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

    Emerging Markets Are Hot, Except for China

    This article by Mia Lamar and Rachel Rosenthal for the Wall Street Journal appeared in Saturday’s edition but the authors might have wished they waited another day before publishing. Here is a section:

    The wariness partly reflects how unnerved global investors remain by markets that have proved exceptionally unpredictable, even by emerging-market standards. After surging 60% in the beginning of last year, Chinese stocks tipped into a selloff that sent Shanghai’s benchmark index down as much as 41% from June to August. The index rebounded briefly last fall, then plunged 23% in January. The yuan, meanwhile, logged a 5% loss against the dollar in 2015, following an unexpected devaluation one year ago that helped to spur enormous outflows of money as panicked Chinese sent cash abroad.

    Many investors say they are disturbed by steps China has taken to tame market convulsions, from heavy-handed currency intervention and the buying of shares by state-backed funds, to allowing widespread trading suspensions of shares and blaming “malicious” forces for stock-price falls.

    Others say they remain concerned about China’s economic slowdown, and suspect conditions may be worse than official figures suggest.

    Chinese officials have stressed measures by Beijing to address the concerns of global investors, and played down concerns about growth. “The Chinese economy is a ‘stability anchor’ for the global economy,” Premier Li Keqiang said last month. “Prophecy of China’s economy heading for a hard landing is rarely heard now.

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    Amazon Takes on Alibaba With Japan Portal for Chinese Shoppers

    This article by Grace Huang and Reed Stevenson for Bloomberg may be of interest to subscribers. Here is a section: 

    “The opportunity is huge,” said Jasper Cheung, president of Amazon Japan. “We have already increased the selection that we can export by the millions over the last several weeks.”

    Chinese shoppers are looking for authentic Made-in-Japan products, spooked by tainted baby milk and fake merchandise proffered on web stores in China. While that’s helping to drive an influx of shoppers to Japan -- 3.08 million Chinese tourists have visited the archipelago so far this year, up 41 percent -- it’s also boosting demand for Amazon.co.jp, Wandou and other web outlets featuring Japanese goods.

    Rakuten Inc., the Japanese online store, also lets people shop for stuff from Japan in Chinese, as well as in Korean and English. Amazon’s Japan website has been available in English for years.

    The new iteration of Amazon Japan’s shopping portal, in simplified Chinese, offers millions of products with more coming, the company said. Consumers in Asia’s biggest economy are demanding access to authentic brands and quality, from clothing and cosmetics to baby products and health goods. That’s why Costco Wholesale Corp. has a shop on Alibaba’s Tmall.com, while Macy’s Inc. and other U.S. retailers are tapping into China’s dominant online-payments system by accepting Alipay on their sites.

     

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    Macau's Chief Sees 2017 Economy Returning to Growth on Casinos

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

    “Macau’s gaming industry and the whole economy will continue to adjust, but the decline may shrink to 7.2 percent this year and even resume growth in 2017,” Chief Executive Fernando Chui said in a televised session of the city’s legislature Wednesday. “It’s a good time for Macau to re-position after a 25-month gaming revenue drop.”

    Gross domestic product in Macau declined 20.3 percent in 2015, worsening from the 0.9 percent drop the year before, as the world’s largest gambling hub was hurt by China’s anti-corruption campaign that scared off high-rollers. The casino industry, which accounts for half of Macau’s GDP, is in the midst of a casino building boom to boost revenue from mainstream gamblers and tourists.

    Recreational Gamblers
    Macau’s government is working with its six casino operators to “improve synergies” between gaming and non-gaming pursuits, Chui said. The city is trying to reduce its reliance on gambling and is targeting to raise the proportion of casinos’ non-gaming revenue to 9 percent by 2020 from 6.6 percent in 2014.

     

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    Hong Kong Bears Pile Record Short Bets on China Consumer Stocks

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

    Chinese consumer stocks are in the cross- hairs of Hong Kong’s short-sellers.

    Bearish bets on Tingyi (Cayman Islands) Holding Corp. and Want Want China Holdings Ltd. soared to record highs since May, data compiled by IHS Markit Ltd. show. The instant noodles and snacks manufacturers, together with sanitary-napkin maker Hengan International Ltd., make up three of the four most-shorted stocks on Hong Kong’s benchmark index. Hengan this month spun off its food business into a separately listed unit that’s down 27 percent from its first close through Thursday.

    Bears are betting that China’s shift toward an economy driven by middle-class spending will leave some consumer stalwarts behind. Even after valuations on Tingyi and Want Want fell to all-time lows at the start of the year, the stocks are still too expensive as Internet retailing helps foreign brands grab market share in China, according to Ample Capital Ltd.

    Shoppers are showing a preference for healthier food, UOB Kay Hian Holdings Ltd. says. “Consumers have been changing their pattern to more nutritional products so their business growth is declining,” said Johnson Hu, a Shanghai-based analyst at UOB Kay Hian. “We don’t see that changing in the foreseeable future.”

    Short interest in Want Want and Tingyi has risen to 7.6 percent and 4.9 percent of their outstanding shares as of Tuesday, Markit data show. Bearish bets in Tingyi surged to a record level this month, and those in Want Want are close to all-time highs last seen in May. The average of similar wagers for the 50 Hang Seng Index members was about 1.3 percent.

