Hong Kong

China’s Stock Market and Greece’s Referendum: Michiya Tomita

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Asian stocks have fallen for three days as Greece’s referendum plan heightens concerns that the debt crisis will not be contained. Hong Kong stocks reconvened as a result of beliefs that China will now act to stimulate its economy.

The MSCI Asia Pacific Index fell 0.6% to 118.41 in Tokyo, while three stocks fell for every two that rose. Meanwhile, banks like the Industrial and Commercial Bank of China, as well as developer and infrastructure companies rallied with hopes of an economic boost from the government.

“A loosening of monetary policy in China could support the stock market,” said Michiya Tomita, who helps oversee billions of dollars for Mitsubishi UFJ Asset Management Co. “Any gains may not be sustainable as uncertainties in Europe persist. Investors are taking a wait-and –see attitude.”

Asian Markets Take Hit as Recession Worsens

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Though the debt crisis has struck the U.S. and EU with fervor, Asian markets have seen some major hits recently as well. The selloff is a result of global recession concerns, as well as worries regarding the financial fragility and cash crunch.

“The way markets are trading, people are anticipating some kind of falling off the cliff,” said Wendy Liu, head of China research for Royal Bank of Scotland. “These valuations don’t come every year.”

Hong Kong’s Hang Seng Index has fallen 23% over the past year, which includes a 12% drop just this month. The MSCI AC Asia ex Japan Index, which tracks all markets throughout Asia, has seen a decrease of 24% this year.

Despite the drawbacks, the Asian economies have recorded solid growth. Until quite recently, central banks were raising interest rates in an effort to lessen inflation.

According to Markus Rosgen, head of Asia Pacific Equity Strategy at Citigroup in Hong Kon, “Markets in Asia are telling you there is going to be global recession.” He added that stocks are pricing in an approximately 33% drop in corporate earnings.

Ewen Cameron Watt of BlackRock backed this, stating “The degree of selloff in emerging-market debt and equities and currencies suggest there is something more than a concern about slowing economies at play here.”

Property News: Thailand, China and Hong Kong

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Looking into various parts of Asia, one might not want to seek out a new home there just right now.  Property prices are going through the roof, excuse the pun, and wealthy Thailand is taking advantage.  According to an article in the Bangkok Post, a property developer from Thailand, Pace Development, just recently “launched sales of its luxury Bangkok project MahaNakhon to Hong Kong buyers.”  Records over a mere three days show of “sales worth 350 million baht.”

On the flip side, for those who have something to sell, now is the time.  According to executive director for investment and project marketing of property consultant CB Richard Ellis, Rebecca Shum, now is “the best time to sell property to Hong Kong buyers as prices there were very high.”  The prices for property in Hong Kong are really high these days.  Indeed, they have gone up around 20 percent in the last year and just haven’t come down at all.  Hong Kong and Chinese investors are seeking out properties in other parts.

Hong Kong Prices Peak

Indeed, Hong Kong prices are these days five times more than for the same size in Bangkok.  New units are approximately 1.2m baht per sq m.  Hong Kong and mainland China investors these days therefore seem to prefer “buying property as an investment as the interest rate for deposits was only 2%, which is unattractive to those who refuse to carry cash.”

Bangkok Boom

The truth is, as Shum has noted, “Bangkok is still a top-two destination for lifestyle in the eyes of investors in Hong Kong. Their interest in luxury Thai property is driven by a lift in optimism about the overall political and economic environment in Thailand.”  In addition, the new government has promised to put policies in practice that with “stimulate economic growth immediately.’  This will result in the progression of “major infrastructure projects,” as well as “provide long-term support to economic expansion and be reflected in asset price appreciation, particularly for luxury properties.”

New Zealand New Hotspot

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Chinese NZ Investment

New Zealand is becoming an increasingly more attractive to investors. This has been especially evident in China which has been purchasing more NZ bonds than ever. Recent reports show that investments from China could amount to $6b which will have an impact on the kiwi dollar that could increase to 81 cents (which would be a three year peak) “against the greenback.” According to Craigs Investment Partners market analyst Peter McIntyre, “there have been reports that the Chinese foreign exchange reserves are looking to diversify around about 1.5 percent of their assets into New Zealand denominated assets like government bonds, companies and dairy farms.”

