Chinese Investors Doubt Trump’s Talk Over Virus ‘Proof’

It seems Chinese investors have called President Trump’s bluff.

Markets in Shanghai and Shenzhen resumed trade on Wednesday with early losses, after a five-day long weekend. That was the first time for investors to respond to renewed hostilities that again threaten China-U.S. trade.

But Chinese shares ended the day with modest gains. The CSI 300 blue-chip index rose 0.6%. Chinese punters are paying more attention to the likelihood of Chinese stimulus. The Communist Party is keen to keep its citizens happy ahead of its major political meeting now due to start on May 22. The central People’s Bank of China also appeased U.S. hawks by setting the Chinese yuan at a neutral rate, at 7.07 to the U.S. dollar.

At this stage, Trump’s attacks amount to hot air. In Chinese, we call it “blowing water,” or chit chat, idle talk.

Trump last Thursday threatened China with new tariffs. This week, U.S. Treasury Secretary Steve Mnuchin warned of “very significant consequences” if China doesn’t follow through on commitments to buy U.S. goods made in its “Phase 1” trade deal with the U.S. Those are worrying sounds here in Hong Kong, bashed last year by trade war winds.

On Tuesday, Trump said the U.S. is ready to dish the dirt about how a Chinese lab mishap led to Covid-19 cursing the world. He earlier told a reporter he has seen evidence that gives him a high degree of confidence that the virus originated from a Wuhan lab. But when asked what the evidence is, he said “I can’t tell you that. I’m not allowed to tell you that.”

Trump now says the U.S. will issue a full report on the origins of the virus. “We will be reporting very definitively over a period of time,” Trump said on Tuesday.

Trump has yet to prove that he is not propagating yet another conspiracy theory when he claims that the SARS-CoV-2 coronavirus leaked from the Wuhan Institute of Virology, China’s first biosafety level 4 lab. Numerous scientists have stepped forward to say the DNA indicates the virus is of natural origin, not man-made.

There are plenty of people here in Hong Kong who believe the lab theory too, without a shred of evidence. I’m sorry, but when U.S. Secretary of State Mike Pompeo says he has “enormous evidence” that Chinese lab technicians messed up, show us the proof. Otherwise keep quiet until you are ready to do so. It’s not just hot water, it’s irresponsibly vague.

For the rest of this story, check out Real Money on TheStreet.com.

Australia and India Lead Mid-Week Selling for an Asia in Recession

There are country-specific reasons why Australia, India and Thailand are leading Asia’s plunge, but the whole region is in recession, S&P correctly says.

The wildly unpredictable movements of equity markets continued apace on Wednesday. Despite the strong rally on U.S. markets the day before, when the S&P 500 rose 6%, almost all Asian markets again posted sizable losses here on Wednesday.

The biggest losers are in Australia and India. I’ll briefly explore why each of those two markets is performing particularly poorly.

In Australia, there are massive daily moves in either direction, sometimes even intraday. The S&P/ASX 200 was down 6.4% at the close Wednesday after posting its biggest single-day gain in 20 years on Tuesday. Now that gain has been wiped out! Since hitting a record high on Feb. 20, the index has corrected 31.2%.

Australian equities are dominated by the Big Four banks – Commonwealth Bank CMWAY, Westpac Banking (WBK) , ANZ ANZBY and NAB NABZY – all of which are seeing their shares oscillate as central banks shift policy globally. The Oz market also has a healthy dose of commodity stocks such as the gold miners BHP Group (BHP) and Rio Tinto (RIO) , and commodities are getting crushed, even gold. There’s also a hefty listed real estate sector and renters are going to start struggling to pay up. Oh, and let’s not forget that Australia’s main customer is China, which isn’t buying.

India follows suit

Indian shares again sold off hard on Wednesday, with the Sensex down 5.6% at the close. Indian shares have now corrected 30.1% in the month since Feb. 19, one of the worst performances in Asia. Foreign institutional investors have been heavy sellers, placing a higher risk premium on Indian stocks than before the outbreak.

India only has 137 declared Covid-19 cases so far, and it’s a bit of a mystery why the world’s second-largest country by population has been spared so far. It may be that only a few people are being tested. While ultraviolet light does kill viruses in general, there has been no scientific proof that hot weather deters Covid-19, so it may be that developing markets that often are hot either haven’t been hit yet or tested well. Of course, developing nations will struggle the most in a health care sense if the disease sets in.

Here in Hong Kong, we’ve had virus cases confirmed among Hong Kong tourists returning from India trips. State governments in India are starting to shutter schools, malls, movie theaters and so on, an economic danger because domestic consumption accounts for around 60% of the economy. Travel and tourism, around 7.5% of GDP, will suffer immensely with tourism visas being cancelled.

