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Daily Scan: A-shares retrace gains; H-shares take a beating
Capital Markets
<p>Updated throughout the day</p> <p>September 22</p> <p>Good evening everyone. After getting bruised and battered post Fed, Asian equities were mostly in recovery mode today with the Shanghai Composite climbing 0.92%, the ASX spiking 0.74%, and the Hang Seng Index bouncing 0.18%. Here’s how the rest are doing:</p> <p> SZCOMP: +0.71%<br /> Hang Seng Index: +0.18%<br /> Hang Seng China Enterprises Index: -0.65%<br /> TAIEX: +0.71%<br /> Straits Times Index: -0.48%</p> <p>Things were a lot more interesting over in the currency markets as the U.S. dollar bounced against most of its emerging market currency pairs but seemingly lost ground against some of the commodity currencies. Among the hardest hit were the Brazilian real which lost over 1%, the Taiwan dollar which lost 0.8%, and the Korean won which lost 0.38%. Here's what else you need to know:</p> <p>South Korea to probe VW, Audi diesel car emissions. The scandal engulfing Volkswagen AG,  which has admitted cheating diesel vehicle emissions tests in the US, has spread east. South Korea said it would investigate three of the maker's diesel models. Reuters<br /> Gunmen kidnap tourists and local woman in Philippines. Two Canadians, a Norwegian and a local woman have been kidnapped from a tourist resort in the south. An army spokesman said they were taken by gunmen late on Monday from the Holiday Oceanview resort on Samal Island. BBC<br /> Russia to deploy 2,000 in Syria air base mission’s ‘first phase’. The military staff will be sent to a new air base near the Syrian port city of Latakia, signalling the scale of Moscow’s involvement in the war-torn country. The deployment “forms the first phase of the mission there”, according to an adviser on Syria policy in Moscow. Financial Times (paywall)<br /> Dollar gains on rate hike hopes. The dollar advanced against the euro and other leading currencies on Monday on comments from US central bankers who continue to eye a 2015 interest rate increase. There are two remaining Fed policy meetings scheduled this year, in late October and mid-December. Channel News Asia<br /> China protests by Fanya Metal Exchange investors. Hundreds of Chinese mineral investors have protested in Beijing, alleging they have been defrauded. They claim to have lost money after investing in the Fanya Metal Exchange in the city of Kunming. Hundreds of thousands of people have invested billions in products offered by the exchange as the values of rare metals rose in recent years. BBC<br /> Malaysia PM in US corruption probe. A federal grand jury is looking in allegations of corruption involving the Malaysian prime minister, Najib Razak, and people close to him. The embattled politician is already facing mounting political turmoil and a parade of inquiries at home and abroad into a sovereign wealth fund that he oversees. New York Times</p> <p>'Putin's banker' files $10 billion claim against Russia. Sergei Pugachev, a tycoon once dubbed "Putin's banker" because of his influence in the Kremlin, has filed a</p>
Daily Scan: Lockhart says rate hike coming this year; Walker drops out of presidential race
Capital Markets
<p>Updated throughout the day</p> <p>September 21</p> <p>Good evening,</p> <p>Stocks opened up Monday, with the Dow gaining 0.77% by the close. The Nasdaq barely scraped a 0.04% boost, and the S&amp;P 500 added 0.46%. Biotech stocks took a hit after Hillary Clinton tweeted her plan to attack the "price gouging" of specialty drug makers. Oil added more than 3%, closing above $46/barrel. Both commodities and dollar rebounded overnight despite disappointment that the Federal Reserve refrained from raising interest rates last week. December, that's the ticket, traders have decided. And we're off to another stretch of "Will they or Won't They?" -- the ongoing reality central bank show.</p> <p>Here’s what else you need to know:</p> <p>Volkswagen under criminal probe for lying to EPA. The company admitted that it tricked the Environmental Protection Agency so its diesel vehicles would pass emission tests. The Hill</p> <p>Rate hike coming this year. Really. So says Atlanta President Dennis Lockhart in a speech Monday. "“I put most of [last week’s] decision weight on prudent risk management around recent and current market volatility. As things settle down, I will be ready for the first policy move on the path to a more normal interest-rate environment." Lockhart is a voting member on the Federal Open Market Committee. MarketWatch</p> <p>And then there were 15. Scott Walker is dropping out of the Republican presidential race. Walker, the governor of Wisconsin, entered the race as a front runner in July, but was quickly hurt by his mediocre performance during the two Republican debates. In a weekend poll, Walker didn't even register 0.5% of support from GOP primary voters. CNN</p> <p>CEOs won't make the best presidents. That's what JPMorgan CEO Jamie Dimon says. Corporate CEOs have some leadership qualities similar to running a country, but politics are best left to the politicians. "When I go to Washington, I don't walk away saying, 'It's terrible,'" he says. "I'm saying, 'my God, they're dealing with some really complex stuff, and it's not that easy to do.'" US News</p> <p>Home sales drop. August posted a more drastic drop in home sales in the U.S. than expected. The 4.8% fall to 5.31 million units is still up more than 6% from a year ago. Economists had predicted 5.5 million annualized in August, down from 5.59 million in July. Reuters</p> <p>Big read: The bond market is bigger and more fragile than ever, contends a new series. It's bigger than ever-- $39.5 trillion. And in more hands of individual investors. And now the Fed is getting ready to throw a monkey wrench into this little growth machine: higher interest rates. Wall Street Journal (paywall)</p> <p>The Pope meets Fidel Castro. After addressing tens of thousands in Revolution Square, the Pope had an informal meeting with the ailing Cuban revolutionary. The pair exchanged books. BBC</p>