Nice New Zealand

That is one way of describing the country. Nice. New Zealand is definitely “nice” for investors since in terms of financial security, it is very stable. There is also a “high domestic inflation rate” with large returns too. It seems to be the whole region is finding New Zealand attractive, most notably Singapore and Hong Kong which are looking into government bonds.

These changes have been happening for a few years now. Countries in Asia are boasting “very large reserves.” There is likely to be additional investments ahead too. China will see an increase in investment from BUD, the Brazilian-Belgium owned Anheuser-Busch InBev and intends to establish a “brewery to make Budweiser in the mainland by the third quarter,” according to Carlos Brito, CEO of the company. The intention is to put in “several hundred million dollars this year.”

Better Beer

The three “top-priority markets” set to “drive the volume growth of the global beer industry,” are: Brazil, China and the USA. Indeed, China alone drinks around 30 liters of beer per annum, rendering it “responsible for around 25 percent of global beer consumption.” Just last week the first brewery was launched by AB InBev in Sichuan, a southwest China province, which according to the company’s Asia Pacific president Miguel Patricio, “aims to better serve the 200 million consumers in the region.” So if you happen to be visiting the Great Wall, consider quenching your thirst with a barrel of beer.

It’s Always Sunny in Singapore?

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Stable Singapore Stakes

Is it true that things (financially-speaking) are that good in Singapore these days? Is that what is making the area so attractive for hedge funds, financiers and investors? Indeed the answer should be a resounding yes. The country is for sure facilitating things for these financiers as “setting up shop” is now deemed as much easier in Singapore than in any other Asian city.

If you just take a look at Hong Kong you will see just how much harder it is for such financiers to work. Indeed, managers of hedge funds alone are doing it tough, being forced to engage in the “same licensing requirements as mutual-fund managers.” Small funds in Singapore will be able to continue operating without having a license at all. Since it is today Singapore and Hong Kong which are the countries that have the most operation of hedge funds, of course these financiers would choose the former over the latter.

Seductive Singapore Taxes

The taxes haven’t always been so attractive in Singapore. But today they are, given what is going on in the UK. Currently the highest taxes for individuals reaches 20 percent in Singapore but the UK recently put their top rate up to a staggering 50 percent. In addition, the whole of Europe – as well as America – in general works on “tougher rules.”

So it makes sense that hedge funds in Singapore saw a significant development, reaching $48bn at the end of 2009 which was a jump of $10bn from just four years earlier. In 2001 there were only 20 hedge funds; two years ago that figure had escalated to 320 hedge fund managers. All predictors are pointing to a continued hedge fund interest looking to “tap Asia as a source of funds as well as a source of excess returns,” over the next year.

Singapore Squeeze?

While this is great for the country, is it so good for the people and the businesses already in existence there? Apparently there is the fear that “the increasing number of global hedge funds is unlikely to crowd out smaller Singapore-based managers.” There will however, be space for “large and niche players” as long as they keep adding “value to investors.” There is now more focus on “transparency and risk management by investors post-crisis,” also, which will lead to hedge fund managers around the world developing their “mid-bank office infrastructure.”

It’s great that Singapore is providing such an attractive environment for financiers around the world and that for sure will help the country’s economy. But at the same time, it has to ensure it looks after its own.

Pridiyathorn To Peak Asia’s Economy?

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Asia’s economy is a bit of a mess.  Actually it's a  big mess.  And it doesn’t look like this situation is about to improve any time soon either.  Inflation looks set to continue; capital flows are extremely volatile.  But the fact that China has been trying to liberalize its currency exchange rate could be good news for economies in the region, enabling them to move away from trade settlement within the current global economic climate.  It’s a shame Pridiyathorn Devakula is somewhat removed from the political scene these days though.  Thailand’s previous Deputy Prime Minister is quite well-to-do these days.  His wife has a staggering Bt258 million to enjoy while their daughter isn’t too badly off either at Bt7 million.  Perhaps if the family shares some of its wealth it can pull the region out of its financial hole.