There are some India-specific issues that add an extra layer of worry. Yes Bank, a private bank established in 2004 as an alternative to state-backed institutions, has collapsed and is being bailed out by the Reserve Bank of India, the nation’s central bank. Also, violent attacks against Muslim minority by radical Hindu nationalists have left scores dead. Those ethnic tensions are not going to be helped by any downward spiral in the economy.

It isn’t pretty elsewhere, either

While Australia and India have fared worst here on Wednesday, other markets alternate to outdo each other in poor performance. Japan was one of the only sources of green on screens, with the Topix up a narrow 0.2% on Wednesday after the Bank of Japan announced it will support the market by buying ETFs. But the Topix, a broad measure of all big Japanese stocks, is down 26.2% this year.

Thailand’s SET index has fallen 33.7% in 2020, by a small margin the worst year-to-date performance in Asia. Thailand gets 11% of its GDP from tourism, and that’s dead – technically, down 44% and getting worse. The Philippines, where stocks are down almost as much, 31.7% in 2020, has simply shut down its stock exchange, saying it couldn’t guarantee the health of folks on the floor. The blood pressure of investors is another health disaster altogether.

It’s going to take a coordinated global response when it comes to fiscal and monetary stimulus to get everyone on the same page. It also will take cooperation among medical bodies and addressing transportation links if we’re going to get out of the coronavirus mess. The unilateral, single-nation responses are firing buckshot when we need a .458 Winchester Magnum, the kind of Big Game rifle the ranger carries when I’ve been on walking safaris in South Africa.

Investors are sensibly responding to economic disruption rather than simply rates of infection. Korean stocks lost 4.9% in a market dominated by big exporters and heavy industry.

Hong Kong’s Hang Seng index closed down 4.2% on Wednesday, even though the rate of new infections is now slow in East Asia. Most of Hong Kong’s new cases are coming from abroad as Hong Kongers hurry home ahead of travel shutdowns around the globe. The Hang Seng hadn’t risen as high as other Asian indexes due to the pro-democracy protests here last year, so the benchmark is down “only” 20.9% in 2020.

Mainland China, where this all started, is seeing its stocks spared the worst of the selling. The CSI 300 index of the largest shares in Shanghai and Shenzhen fell 2.0% on Wednesday, and the whole index is down only 11.2% this year. That’s half the size of the general selloff around Asia. But treat Chinese share movements with skepticism. Domestic retail investors drive the trading and don’t have many other places to put their money. They are also notorious momentum traders. Mainland stocks are also essentially options on companies rather than genuine holdings, because Communist Party policy can change literally overnight without warning and shut your favorite company down. The party also has cash to spend on stimulus.

Recession is here

I was a guest on RTHK Radio 3’s drive-time business show “Money Talk” Tuesday morning, talking about the disastrous economic figures out of China on Monday. The jobless rate is at a record high, manufacturing has slowed a record amount, and retail sales cratered by a record margin.

One point I made is that, given the shutdowns already under way in Italy and Spain, we can expect similar figures out of those economies in the next month or two. And as more countries corral movement and stop public gatherings, we will see that economic pain spread.

So I chuckle a wry laugh when I hear forecasters predicting that we’re heading for recession. We are in recession, people! It’s here now.

The backward-looking economic output figures will confirm that assessment in the future. I hate the new piece of business jargon that an analyst is attempting to “nowcast” activity. But real-time assessments and common-sense assessments are what we need right now.

I’m digesting a particularly gloomy set of reports from Standard & Poor’s. The rating agency isn’t pulling any punches.

“Asia-Pacific Recession Guaranteed” is my light reading right now. It’s a quick hit. The “enormous first-quarter shock” in China means its growth will shudder to 2.9% in 2020, S&P says, a gutsy call because the Communist Party was keen on “predicting” growth of “around 6%.”

S&P is using the traditional definition of two down quarters in a row to define recession. By other measures, countries such as India and China need to achieve outsize growth just to keep the floods of people moving from the countryside to the city gainfully employed.

This new report says the “rising scale of the shock will leave permanent scars on balance sheets and in labor markets” in Asia. I concur. The rating agency believes US$400 billion in permanent income losses is going to be wiped off profit-and-loss statements.

S&P forecasts aggregate growth will fall by more than half in Asia to under 3% for all of 2020. It envisions a U-shaped recovery.

V-shaped, U-shaped, it’s all a question of how deep and how long this recession is going to last. All downturns are temporary unless you think the world economy is going to zero, which it’s not. But how bad will this get? We don’t know. The costs are continuing to add up, meaning we can’t count the final tab yet.

China Posts Worst Economic Performance on Record

Monday’s numbers for production, retail sales and the jobless rate are all the worst on record for China. Asian shares continued heavy selling despite central-bank support. [This story first appeared on TheStreet.com.]

China has posted its worst production and sales figures on record on Monday, as a series of firsts continue to be set in Asia, almost all of them on the downside.