Video: Money managers still positive about 2015
Capital Markets
<p>Despite the market volatility, issues in Europe, and problems in China, the money managers on this week's Wall Street Week are still positive about the end of 2015. The fundamentals of the economy are still strong, and investors shouldn't be too shaken about the end of August market dip, says Steve Tananbaum, founder of GoldenTree Asset Management. "We went a long time without a correction and we were due," he says. Investment firms need to preempt conversations with clients to ease their fears and keep their investments on track, says Mary Deatherage, Morgan Stanley financial advisor.</p> <p>&nbsp;</p>
Video: St. Louis Fed prez says October rate hike is on the table but not a shoo-in
Capital Markets
<p>In an interview with CNBC, St. Louis Federal Reserve President James Bullard says an October rate hike is possible. "[But] the problem with going from one meeting to the next is how much information has really changed," he said Monday on Squawk Box. Bullard also said the September decision was a "close call."</p> <p>Bullard, who is not a voting member of the FOMC, says he would have voted against standing pat on rates this month.</p>
Rumor of FRC enquiry into Esprit
Capital Markets
<p>Hong Kong shareholder activist David Webb reckons that the Financial Reporting Council (FRC) is preparing to investigate fallen stock market star Esprit Holdings.</p> <p> On Friday, the FRC replaced its chairman John Poon Cho-ming with Nicholas Sallnow-Smith from today because Poon "is not able to perform the functions of his office as chairman as a result of his disclosure of interests", according to a FRC statement.</p> <p>Poon was deputy chairman and chief financial officer of Esprit before he left in 2008.</p> <p>Poon’s “standby role is a highly unusual step and would only be necessary if [he] had a conflict of interests due to an ‘investigation’ by the Audit Investigation Board into possible auditing and reporting regularities in a HK-listed entitiy, or an ‘enquiry’ by the Financial Reporting Review Committee into possible non-compliance with accounting requirements by a listed entity,” wrote Webb on his website. </p> <p>The council also appointed Vincent Duhamel and Professor Wong Tak-jun as temporary members until November 30; they may have to fill in for two other FRC officials who also had close ties with Esprit in the past.</p> <p>Lai Sun Development deputy chairman Chew Fook-aun was CFO of the clothing giant between 2009 and 2012, and Wong Kai-man was a partner at PwC, the auditor of Esprit since 1995.</p> <p>Investors used to love Esprit – but have bitter-sweet memories. The company’s shares have returned a negative 92% since their peak in October 2007, compared with -8.85% on the Hong Kong Tracker Fund.<br /> Photo: Jam Zhang<br /> &nbsp;</p>
The China Syndrome – how volatility is affecting Asean
Capital Markets
<p>The Risks to Asia from China's Financial Volatility</p> <p>The economic slowdown in China and accompanying volatility in its financial markets is wreaking havoc in many parts of the global economy as the country’s demand for commodities and other manufacturing inputs wanes. Many countries in East and Southeast Asia are on the front lines of this shift and were immediately affected by the devaluation of the yuan. In this [email protected] interview, Wharton finance professor Franklin Allen outlines the risks hanging over the region and global economy.  </p> <p>An edited transcript of the conversation appears below.</p> <p>[email protected]: I want to welcome Wharton finance professor, Franklin Allen, who is also a professor of finance and economics at Imperial College in London. He is also executive director of the Brevan Howard Center there.</p> <p>I want to discuss how the situation in China, particularly the devaluation, is affecting East and Southeast Asia. We see the uncertainty in China as having widespread effects. Commodity prices are down, and countries that supply commodities and other goods to China, like Indonesia, are feeling the effects. Many Asian currencies are at multi-year lows against the dollar — the Malaysian ringgit, for example, is down 23% against the dollar this year. Other Asian exporting countries are responding in kind.</p> <p>For some, this brings back bad memories of the late 1990s Asian financial crisis. Now, many of those countries have made important changes to guard against the kind of problems they had back then. More have floating currencies, larger foreign exchange reserves, better banking rules and debt insurance. Still, the pressures seem to be mounting. What are the risks of an intensifying currency war or a financial crisis?