Yuan Goes International

But even if the Devakula family decides to keep their wealth to themselves (giving them near-billionaire status), the yuan need not suffer.  It seems like the government of China is moving toward the possibility of internationalizing this currency alongside the Euro and the dollar.  As well, plans are set for Hong Kong to become the traing center for yuan-denominated assets enabling foreign companies to “issue yuan-denominated assets in Hong Kong” which will also mean the Bank of China NY branch will be able to open yuan deposits.  The hope is that investment abroad will increase too.  As well, if they adopt Devakula’s idea of “co-operation among regional economies” to establish a benchmark currency, then the region’s economy could potentially peak.

Substantial Drop in Asian Shares

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Recent world events – New Zealand earthquake, Japan’s credit rating downgrade and continued Middle East and Libyan unrest – led to a significant drop in stock markets across Asia.  For example, South Korea’s Kospi, the Nikkei 225 stock and Hong Kong’s Hang Seng index all plummeted around 2 percent.  As well, Japan had trouble dealing with its huge debt following Moody’s Investors Service downgrading its outlook for the country’s credit rating, citing “increasing uncertainty” over Japan’s capacity to effectively deal with rising debt.  This doesn’t spell good news for the country which only last month had its sovereign debt rating cut by Standard & Poor.  Australia, China, Singapore and Taiwan are currently in the same boat vis-à-vis stock markets. The only good news for the region of late has been the increase in oil prices.

 

Wall Street News

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Stock markets and oil prices in Asia recently saw an increase, indicating the demand for the latter could be improving.  As well, makers of electronics increased between 0.9 and 2.8 percent in Tokyo.  IN Hong Kong the Hang Seng index rose 0.4 percent but South Korea’s Kospi index was “nearly flat.”  While Australia’s S&P/ASX200 slightly increased, BHP Billiton Ltd. Saw a hit of 1.8 percent which was a marked difference from the company’s claim of over 70 percent net profit increase from last July to December.  The Dow Jones industrial average encountered its second straight day of losses on Tuesday with the Dow falling 0.3 percent.  Nasdaq fell 0.5 percent as did Standard & Poor’s 500 index which dropped 0.3 percent.  On the New York Mercantile Exchange delivery increased 35 cents a barrel in electronic trading.
 

Inflation Linked Bonds Are The Hit In Asia

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The head of Fidelity’s institutional business in Hong Kong, Carlo Venes, said that international inflation-linked bonds are becoming more sought after by professional investors in Asia. They want to protect themselves against inflation and to balance their portfolios with non-dollar based investments.

Some analysts predict that Western central banks are following monetary policies which are too risky. Other analysts predict that deflation will follow the International financial crisis.

Verns explained that “The dispersion of views on inflation is huge.” “You have the camp that believes still that the western world will be in a Japan scenario for a decade. You also have the view that with all the printing of money, and all the central bank support, there is risk that, all the money that now sits on corporate balance sheets in cash, will accelerate the risk of inflation picking up.”

China’s inflation went up to a 25-month high of 5.1% in last November.

Manulife Issues RMB Savings-Iinsurance Plan

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renminbiIn expectation of the increasing value of China’s currency, Manulife is launching several renminbi-based financial/insurance plans in Hong Kong. During the last five years, the RMB has increased twenty five percent against the dollar. Meanwhile, with China’s approval, Hong Kong has become the major offshore center for China’s currency. From January to November 2010, Renminbi deposits increased by 240% to Rmb2.2 trillion which is $32.9 billion.

Manulife’s first plan is a single-premium savings insurance plan which matures in five years and provides capital security and guaranteed returns. The yearly return is 1.8% in renminbi, which will probably increase in Hong Kong dollars if the renminbi’s upward trend continued.

Wang Yu-Ming, of Hong Kong Manulife Asset Management, says that developing foreign renminbi trade is a major priority: “China is anticipating that the renminbi will become one of the world’s future reserve currencies, and that in and of itself should make investors pay attention.”