Hong Kong protests are becoming China’s real-life Hunger Games. Something’s got to give. (AP ... [+]
Well, China investors, look on the bright side: Political noise can always increase alpha . . .
Following this week’s death of another Hong Kong protester, and Tuesday’s comments by President Trump about Washington getting tired of what they see as one-way trade with China—U.S. money out, no China money in—the phase one mini-deal is looking more unlikely this week than it did last week.
And to make matters worse, China superhawk Senator Marco Rubio says it is “time to act” on legislation designed to punish Hong Kong’s government, and Beijing, for the months-long protests that have descended into violent chaos in one of the world’s largest finance centers.
Just after noontime in New York on Thursday, the iShares MSCI Hong Kong (EWH) was down 1.06% after falling 1.7% during yesterday’s morning trading, while the iShares MSCI China (MCHI)was down another 0.4% following yesterday’s decline of more than 1%. Both are underperforming the general MSCI Emerging Markets Index again today.
Warnings about the Hong Kong variable tripping up trade talks have been made by numerous investors and pundits over the last several weeks.
Kyle Bass, founder of Hayman Capital and a renowned China-basher, has been hopping on Beijing on his Twitter feed for months. Bass is part of a handful of people calling on greater restrictions of U.S. capital flow into Chinese securities, a call that has more people saying that finance is the latest front in the trade war.
Senator Marco Rubio has threatened Hong Kong's special trading status with the U.S. If that status ... [+]
The Senate Committee on Foreign Relations filed an amended version of the Hong Kong Human Rights and Democracy Act on September 26, 2019 with Senate hawks still waiting for a vote.
In the new bill, Rubio and other cosigners have threatened Hong Kong’s special trading status with the United States.
If that status were removed, it could threaten the Hong Kong dollar-U.S. dollar currency peg, a key source of dollar flows into China. But for sure it would change the cost of doing business with the United States and roadblock China’s access to some U.S. goods, not to mention its ability to use Hong Kong as a way to avoid tariffs.
The new legislation, if enacted as Rubio is promising, provides for a new assessment of the impact of the Chinese government on Hong Kong’s One Country, Two Systems policy, with a renewed focus on whether an “erosion of autonomy” has adversely affected U.S.-Hong Kong relations.
Hong Kong will be fully absorbed by the Chinese government in 2047 as part of the British government handover of the former colonial outpost in 1997.
If Rubio were to get his way, it would require an annual report on Hong Kong for the next seven years from the U.S. Commerce Department that includes assessments of any possible violations of export controls, sanctions and an evaluation of the way Chinese companies use Hong Kong as a port of entry to buy U.S. computer hardware banned from being sold to certain Chinese companies on the Department’s so-called entity list.
The much-touted Phase 1 trade deal, agreed upon between Trump and China’s Vice Premier Liu He a month ago, is going nowhere fast.
Expect another two to three weeks of reshuffling of the cards and a weaker reversal of tariffs than the Chinese government had anticipated, says Sebastien Galy, senior macro strategist for Nordea Asset Management, one of the biggest asset managers in Finland with some $240 billion under management.
Market consensus is that both sides need a deal.
Trump: to save face with the big business base of the Republican Party, and with Wall Street.
Xi Jinping: to stop companies from leaving mainland China to manufacture elsewhere in order to avoid tariffs, leading to job losses at home.
For bears, the Chinese economy is weaker than official data suggest.
For China bulls, Alibaba’s record $38 billion Singles Day sales shows a solid Chinese consumer, giving investors a reason to buy China when the political noise gets loud and the stock market tanks.
Chinese President Xi Jinping at the BRICS Summit in Brasilia on November 14, 2019. His entourage was ... [+]
“A deal is coming,” predicts Galy. “This dip in the equity markets including exposures to China and growth stocks are an opportunity to buy.”
The Hong Kong variable is also being witnessed in far afield places like Brazil. During this week’s BRICS Summit in the Brazilian capital of Brasilia, a handful of activists hung posters with anti-China slogans on them.
At least one Brazilian activist donned a Winnie the Pooh costume, banned in China by Xi Jinping because it was used to mock the leader on Chinese social media.
Xi supposedly had to change driving routes in Brasilia today and cancel a restaurant reservation due to the Brazilian dressed up as Christopher Robin’s “silly ole bear.”