</p> <p>Franklin Allen: First of all, the devaluation [in China] itself of course was not very big. It was 3% or so, but it did have a big trigger. There is a sense that we don’t really know what the exchange rate should be. The real issue is what are capital flows going to be like once they start reducing capital controls. That is the big uncertainty.</p> <p>This move — one of the reasons it may have had so much impact is that people realize that [the Chinese] are serious about globalizing, and becoming part of the global financial system. The IMF has been asking them to move towards a freer float and many people have been asking the same thing. This was a sign that they were going to do that and suggests that over the next year or two, or few years, they are going to really change the way they interact with the global economy.There are worries about how that is quite going to play out that helps trigger so much of the turmoil that we saw.</p> <p>It is a very different situation than it was in the mid- to late 1990s, and I don’t know how things are going to go from here going forward. A lot depends on what happens with interest rates in the U.S., and not just in terms of whether it [a rate increase by the Fed] is now, or three months from now, or six months from now, or whenever they start raising rates, but it is about how far is that process going to go, how much money is going to float back from emerging economies in to the U.S. And if the Europeans eventually get through with their quantitative easing, how much will go back to Europe.</p> <p>These are all big uncertainties, and that is why markets are so volatile at t</p>
Should emerging market investors fight the Fed?
Capital Markets
<p>KEY TAKEAWAYS</p> <p>· Fighting the Fed may be a winnable battle for EM.</p> <p>· EM valuations are compelling and, in our view, have priced in a fair amount of risk.</p> <p>· We see sufficient upside potential to maintain modest EM equity allocations despite significant growth challenges.</p> <p>· We expect the Fed to hike rates in December 2015, although it could come earlier — as soon as this week — or potentially slip into early 2016. For our latest thoughts on the Fed, please see our latest Weekly Economic Commentary and Bond Market Perspectives.</p> <p>Emerging market stocks have not won much lately, but the Fed may be a winnable fight. The Federal Reserve, which announces its policy decision on September 17, 2015, is on the verge of starting a rate hike cycle for the first time in more than 10 years. We have previously written that the start of Fed rate hikes has not marked an impending end to bull markets for U.S. stocks (despite the popular Wall Street adage “don’t fight the Fed.”) In reality, the first rate hike has told us we are about halfway through the cycle as discussed in our Weekly Market Commentary of August 25, 2014.</p> <p>But what about emerging markets (EM)? Aren’t these markets more dependent on low interest rates and stimulative monetary policy? Here we look at how EM has performed leading up to and after the start of prior Fed rate hike campaigns. While historical data are limited, we believe this exercise may steer EM investors to consider “fighting the Fed.”</p> <p>WALK DOWN MEMORY LANE</p> <p>Before we take a walk down memory lane to assess how emerging markets equities might handle Fed rate hikes, some context is important. EM has performed poorly for five years now, having underperformed the S&amp;P 500 by more than 50 percentage points during that period [Figure 1]. Tighter expected monetary policy is among the factors that contributed to this weakness. But we would argue that EM’s struggles go much deeper than that and can mostly be explained by other factors as we discuss below.</p> <p>It is evident from looking back at performance during the “Taper Tantrum” during May through July 2013 (annotated in Figure 1) that Fed fears contributed to EM weakness. In May 2013, the Fed announced it would taper bond purchases associated with its quantitative easing program, which caused rate hike fears to intensify sending the 10-year Treasury yield more than 100 basis points (1%) higher in only about eight weeks. This period, during which EM underperformed the S&amp;P 500 by about 12 percentage points, provided a reminder that EM had become somewhat dependent on low interest rates associated with quantitative easing. But as the figure shows, this was just a blip within a prolonged and much more significant period of weakness.</p> <p>International and emerging markets investing involves special risks, such as currency fluctuation and political instability, and may not be suitable for all investors.</p> <p>So should investors sell EM because of the Taper Tantrum? Not necessarily. We have two Fed rate hike cycles to assess (1990s and 2000s) for a more complete picture and EM generally performed well around both of them as shown in Figure 2. (Note that the MSCI Emerging Markets Index only goes back to the late 1980s.)</p>
Weekend Scan: Syriza victorious in Greece; Pope meets Castro; US to accept more refugees
Capital Markets