     

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    Samsung in Talks With BYD to Buy Stake in Electric-Car Maker

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

    BYD said Samsung has been actively pushing forward talks about buying its shares in a private placement. Talks are still underway, the Chinese company said, denying a report by the Korea Economic Daily that an agreement was reached to acquire a 4 percent stake.

    Samsung is pursuing the investment after its affiliate was among foreign battery makers left off a list of suppliers approved by China, where sales of electric vehicles are surging and the government has sped up construction of charging points.

    The talks with BYD also add to the global trend of technology companies and automakers collaborating as car buyers increasingly demand more advanced powertrains and features that improve connectivity and safety.

    “It puts Samsung into the electric-vehicle subsystem supply chain for a key Chinese electric vehicle and battery manufacturer,” said Bill Russo, a Shanghai-based managing director at Gao Feng Advisory Co. “BYD gets a technology innovation pipeline partner with a reputable brand.”

     

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    The Brexit hoopla has diverted our attention from the real problem

    This article by Elena Holodny may be of interest to subscribers. Here is a section:

    "There is an argument that global investors have overly focused on Brexit at the expense of other more important macro events, "the perma-bear wrote in a recent note to clients.

    "We believe China's ongoing stealth devaluation of the renminbi is far more important for the global economy."

    The renminbi has been pretty stable against the US dollar this year, so many have missed that it.
    Yet China's trade-weighted currency basket has dropped by about 10% since right before the August, which you can see in the chart shared by Edwards below.

    (For what it's worth, Julian Jessop of Capital Economics pointed out the same interesting detail back in May, arguing that the "stealth devaluation" was an "important nuance that many have missed.")
    As for what the significance of this is, here's Edwards again:

    "The Wall Street Journal has reported that this is a deliberate shift in policy link. China is now exporting its deflation, and my goodness it has a lot of deflation to export. In the Ice Age world, countries need to devalue to avoid deflation. So if sterling slumps in the aftermath of a Brexit vote there may be at least one silver lining outside the EU if the UK economy manages to avoid the quagmire of outright deflation."

     

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    MSCI Rebuffs Chinese Equities for Third Time in Blow to Xi

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

    “The MSCI decision signals that China remains a closed emerging economy that uses market techniques like freezing the market and making it illegal to short, using government funds to buy shares -- techniques that are not welcome among global investors,” Paul Christopher, head global market strategist at Wells Fargo Investment Institute, said by phone. “There are a number of market reforms in progress, but these are the decisions MSCI would want to wait for and examine.”

    MSCI’s ruling won’t affect the nation’s capital market reforms, Deng Ge, a spokesman for the China Securities Regulatory Commission, said in a statement on the regulator’s website. Indexes that don’t contain A shares are incomplete, according to the statement.

     

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    MSCI Optimism Revives China Stocks With Biggest Gain Since March

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

    Chinese stocks were shaken out of their May torpor after Goldman Sachs Group Inc. said it was likely the nation’s shares would be included in MSCI Inc.’s global benchmark indexes.

    The Shanghai Composite Index jumped 3.3 percent at the close for its biggest increase in almost three months. The gains were accompanied by a pick up in turnover, which had fallen to levels last regularly seen in 2014, while brokerages surged. The rally was uninterrupted by a sudden plunge in stock-index futures, which fell by the 10 percent daily limit before snapping back in less than a minute.

    The odds of Chinese stocks winning MSCI inclusion have increased to 70 percent from 50 percent just last month, thanks to new rules aimed at curbing trading halts and a clarification by the regulator about beneficial ownership rules, Goldman Sachs said Tuesday. The Shanghai gauge still dropped 0.7 percent in May, extending the world’s worst performance this year, amid concern the economic slowdown will hurt earnings and as the yuan heads for its biggest monthly loss since August’s devaluation.~

    “The market is expecting that mainland shares will have a pretty high chance of joining the MSCI’s global indexes next month,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co.

     

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    The Little-Known Alibaba Unit That Prompted an SEC Probe

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

    One issue for the SEC appears to be how Alibaba accounts for Cainiao’s financial performance. Alibaba includes results from Cainiao using the equity method, which counts profits and losses as a proportion of an investment. Considering Alibaba’s high ownership and control over the logistics business, regulators may be asking whether Alibaba should completely consolidate Cainiao into its results, said Paul Gillis, an accounting professor at Peking University’s Guanghua School of Management.

    In 2015, Cainiao posted a net loss of 617 million yuan ($94 million) on sales of almost 3.1 billion yuan, Alibaba said. That year, Alibaba recorded its percentage of the loss on its books, $46 million. At the same time, the e-commerce company reported a $128 million gain on investments in Cainiao and other entities.

    The gain, which helped offset the operating losses, was probably due to the higher valuation that Cainiao fetched in its latest funding round, according to Sanford C. Bernstein & Co. In March, Cainiao announced its first round of external fundraising, with financing from investors including Temasek Holdings Pte, GIC Pte and Khazanah Nasional Bhd. That gave the delivery network a valuation of about $7.7 billion, Caixin reported, citing people familiar with the matter

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