The economic numbers released on Monday are far worse than predicted by forecasters, indicating that China’s factories essentially shut up shop in the first two months of the year. Retailers stopped buying, too, e-commerce not able to offset the empty stores nationwide.

Industrial output fell 13.5% for the January-February period, from the prior year. That’s the worst reading on record since Reuters began tracking the figure in January 1990. A poll by the news agency had anticipated a 1.5% rise.

Retail sales plummeted 20.5%, also the first decline on record, despite an increase in online purchases of goods like groceries. Shopping malls and high streets have become ghost towns, and a logistics logjam due to a lack of delivery people has delayed e-commerce orders. A survey of economists by Bloomberg had anticipated only a 4.0% fall.

China’s unemployment rate has risen to 6.2% for February, up from 5.2% in December. That, too, is a record high jobless rate since the government started publishing figures.

Investment also sank 24.5% for the January-February period, the first drop in record, and far worse than the dip of 2.0% forecast by economists. (Combining the two months negates the impact of Lunar New Year, which fell in January in 2020 but February in 2019.) Investment into property, the holding of choice for wealthy Chinese citizens, shrank by its largest amount on record, and home prices stalled for the first time in five years.

Early predictions of the impact of the coronavirus suggested there would be a rapid V-shaped recovery in China. But the location of the virus outbreak in the “Chicago of China” rapidly impacted travel and trade. The epicenter, Wuhan, is a major inland port on the Yangtze River, as well as a north-south and east-west node on railway lines. It is the center of China’s auto manufacturing.

Economic figures for March may be even worse than those recorded for the first two months of the year. Consumer confidence has been shaken to its core, and it’s unclear what will encourage it to return.

Official figures claim that China registered only 16 new cases of the coronavirus on Sunday, and 12 of those stem from “imported” cases of people arriving from abroad. But with the country opening back up to human movement, there’s potential for a second outbreak. One Hong Kong news report out of Wuhan states that doctors there are releasing patients from temporary hospitals if a lung scan shows no scarring, without testing for the virus, since test kits have run low.

During the SARS outbreak in 2003, which centered on southern Guangdong Province as well as Hong Kong, China did not enter any significant lockdown. With the Covid-19 disease, the top leadership effectively ordered half the country’s 1.4 billion people to stay home. That has complicated the return of workers from the Lunar New Year, and only around 75% of Chinese companies are back in business.

The cessation of production is far more extreme than in 2003, hence the huge and unprecedented impact on industrial production. This has broad implications in the West. Even if demand returns around the world, that is no good if there is no supply of goods.

China’s efforts to get its economy firing on all cylinders are now going to be deterred by a lack of demand, too. The travel bans put in place around the world, and a rising number of lockdowns in major economies such as Italy and Spain, will only further dampen economic activity in Asia.

China’s top leaders were due to announce their “forecast” for full-year economic performance in 2020 at a meeting on March 5. But the event has been postponed due to the virus crisis. The Communist top brass had reportedly agreed a “target” of around 6% when they gathered late last year, and are now debating whether to lower that.

Hong Kong’s economy is also suffering through what amounts to a virtual shutdown. Figures released on Monday showed that there were only 199,000 tourist arrivals in February. That is normally the same number of tourists who arrive in a single day, equating to a 96% decrease. Even at the height of SARS, which centered on the city, 427,000 visitors arrived in the month of May.

The lessons learnt during SARS have however led to far fewer cases of Covid-19 occurring (so far) here in my hometown. Although Hong Kong is next to mainland China, it has only recorded 148 cases, far fewer even than Singapore, at 226, despite Hong Kong having a population that is 32% larger. Social distancing and staying at home, as well as a rapid response to track relatives and friends of those infected, seems to be working.

Asian markets continued their panic selling on Monday, despite moves by the U.S. Federal Reserve to slash interest rates, and an emergency meeting by the central Bank of Japan. New Zealand and South Korea also cut interest rates.

Australian stocks have crashed 9.7% on Monday, their biggest fall since “Black Monday” in 1987. That comes after an extraordinary day’s trade on Friday, which saw the S&P/ASX 200 fall 8.1% at the start, only to close with their strongest one-day gain in more than a decade, of 4.4%. Financial stocks led the selling on Monday, and investors will also have been unnerved by those historically bad activity numbers out of China, the largest source of demand for Australian exports.

Japan’s Topix declined 2.0%, despite BOJ action. The Japanese central bank moved up a policy meeting by two days, and agreed to purchase bonds and other financial instruments, as well as expand corporate finance.

Chinese shares fell 4.3% on Monday after the economic-output figures, and the Hang Seng in Hong Kong dropped 4.0%. Singapore’s Straits Times index lost 5.3%. Indian shares were the biggest fallers outside Australia, the Sensex down 7.9%.

