Can China keep falling?

Thoughts of the Day

If you’re just looking at the US stock market where the major indices are making new ATH every other day, you would think that stock investors are all having a great time. Unfortunately, that is not the case in China.

The CSI 300, China’s major stock index, is at 5-year lows despite government efforts to boost confidence. Investor confidence continues to decline, signaling a prolonged downturn unless stronger government measures are implemented.

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Day Ahead

The Bank of Japan is expected to keep interest rates at -0.1%.

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What Happened Yesterday

Market Movements as of New York Close 22 Jan 24
  • The Bank of Japan kept monetary policy unchanged (interest rate and 10-year JGB yield target steady at -10bps and 0% respectively) as expected in its meeting. In its policy statement, the central bank noted that it will not hesitate to take additional easing steps if needed and that it will patiently continue with monetary easing while nimbly responding to developments. The USDJPY fell -0.31% from 148.36 to 147.89 momentarily before recovering back to the 148.2 level.

  • The US Treasury Yield curve inversion widened to 0.26% as the US 2-year bond yield fell -0.02% to 4.37% while the 10-year yield slipped -0.04% to 4.11%. 
  • The US stock futures remained in a range through the Asian and London trading sessions after spiking in early Asian hours. The S&P 500 futures were up +0.27% before the New York session began.
  • The US stock market opened higher from Friday. The indices all made new intraday all-time highs but profit-taking set in and all 3 of them just closed marginally higher on the day. Consequently, the S&P 500 rose +0.22% on the day (high: +0.59%, low: +0.09%), the Dow Jones gained +0.36% (high: +0.65%, low: +0.13%) while the Nasdaq increased +0.09% (high: +0.79%, low: -0.02%).
  • The crypto market suffered a little yesterday with Bitcoin falling below the 40,000 level and Ether down -5.89% to 2,312. The selling pressure could be attributed to a bug in Ethereum’s Nethermind (used by blockchain validators) client software which took down 8% of Ethereums’ validators.
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Headlines & Market Impact

China Weighs Stock Market Rescue Package Backed by $278 Billion

Notable Snippet: Chinese authorities are considering a package of measures to stabilise the slumping stock market, according to people familiar with the matter, after earlier attempts to restore investor confidence fell short and prompted Premier Li Qiang to call for “forceful” steps.

Policymakers are seeking to mobilise about 2 trillion yuan ($278 billion), mainly from the offshore accounts of Chinese state-owned enterprises, as part of a stabilisation fund to buy shares onshore through the Hong Kong exchange link, said the people, asking not to be identified discussing a private matter. They have also earmarked at least 300 billion yuan of local funds to invest in onshore shares through China Securities Finance Corp. or Central Huijin Investment Ltd., the people said.

Officials are also weighing other options and may announce some of them as soon as this week if approved by the top leadership, the people said. The plans are still subject to change. The China Securities Regulatory Commission didn’t respond to a request for comment.

The deliberations underscore the elevated level of urgency among Chinese authorities to stem a selloff that sent the benchmark CSI 300 Index to a five-year low this week. Calming the nation’s retail investors, many of whom have been bruised by the protracted property downturn, is also seen as key to maintaining social stability.

Whether such measures will be enough to end the rout is far from certain. The property crisis, depressed consumer sentiment, tumbling foreign investment and diminished confidence among local businesses after years of volatile policymaking are exerting strong downward pressure on both the economy and financial markets. Past efforts to shore up the stock market, most notably in 2015, proved insufficient at best and at times counterproductive. Authorities have also been reluctant to roll out major economic stimulus of the sort that many equity investors have called for.

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Moody’s is negative on Asia’s sovereign creditworthiness in 2024 as China growth slows

Notable Snippet: Moody’s Investors Service has a negative outlook for sovereign creditworthiness in Asia-Pacific this year, due to China’s slower economic growth as well as tight funding and geopolitical risks.

China’s rebound from the Covid-19 pandemic wasn’t as fast as several economists had expected at the start of 2023. The country’s GDP for the last three months of 2023 rose by 5.2%, according to the National Bureau of Statistics, missing estimates of 5.3% in a Reuters poll.

In a Jan. 15 report, Moody’s predicted China’s real GDP growth would slow to 4% this year and next, from an average of 6% between 2014 and 2023. The credit rating agency said the slowdown in China’s growth “significantly influences” APAC economies because of its strong integration in global supply chains.

On top of the “lackluster situation in China,” tight funding conditions will also weigh on Asia-Pacific sovereigns, Christian De Guzman, senior vice president at Moody’s Investors Service, told CNBC.

“This is also predicated on global liquidity conditions where we really don’t see the Fed easing until the middle of the year,” Guzman said on CNBC’s “Squawk Box Asia” on Monday.

“And Asia-Pacific central banks – we don’t see much decoupling [from] global liquidity conditions there.”

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Fuel Tanker Rates Are Soaring on Red Sea Disruption

Notable Snippet: The cost of transporting fuels on key trade routes is soaring as attacks on Red Sea shipping ripple out into global markets.

The day rate for shipping a cargo of gasoline from northwest Europe to the US east coast has almost tripled since the start of the year, nearing $38,000 a day on Monday, according to data from the Baltic Exchange. Fleet use is up 2.5 percentage points from the average in the fourth quarter, according to an estimate from Clarksons Securities analysts including Frode Morkedal.

“This uptick is partly due to rerouting ships around Africa, leading to reduced availability for spot cargoes,” they wrote in a report earlier on Monday.

Several oil product tanker companies have said they will no longer carry cargoes through the Red Sea in response to the attacks on merchant shipping by Houthi militants. Vessels including the Almi Globe are sailing the long way around Africa instead of passing through the danger zone.

Hauling fuel from the Middle East to Japan has gone up by two thirds in a week, the Baltic Exchange’s data show.

The longer journeys mean there are fewer ships available in the spot market to pick up cargoes, restricting vessel supply.

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Phan Vee Leung
CIO & Founder, TrackRecord