate.

    “People around me are all asking the same question: Where is the safe place to put our hard-earned savings?’’ said Anna Teng, a 30-year-old marketing manager in Shanghai who’s been shifting her assets into deposits after losing about 20 percent on her equity investments since May and falling victim to a fraudulent P2P lending platform.

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    China's biotech revolution

    Thanks to a subscriber for this report from UBS which may be of interest. Here is a section:

    Alibaba's Sales Surge as Jack Ma's Free Spending Bears Fruit

    This article by Lulu Yilun Chen for Bloomberg may be of interest to subscribers. Here is a section:

    Alibaba’s been busy expanding its Hema supermarket chain and now operates 35 of those stores -- a mix of sit-down dining and groceries plus delivery hub. Much cash also is flowing into China’s $1.3 trillion food retail and services industry, where it’s trying to hold its own against delivery giant and super-app Meituan. Alibaba said Thursday it’s teaming with SoftBank to put more than $3 billion into Ele.me. Alibaba now intends to merge Ele.me with Koubei, another unit focused on connecting restaurants to the internet.

    Ma is also spearheading an expensive foray into the $4 trillion retail sector. Alibaba acquired a department store chain with 29 stores and 17 shopping malls last year and also bought a slice of China’s largest hypermarket chain. It’s been shelling out on content for its Youku video-streaming service to stay abreast of Tencent and Baidu Inc. And heavy investment in datacenters for its cloud computing arm helped almost double revenue in that division to 4.7 billion yuan.

    However, those burgeoning businesses may be helping mask a slowdown in Alibaba’s bread-and-butter business, said Steven Zhu, an analyst with Pacific Epoch.

    Customer management revenue -- the lucrative fees it charges for helping merchants with marketing -- grew just 26 percent in the quarter, from 35 percent in the previous three months. That reflects how rivals such as JD.com Inc. and Pinduoduo Inc. are siphoning off Alibaba’s merchants and may affect the bottom line in coming quarters, Zhu said.

    “This is probably the slowest growth ever,” he said. “They are swapping high-quality revenue with low-quality revenue.”

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    China Builders Tap Local Bonds at Record-Low Rates on Easing

    This article for Bloomberg News may be of interest to subscribers. Here is a section:

    Combined bond maturities in onshore and offshore markets for the sector amount to $76.5 billion through the end of 2019, according to data compiled by Bloomberg. Builders are expected to tap both markets to meet the refinancing needs.

    "We expect onshore issuance will remain strong after a pick-up in recent months," said Franco Leung, property analyst at Moody’s Investors Service. "Offshore issuance slowed recently, but we expect issuers will continue to tap the offshore bond market given the maturity walls in the coming 6 to 12 months.”

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    China's Economy at a Glance

    Thanks to a subscriber for this report from from NAB which may be of interest. 

    China, Russia prepare for strategic security talks in Moscow as pressure from United States grows

    This article from the South China Morning Post may be of interest to subscribers. Here is a section:

    After Chinese President Xi Jinping consolidated his leadership position with the removal of a two-term limit on the presidency and Putin won re-election in March, “the basic building blocks for future cooperation on security issues are somewhat more solid”, said Elina Sinkkonen, a senior research fellow at the Finnish Institute of International Affairs.

    “Such language, together with the US sanctions on Russia and trade issues with China certainly influence top level calculations in Moscow and Beijing,” she said.

    Alex Gabuev, a senior fellow at the Carnegie Moscow Centre, said the two neighbours had also seen their interests becoming increasingly overlapped in areas ranging from security in Central Asia to the future of Afghanistan, Africa and North Korea.

    “Both countries want to keep each other in the loop, explain their intentions and cooperate when possible”, he said.

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    China Steps In to Support Yuan By Boosting Cost to Short

    This article by Tian Chen for Bloomberg may be of interest to subscribers. Here is a section:

    China stepped in to try to cushion the yuan after a record string of weekly losses saw the currency closing in on the key milestone of 7 per dollar.

    The People’s Bank of China will impose a reserve requirement of 20 percent on some trading of foreign-exchange forward contracts, according to a statement on Friday evening.

    That will effectively make it more expensive to short the yuan, and is a tactic that the central bank used to stabilize the currency in the aftermath of its shock devaluation in 2015.

    The change is aimed at preventing macro financial risks as the currency market shows signs of volatility amid recent trade frictions, the PBOC said. The yuan surged in offshore trading and U.S. stock-index futures turned higher after the news, though the moves pared after China detailed how it plans to retaliate against U.S. tariff proposals.

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    China adds fiscal and monetary stimulus to support growth 24 July2018

    Many thanks to Niru Devani for this report on China.

    Is there complacency over Chinese woes?

    Thanks to Niru Devani for this article on China.

    The Chinese markets turned around today from being down around half a percent to rise by over 2% by the close with the renminbi stabilizing. There was some speculation that the authorities had been supporting the currency to slow down the pace of decline. There was also talk that they would add liquidity into the system to support the equity market.

    The yuan has fallen by over 8% since late March and is at a one-year low against the dollar. The renminbi’s fall is partly a catch-up with the other currencies that have fallen against the US dollar. The dollar has been strong this year because of widening interest rate differentials with the Federal Reserve being the only major central bank raising rates. However, the currency has also fallen because of softer economic growth and trade tensions with the US. The Chinese authorities are likely to tolerate a weaker currency as long as it falls in an orderly manner and smoothing its decline from time to time as they appear to have done today.

    The current phase of renminbi weakness has not yet led to a global market panic similar to the one we saw in late 2015 and early 2016. However, it is one of the key concerns on investors’ minds. So far, the pressures have been felt in the commodities markets where copper, often described as the metal with a PhD in economics because of its past record of being a lead indicator of economic growth, has fallen sharply since early June, declining by about eighteen percent over such a short time. The tariff war has clearly been a big contributor as has the strength in the dollar which has negatively affected various other commodities with the exception of oil which is being moved by other factors.  Asian equities and other emerging markets have also been hit hard over the last few months. The Chinese equity market is in correction territory having fallen by 20% from its highs in January while the Hang Seng index is at a ten month low.

    The tariff war is unlikely to come to a resolution before the mid-term Congressional elections. The concern is that the weakness in the Asian and emerging markets spreads to the developed markets. Other than the Nasdaq index, most other major markets have not made new highs since January. The best case scenario is that the consolidation in these markets continues for longer, the worst being that they react more sharply to the falls in Chinese and emerging markets. China is at least as important a factor as the US and merits watching closely.
     

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