The View From Asia: Trump-Xi Deal Is Just a Temporary Truce

The View From Asia: Trump-Xi Deal Is Just a Temporary Truce

This story originally appeared on TheStreet.com.

It was over Argentinian steak that Chinese President Xi Jinping and his U.S. counterpart President Donald Trump hashed out a trade truce in Buenos Aires over the weekend. But it is Chinese factory owners who will be most relieved.

Xi and Trump agreed for a ceasefire in their increasingly fraught war, meaning U.S. tariffs will not raise from 10% to 25% on Jan. 1, as planned, with further talks to hash out future trade to come.

Here in Asia, we are well aware that this is only a temporary truce. Hostilities have only been suspended for 90 days. Trump continues to play both roles in the good cop/bad cop routine with Xi, sweet talking Xi in person. That kind of “face” goes down very well in China, where both the government and the people at large are desperate for recognition on the world stage.

No doubt, the agreement has eased immediate fears, which were undoubtedly unsettling investors in Asia. Emerging markets in particular have been paying a heavy price, more so as investors try to reduce risk than because of any direct effects from the trade war.

I’m writing this from Jakarta, and the Indonesian rupiah has been shaken like a palm-oil plant in a typhoon by potential disruptions to economic growth in the region, as well as U.S. interest rates rising. Earlier this year, the rupiah sank to levels last seen during the Asian financial crisis 20 years ago.

… click here to read the rest of the story.

Second Set of Gray-Swan Shocks To Watch in 2018

Second Set of Gray-Swan Shocks To Watch in 2018

In my previous piece, I examined five gray swans that are already in view, but could fly in to roost in the year ahead. That’s the first half of the list of 10 ugly goslings that the Japanese investment bank Nomura sees as potential surprises in 2018.

Black swans are completely unexpected, and therefore can’t be predicted. Gray swans are a little different, neither hidden nor invisible, just largely ignored.

The investment bank has sought to identify situations that are a little out of the ordinary. We know that Donald Trump will be unpredictable — what he does is a known unknown. These birds fall into the camp of the unknown unknowns.

Here’s how cryptocurrencies, Bitcoin, house-price declines, war in the Middle East, oil prices and central banks may shock us in 2018.

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5 Gray Swan Shocks On the Horizon In 2018

5 Gray Swan Shocks On the Horizon In 2018

The Japanese investment bank Nomura (NMR) has 10 “gray swans” to watch out for in 2018. Unlike their cousins the black swans, which simply pop out of nowhere and therefore can’t be predicted, gray swans aren’t hidden or invisible, just largely ignored. At our peril, it seems.

They are topics that aren’t widely discussed, the bank says — not the question of what to do over North Korea, or whether nationalists will triumph in the Italian elections.

I’ll tackle the first five in this story and revisit the gray-swan family by addressing the other five in a second piece.

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Trump Takes on China in Trade, but Is Wrong With His Attack

Trump Takes on China in Trade, but Is Wrong With His Attack

U.S. President Donald Trump stood side by side with Chinese President Xi Jinping on Thursday, despite the fact that Trump continues to depict — wrongly — the China-U.S. trade relationship as toe-to-toe.

That relationship is “one-sided and unfair,” Trump said in a joint address in Beijing. There’s the “shockingly high” trade deficit to consider, he explained. There’s also the $300 billion in the theft of U.S. intellectual property and forced technology transfer that the United States suffers every year, per U.S. government figures.

Trump has, to be fair, delivered on this, the most-important trip of his presidency. He has conveyed more precisely in person his message that the United States is disadvantaged by its trade with China and Japan. He’s wrong, but he’s right to express himself so clearly when he previously fudged the point when meeting the leaders of those countries on home soil.

At least he won applause from the assembled Chinese and U.S. executives in attendance to hear the two leaders speak. It was for a back-handed compliment.

“I don’t blame China,” Trump conceded, pausing when clapping began. “Who can blame a country for being able to take advantage of another country for the benefit of its citizens? I give China great credit.” Cue more applause.

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China’s New Leaders Are No Threat to President Xi

China’s New Leaders Are No Threat to President Xi

China’s new roster of top leaders have shuffled into their places on the red carpet for their curtain call, the procession leaving no question as to who is in charge. President Xi Jinping has been reappointed to head the Communist Party, with no one waiting in the wings as his nominated heir.

What’s more, not one of the new members of the Politburo Standing Committee, China’s cabinet, is under the age of 60, meaning none of them is likely to succeed Xi when and if he stands down at the end of his second term in 2022.

It’s a highly unusual move, unprecedented in recent years, leaving Xi to continue his push for reform and fight against corruption unquestioned. Critics worry that Xi’s “rule” has evolved into a dictatorship, the president eliminating rivals who question his positions and squelching stories about his family’s amassed wealth.

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