<p>&nbsp;</p> <p>While you were enjoying the first days of fall, the Pope was touring Cuba and Greeks held elections. Here's what you need to know:</p> <p>U.S. to accept 100,000 refugees annually. Secretary of State John Kerry says the U.S. must do its bit to help Europe with the migration crisis. He was meeting in Berlin to discuss the problem. Wall Street Journal (paywall)</p> <p>The Pope meets Fidel Castro. After addressing tens of thousands in Revolution Square, the Pope had an informal meeting with the ailing Cuban revolutionary. The pair exchanged books. BBC</p> <p>Syriza claims victory. The far left party fell short of a majority but the Independent Greeks said they would help forge a colaition. At last count, Syriza had 35% of the vote and New Democracy 28%. Syriza famously rebuffed a European bailout that it said was too onerous only to turn around and accept an even more austere offer to keep it from falling into economic oblivion. BBC</p> <p>Ben Carson says Muslims should not be president. The GOP candidate says the Muslim faith doesn't vibe with American principles."I would not advocate that we put a Muslim in charge of this nation. I absolutely would not agree with that," Carson told NBC's "Meet the Press." Reuters<br />  More GOP  controversy as Trump bails out of public appearance. The Donald was a no-show at a South Carolina event after he failed refute comments at another event that President Obama is a Muslim and "not even an American." He begged off saying he had to attend to a major business deal. The Hill</p> <p>Died: Romance novelist Jackie Collins at age 77. The legendary chronicler of Hollywood sex and glamour died on Saturday in Los Angeles after a private struggle with breast cancer. Variety</p> <p>Concorde could fly again. A group of British enthusiasts says it has raised enough money to buy a Concorde with the aim of getting it flying again by 2019. Club Concorde, made up of former captains, charterers and aviation fans, says it has £120m in reserve for the "return to flight" plan.<br /> BBC.</p> <p>Photo: Republic of Korea</p>
Daily Scan: Asian markets end mixed; Greek bonds skyrocket on Tsipras win
Capital Markets
<p>Updated throughout the day</p> <p>September 21</p> <p>Good evening everyone. Asian shares ended mixed today amidst a bloodbath in financial and energy stocks. Mainland China was among those which managed to put on some points on the board, Hong Kong and South Korea, not so much:</p> <p> SHCOMP: +1.89%<br /> SZCOMP: +3.55%<br /> Hang Seng Index: -1.10%<br /> Hang Seng China Enterprises Index: +1.74%<br /> Straits Times Index: -0.02%<br /> KOSPI: -1.57%</p> <p>The European markets meanwhile are trading mostly higher at the moment with the FTSE 100 nudging up 0.3%, the CAC climbing 0.4%, while the DAX – perhaps unhappy that Tsipras won the election – is currently down 0.7%. Here’s what else you need to know:</p> <p>Greek bond yields head lower. With Alexis Tsipras victorious – and the Syriza party forced to work alongside the right-wing Independent Greeks – the Greek 10-year bond yield fell a full basis point to 8.22%. Greek banking shares meanwhile have rebounded 76% from its August lows – an awesome showing for a beaten-down sector. It’s still down 81% year on year though. Financial Times (paywall)</p> <p>Malaysian police confirm body of missing DPP. Anthony Kevin Morais, a Deputy Head of the Attorney-General's Chambers Appellate and Trial Division that had worked on the 1MDB task force, has been identified as the man found dead in a drum filled with concrete in Subang Jaya, Selangor. Channel News Asia</p> <p>China, Russia team up to build airliners. Yury Slyusar, president of the Russian state-controlled United Aircraft Corp (UAC), was quoted saying that the UAC and the state-backed Commercial Aircraft Corp of China are on the cusp of working together to build wide-body airliners. Reuters</p> <p>Chinese business sentiment hits market rout lows. The MNI China Business Indicator, one of the most closely-watched business sentiment surveys, fell to 51.3 in September -- a reading 8.4% lower than August's figure and a low unseen since July’s market rout. Much worse however, is the fact that future expectations fell to its lowest level since 2007. Financial Times (paywall)</p> <p>China home sales head for the moon. Existing home sales in China reportedly grew 115% from the year before, but can the nation be able to sustain it? The Telegraph</p> <p>Companies accelerate use of carbon pricing.The number of companies putting a price on their carbon pollution has risen sharply in the past 12 months as governments prepare to agree on tougher action to combat climate change later this year. General Motors, Glencore, and Cathay Pacific are among 437 companies reporting the use of carbon pricing measures to environmental data group CDP. Financial Times</p> <p>Apple’s China apps hacked. Some of the most popular Chinese names in Apple Inc.’s App Store were found to be infected with malicious software in what is being described as a first-of-its-kind security breach, exposing a rare vulnerability in Apple’s mobile platform, according to multiple researchers. </p>
Video: ICYMI -- The Janet Yellen press conference post FOMC rate decision
Capital Markets
<p>Chair Janet Yellen read a statement on Thursday, September 17 after the Federal Reserve decided to stand pat on interest rates. She then fielded questions from reporters. Do you agree with the way the press portrayed the Fed decision? Anything in this hour-long video that surprises you?</p>